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Econ 004 Exam 1
Macro- Chaps 1-4
116
Economics
Undergraduate 2
09/27/2009

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Term
economists assume people are: (3 things)
Definition
1-rational
2-respond to incentives
3- make optimal decisions at the margin
Term
economics, in latin
Definition
"one who manages the household"
Term
the situation in which unlimited wants exceed the limited resources available to fulfill those wants
Definition
scarcity
Term
the study of the choices people make to attain their goals, given the scarce resources
Definition
ecomonics
Term
a simplified version of reality used to analyze real-world economic situations
Definition
economic model
Term
a group of buyers or sellers of a good or service and the institution or arrangement by which they come together to trade
Definition
market
Term
analysis that involves comparing through marginal benefits and marginal costs
Definition
marginal analysis
Term
the idea that because of scarcity, producing more of one good or service means producing less of another good or service
Definition
trade-off
Term
the highest valued alternative that must be given up to engage in an activity
Definition
opportunity cost
Term
type of economy in which the government decides how economic resources will be allocated
Definition
centrally planned economy
Term
an economy in which the decisions of households and firms interacting in markets alocate economic resources
Definition
market economy
Term
an economy in which most economic decisions result from the interaction of buyers and sellers in markets, but in which the government plays a significant role in the allocation of resources
Definition
Mixed economy
Term
which type of economies are most efficient?
Definition
economies based on markets
Term
the situation in which a good or service is produced at the lowest possible cost
Definition
productive efficiency
Term
a state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
Definition
allocative efficiency
Term
productive efficiency comes from...
Definition
competitors driving down prices
Term
which type of efficiency is explained by "markets producing what consumers want to buy" ex] no more vcr's, dvd players instead
Definition
allocative efficiency
Term
the situation that occurs in markets when both the buyer and seller of a product are made better by the transaction
Definition
voluntary exchange
Term
the fair distribution of economic benefits
Definition
equity
Term
economists try to leave ________ decisions to politicians
Definition
equity
Term
ceteris paribus
Definition
all else constant
Term
something measurable that can have different values, such as wages or software programmers
Definition
economic variable
Term
what type of assumptions do economics make about the motives of consumers and firms?
Definition
behavioral
Term
analysis concerned with "what is"
Definition
positive analysis
Term
analysis concerned with "what ought to be"
Definition
normative analysis
Term
What is positive analysis concerned with?
Definition
facts
Term
What is normative analysis concerned with?
Definition
what we should do
Term
the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
Definition
microeconomics
Term
the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
Definition
macroeconomics
Term
unlimited wants, limited resources=
Definition
scarcity
Term
a curve showing the maximum attainable combinations of two products that may be produced with available resources and technology
Definition
Production Possibilities Curve
or
Production Possibilities Frontier
Term
the line of the PPC is-
Definition
efficient
Term
incide the PPC curve is
Definition
inefficient
Term
outside the PPC curve is
Definition
unattainable
Term
What are pies an example of in this sentence. "Maria gives up making 2 pies in order to make 1 cake."
Definition
opportunity cost
Term
the ability of the economy to produce increasing quantities of goods and services
Definition
economic growth
Term
the act of buying or selling
Definition
trade
Term
the ability of an individual, firm, or a country to produce more of a good or service than competitors, using the same amount of resources
Definition
absolute advantage
Term
the ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors
Definition
comparitive advantage
Term
is comparitive advantage or absolute advantage the basis for trading?
Definition
comparitive advantage
Term
markets for goods (such as computers) and services (such as medical treatment)
Definition
product market
Term
markets for factors of production, such as labor, capital, natural resources, and entrepreneurial ability
Definition
factor market
Term
the inputs used to make goods or services
Definition
factors of production
Term
what factor of production includes all types of work, from part-time labor to the work of managers in large corperations
Definition
Labor
Term
factor of production that refers to physical capital, such as computers and machine tools, that is used to produce other goods
Definition
capital
Term
factor of production that includes land, water, oil, iron ore, and other raw materials that are ussed in producing goods
Definition
natural resources
Term
someone who operates a business
Definition
entrepreneur
Term
factor of production that is the ability to bring together the other factors of production to sucessfully produce and sell goods and services
Definition
entrepreneurial abilities
Term
a model that illustrates how participants in a market are linked
Definition
circular flow diagram
Term
a market with few government restrictions on how a good or service can be produced or sold or on how factor of production can be employed
Definition
free market
Term
adam smith said that firms will be lead by _____________ to provide consumers with what they want
Definition
invisible hand
Term
the rights individuals or firms have to the exlusive use of their property, including the rights to buy or sell it
Definition
property rights
Term
a market in which there are many buyers and sellers, all the products are identical, everyone has perfect and complete information, and there are no barriers to entry or exit.
Definition
perfectly competitve market
Term
does a perfectly competitive market exist?
Definition
no
Term
a table showing the relationship between the price of a product and the quantity of the product demanded
Definition
demand schedule
Term
the amount of a good or service that a consumer is willing and able to purchase at a given price
Definition
quantity demanded
Term
curve that shows the relationship between the price of a product and the quantity of the product demanded
Definition
demand curve
Term
what type of relationship does price have with the quantity demanded of a good
Definition
inverse; price goes UP, quantity demanded goes DOWN
Term
the demand by all the consumers of a given good or service
Definition
market demand
Term
the rule that, holding everything else constant, when the price of a product falls, the quantity demanded of that product will increase, and when the price of a product raises, the quantity demanded of that product will decrease
Definition
law of demand
Term
the change in the quantity demanded of a good that results ifrom a change in price, making the good more or less expensive relative to other goods that are substitutes
Definition
substitution effect
Term
the change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power. (like a "pay raise" figuratively)
Definition
income effect
Term
A shift in the demand curve is an increase or decrease in ______________
Definition
demand
Term
a movemtn along the demand curve is an increase or decrease in ______________
Definition
quantity demanded
Term
Does price make the demand curve shift?
