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Definition
| our inability to satisfy all our wants |
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| giving up one thing to get something else |
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| the tradeoff between equality and efficiency |
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| highest valued alternative that we must give up to get it |
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| statements about what is, what is currently believed about the way the world operates, may be right or wrong, may be tested |
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| statements about what ought to be, cannot be tested are merely opinion |
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Term
| PPF (Production Possibilities Frontier) |
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Definition
| the boundary between combinations of goods that can be produced and those that cannot |
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| achieved if we produce goods and services at the lowest possible cost |
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| achieved when we produce goods and services at the lowest possible cost and in the quantities that provide the greatest possible benefit, we have achieved allocative efficiency |
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Term
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Definition
| relationship between the marginal benefit from a good and the quantity consumed of that good |
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| the growth of capital resources including human capital |
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| exists if someone can perform an activity at a lower opportunity cost than anyone else compared using opportunity cost |
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Term
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| exists if someone is more productive than others compared using production per hour |
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| Dynamic Comparative Advantage |
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| comparative advantage acquired through specializing in an activity and becoming the lowest cost producer as a result of learning by doing |
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Definition
| relative price of one to the other AKA an opportunity cost |
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| the amount that consumers plan to buy during a given time period at a particular price |
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| Other things remaining the same, the higher the price of a good , the smaller is the quantity demanded; and the lower the price of a good, the greater is the quantity demanded. This is due to the substitution effect and the income effect. |
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Term
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Definition
| relationship between the quantity demanded of a good and its price, also can be seen as a willingness and ability to pay curve, also a marginal benefit curve |
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| one for which demand decreases as income increases |
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| other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller is the quantity supplied. |
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| shows the lowest price at which someone is willing to sell, a graph of a supply schedule, also a marginal cost curve |
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| Price Elasticity of Demand |
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Definition
| units free measure of the responsiveness of the quantity demanded to a change in price |
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| Perfectly Inelastic Demand |
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Definition
| quantity demanded remains constant when the price changes, elasticity = 0 |
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Term
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Definition
| percentage change in quantity demanded equals the percentage change in price, elasticity = 1 |
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Term
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Definition
| percentage change in quantity demanded is less that the percentage change in price elasticity = 0-1 |
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Term
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Definition
| quantity demanded changes by an infinitely large percentage in response to a tiny price change, elasticity = infinity |
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Term
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| percentage change in quantity demanded is less than the percentage change in the price, elasticity = 1-infinity |
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Term
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| estimates the price elasticity of demand by observing the change in total revenue that results from a change in price |
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Term
| Cross Elasticity of Demand |
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Definition
| measures the responsiveness of the demand for a good to a change in the price of a substitute or complement |
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| Income Elasticity of Demand |
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Definition
| measures the responsiveness of the demand for a good to a change in income |
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Term
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Definition
| measures the responsiveness of the quantity supplied to a change in price |
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Term
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Definition
| the value (marginal benefit ) of a good minus the price paid for it summed over the quantity bought |
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Definition
| the price received for a good minus its minimum supply price (marginal cost) summed over the quantity supplied |
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Definition
| the tradeoff between efficiency and fairness taking into account the costs of making income transfers, the tradeoff is between the size of the economic pie and the equality with which it is shared |
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Term
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Definition
| refers to the entire relationship between price and quantity demanded of a good, quantity demanded refers to a point on the demand curve |
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