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Definitions for Parkin Economics Chapters 1-5
Definitions for Parkin Economics Chapters 1-5
35
Economics
Undergraduate 1
10/10/2011

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Term
Scarcity
Definition
our inability to satisfy all our wants
Term
Tradeoff
Definition
giving up one thing to get something else
Term
Big Tradeoff
Definition
the tradeoff between equality and efficiency
Term
Opportunity Cost
Definition
highest valued alternative that we must give up to get it
Term
Positive Statement
Definition
statements about what is, what is currently believed about the way the world operates, may be right or wrong, may be tested
Term
Normative Statements
Definition
statements about what ought to be, cannot be tested are merely opinion
Term
PPF (Production Possibilities Frontier)
Definition
the boundary between combinations of goods that can be produced and those that cannot
Term
Production Efficiency
Definition
achieved if we produce goods and services at the lowest possible cost
Term
Allocative Efficiency
Definition
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
Term
Marginal Benefit Curve
Definition
relationship between the marginal benefit from a good and the quantity consumed of that good
Term
Capital accumulation
Definition
the growth of capital resources including human capital
Term
Comparative Advantage
Definition
exists if someone can perform an activity at a lower opportunity cost than anyone else compared using opportunity cost
Term
Absolute Advantage
Definition
exists if someone is more productive than others compared using production per hour
Term
Dynamic Comparative Advantage
Definition
comparative advantage acquired through specializing in an activity and becoming the lowest cost producer as a result of learning by doing
Term
Relative Price
Definition
relative price of one to the other AKA an opportunity cost
Term
Quantity Demanded
Definition
the amount that consumers plan to buy during a given time period at a particular price
Term
Law of Demand
Definition
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.
Term
Demand Curve
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
Term
Inferior Good
Definition
one for which demand decreases as income increases
Term
Law of Supply
Definition
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.
Term
Supply Curve
Definition
shows the lowest price at which someone is willing to sell, a graph of a supply schedule, also a marginal cost curve
Term
Price Elasticity of Demand
Definition
units free measure of the responsiveness of the quantity demanded to a change in price
Term
Perfectly Inelastic Demand
Definition
quantity demanded remains constant when the price changes, elasticity = 0
Term
Unit Elastic Demand
Definition
percentage change in quantity demanded equals the percentage change in price, elasticity = 1
Term
Inelastic Demand
Definition
percentage change in quantity demanded is less that the percentage change in price elasticity = 0-1
Term
Perfectly Elastic Demand
Definition
quantity demanded changes by an infinitely large percentage in response to a tiny price change, elasticity = infinity
Term
Elastic Demand
Definition
percentage change in quantity demanded is less than the percentage change in the price, elasticity = 1-infinity
Term
Total Revenue Test
Definition
estimates the price elasticity of demand by observing the change in total revenue that results from a change in price
Term
Cross Elasticity of Demand
Definition
measures the responsiveness of the demand for a good to a change in the price of a substitute or complement
Term
Income Elasticity of Demand
Definition
measures the responsiveness of the demand for a good to a change in income
Term
Elasticity of Supply
Definition
measures the responsiveness of the quantity supplied to a change in price
Term
Consumer Surplus
Definition
the value (marginal benefit ) of a good minus the price paid for it summed over the quantity bought
Term
Producer Surplus
Definition
the price received for a good minus its minimum supply price (marginal cost) summed over the quantity supplied
Term
Big Tradeoff
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
Term
Demand
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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