Definition
no
Term
What five things make the demand curve shift?
Definition
1- income
2- price of related goods
3- tastes
4- population&demographics
5- expected future prices
Term
a good for which the demand increases as income rises and decreases as income falls ex)steak
Definition
normal good
Term
a good for which the demand increases as income falls and decreases as income rises ex)ramen noodles
Definition
inferior good
Term
goods or services that can be used for the same purpose (equal in your mind) ex)coke&pepsi
Definition
substitutes
Term
goods or services that are used together ex)spaghetti&sauce
Definition
complements
Term
increase of price of subsitute will make the demand increase or decrease for a good
Definition
increase
Term
increased price of a complement will increase or decrease demand for the good
Definition
decrease
Term
examples of why Taste shifts the demand curve?
Definition
Trends, fads.

-iPhone.. everyone wanted it when it came out, because it was the new hip thing
Term
Which reason for shift of the demand curve is explained by: Healthcare demand increased because the babyboomers are getting older.
Definition
population and demographics
Term
consumers choose when to buy a product because the price may increase or decrease in the future
Definition
expected future prices. -If it is going on sale tomorrow the demand for today will decrease and the demand for tomorrow will increase
Term
the amount of a good or service that a firm is willing and able to supply at a given price
Definition
quantity supplied
Term
curve that shows the relationship between the price of a product and the quantity of the product supplied
Definition
supply curve
Term
a table that shows the relationship between the price of a product and the quantity of the product supplied
Definition
supply schedule
Term
what type of relationship do the price of a product and the quantity supplied of a product have?
Definition
direct- when price goes UP, quantity supplied goes UP
Term
the rule that, holding everything else constasnt, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied
Definition
law of supply
Term
what 5 things shift the supply curve?
Definition
1- Input price
2- Technological change
3- price of substitutes in production
4- number of firms
5- expected future price
Term
if imput price rises (like paying a worker more) what will happen to supply
Definition
supply will decrease
Term
if input price decreases (pay workers less) what will happen to supply?
Definition
supply will increase
Term
if technological change occurs and productivity increases what will happen to supply?
Definition
supply will increase
Term
what type of relationship do supply and technological change have?
Definition
direct
Term
what type of relationship do supply and input price have?
Definition
indirect
Term
if the number of firms in a market increases what will happen to supply
Definition
supply increases
Term
what type of relationship do supply and number of firms have
Definition
direct
Term
if the price of a firms subsitute goes up what happens to the supply of the other good
Definition
supply decreases
Term
what type of relationship do supply and price of substitutes in production have?
Definition
indirect
Term
what type of relationship do supply and expected future prices have?
Definition
indirect
Term
if expected future price is increased what will happen to supply today
Definition
decrease in supply (so consumers will have to buy product when it is more expensive)
Term
a situation in which quantity demanded equals quantity supplied
Definition
market equilibrium
Term
a market equilibrium with many buyers and many sellers
Definition
competitive market eqilibrium
Term
a situation in which the quantity supplied is greater than the quanity demanded
Definition
surplus
Term
a situation in which the quantity demanded is greater than the quantity supplied
Definition
shortage
Term
a legally determined maximum price that sellers may charge
Definition
price cieling
Term
who do price cielings help?
Definition
consumers
Term
a legally determined minimum price that sellers may receive
Definition
price florida
Term
who do price floors help?
Definition
producers
Term
what are two price controls?
Definition
price floors
price cielings
Term
If minimum wage increases from $9 to $15 and your wage at the time was $12, what type of price floor is this?
Definition
binding
Term
If your wage is $12 and the minimum wage increases from $9 to $10, what type of price floor does this represent?
Definition
non-binding because it doesnt effect you
Term
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
Definition
consumer surplus
Term
the additional benefit to a consumer from consuming one more unity of a good or service
Definition
marginal benefit
Term
will a drop in price increase or decrease consumer surplus?
Definition
increase
Term
the additional cost to a firm of producing one more unit of a good or service
Definition
marginal cost
Term
the difference between the lowest price a firm would have been willing to accept and the price it actually receives
Definition
producer surplus
Term
will a drop in price increase or decrease producer surplus
Definition
decrease
Term
what measures the net benefit to consumers from participating in a market, rather than the total benefit
Definition
consumer surplus
Term
what measures the net benefit recieved by producers from participating in a market, rather than the total benefit
Definition
producer surplus
Term
marginal benefit = _____________ in a competitive equilibrium
Definition
marginal cost
Term
the sum of consumer surplus and producer surplus
Definition
economic surplus
Term
the reduction in economic surplus resulting from a market not being in competitive eqilibrium
Definition
deadweight loss
Term
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to the marginal cost of production, and in which the sum of consumer surplus and producer surplus is at the maximum
Definition
economic efficiency
Term
a market in which buying and selling take place at prices that violate government price regulations
Definition
black market
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