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| The study of the choices individuals make given the presence of scarcity. |
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| Limited resources but unlimited wants. |
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| Economic goods and services. |
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Definition
1. What and how much to produce?
2. How to produce it.
3. For whom to produce it? |
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| Making decisions on the basis of costs and benefits. |
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| Getting maximum benefit at the minimum cost. |
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| Economic thinking is marginal thinking. |
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| The economic decision rule |
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| If the marginal benefit of an action exceeds the marginal cost, do it. Mb>Mc |
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| Is not the sum of all foregone activities, just the next best one. |
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| How the market acts like an invisible hand to guide the economic forces to coordinate actions and allocate scarce resources. |
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| Generalizations about the working of an abstract economy. |
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| We use simple abstract models to study longer, more complex concepts. |
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Definition
| A statement that can be tested, proven or disproven. |
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| A statement of opinion, cannot be proven or disproven. |
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| Centrally Planned Economy |
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Definition
| Full control, common property rights and resource ownership, and determined by central planner. |
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Definition
| No intervention, (Laissez Faire), prive property rights and resource ownership, Determined by market and price mechanism (invisible hand). |
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Term
1. What to produce? What people are buying
2. How to produce? Profit maximizing, efficiently, economize.
3. Who gets the output? Based on ability, effort, and inheritance. |
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Definition
| How they answer the big 3 questions (Pure Market) |
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1. What to produce? What government wants
2. How to produce? Determined by government
3. Who gets the output? Equal distribution |
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Definition
| How they answer the big 3 questions (Central) |
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Definition
| A graph that shows the combination of two commodities that can be produced given a fixed level of technology and resources being used efficiently at a fixed point in time. |
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| PPF with a constant slope |
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Definition
| Constant opportunity cost (straight line) |
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| PPF with a changing slope |
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Definition
| Changing opportunity cost (round line) |
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Definition
| If you have the lowest opportunity cost of producing something. *Hugging the axis |
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Definition
If you have a productive advantage at producing a good.
(furthest on the x-axis.) |
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| Law of comparative advantage |
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Definition
| We can gain by producing good for which we have the lowest opportunity cost and then trading. |
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| Amount of a good that households want to consume given their income and prices in a given time period. |
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| Shows the relationship between the price level and quantity demanded. |
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| As the price of a good increases, the quantity demanded falls, Ceteris Paribus. |
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Definition
| Holding all else constant. |
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| Law of diminishing marginal benefit |
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Definition
| As more units of a good are consumed, additional units provide less benefit. |
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Definition
| Th amount of a commodity that a firm plans to sell in a given time period at a given price. |
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Definition
| As the price for which a good can be sold increases, the quantity of that good that is supplied will increase, Ceteris Paribus. |
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| Shows the relationship between the price level and the quantity supplied. |
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| To supply additional units of a good, producers have greater opportunity costs, so the price must rise to induce producers to supply greater quantities. |
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Definition
| Price E and Quantity E are the equilibrium. Qs=Qd |
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| Disequilibrium in the market |
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Definition
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| Excess supply-what this does to price, QD, QS |
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Definition
| Causes a surplus, Excess supply puts downward pressure on price. |
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| Excess demand-what this does to price, QD, QS |
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Definition
| Causes a shortage. Excess demand puts upward pressure on the price. |
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Term
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Definition
| Tickets selling prices below the equilibrium price results in shortage. |
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