Term
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Definition
| The cost of ANY decision is the forgone value of the next best alternative that is not chosen. |
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Term
| Production Possibilities Frontier |
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Definition
| Show the different combinations of various goods that a producer (or an economy can turn out given available resources and existing technology. |
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Term
| Principle of Increasing Opportunity Cost |
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Definition
| As the production of one good expands, the opportunity cost of producing another unit of this good generally increases. |
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Term
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Definition
| Used to produce goods in the future. For example, a generator built today will produce electricity in the future. A consumption good is for immediate use, for example, food. |
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Term
| Why does the PPF shift out |
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Definition
1. increases in available capital
2. Better trained labor
3. Technical Advance
4. population growth (more specifically, labor force growth) |
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Term
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Definition
is a form of economic organization in which resource allocation decisions are left to individual producers and consumers acting in their own best interests without central direction.
-No central authority determines how many cars or how much steel is produced in the United states |
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Term
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Definition
| Shows how the quantity demanded of some product during a specified period of time will change as the price of that product changes, holding all other determinant of quantity demanded constant. |
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Term
| Why does the Demand curve has a negative slope? |
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Definition
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Term
| What does a Normal Good do to demand curve? |
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Definition
An increase in income leads to and increase in demand.
EX. Restaurant meals at dine in restaurants
(pg. 7 notes) |
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Term
| What does a inferior good do to demand curve? |
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Definition
an increase in income leads to a decrease in demand.
Ex. Krafts M&C, Rice, Potatoes, meals at fast food restaurants. |
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Term
| What does population do to demand curve? |
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Definition
| an increase in population will shift out demand. |
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Term
What does price of related goods do to demand curve?
A. Substitutes
B. Complements |
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Definition
A. when the price of a substitute rises, demand for the good in question also rises.
Ex. A rise in the price of salmon will cause the demand for catfish to shift out.
B. A rise in the price of Complements, demand for a good falls.
Ex. the price of milk rises, demand for cereal shift in |
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Term
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Definition
| The quantity supplied is the number of units that sellers want to sell over a specified period of time. |
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Term
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Definition
| Shows how the quantity supplied of some products during a specified period of time will change as the price of that product changes, holding all other determinants of quantity supplied constant. |
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Term
| Why is the supply curve upward sloping? |
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Definition
PRINCIPLE OF INCREASING COST.
EX. as more catfish are produced, the opportunity cost of producing additional catfish rises. This occurs because the best land for raising catfish gets used up first. |
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Term
| what does Firm entry do to the supply curve |
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Definition
| Firm entry leads to an increase in supply |
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Term
| what does firm exit to supply curve? |
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Definition
| leads to a decrease in supply |
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Term
| What does Technological progress do to the supply curve? |
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Definition
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Term
| What does prices of inputs into production do to the supply curve? |
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Definition
An increase in input prices decreases supply, while a decrease in input prices increases supply.
EX. wages the price of intermediate goods into production (such as steel) and the price of fuel (e.g. oil). Thus for example, and increase in the wage rate will lead to a decrease in supply. |
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Term
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Definition
| An equilibrium is a situation in which there are no inherent forces that produce change. Changes away from an equilibrium position will occur only as a result of "outside events" that disturb the status quo. |
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Term
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Definition
| This is a fancy term for analyzing how outside forces will disturb an equilibrium and lead to new equilibrium values of P and Q. |
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Term
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Definition
| In a free market, the forces of supply and demand generally push the price toward the level at which quantity supplied equals quantity demanded. This occurs where the two curves intersect. |
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Term
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Definition
This sets a legal maximum price.
Can cause a shortage
(look at diagram on pg 10 notes) Ch. 3 |
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Term
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Definition
legal minimum on the price which may be charged for a commodity
Can cause surplus
Pg. 12 notes ch 3 |
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Term
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Definition
A minimum wage is a price floor which is set in the labor market
Pg. 13 notes ch. 3 |
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Term
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Definition
size of the quantity response relative to a given price change.
ELASTIC Curves are FLAT
In Elastic are STEEP |
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