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| The overriding reason why households and societies face many decisions |
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| In most societies, how are resources are allocated |
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| the combined actions of millions of households and firms |
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| Society faces a trade off between |
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| Efficiency can be described as |
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| Since efficiency refers to the size of the economic pie, equity refers to... |
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| In economics, the cost of something is... |
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| what you give up to get it |
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| Making rational decisions at the margin means that people |
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| compare marginal costs and marginal benefits of each decision. |
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| These rights help make sure the markets work well |
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| The primary determinant of a country's standard of living |
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| the country's ability to produce goods and services |
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| Economists make assumptions so they can... |
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| focus thier thinking on the essence of the problem at hand |
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| True or False: An ecomomy by itself can produce at any point on or inside the production possibilities frontier, but not outside it |
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| Whay are production possibility curves bowed outward |
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| resources are speciallized, that is, some are better at producing particular goods rather than other goods |
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| If a point is within the Production Possibilities Frontier curve (not on or anywhere else on the graph) it is said to be |
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| An improvement in the PPF curve can be reflected as an increase in the production of the good(s). Better production can be explained by... |
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| A technological advance in the the production of the good(s) |
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| If labor in Mexico is less productive than labor in the United States in all areas of production, both Mexico and the United States still can benefit from... |
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| The person who is more efficient |
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| The person who has a smaller opportunity cost in production |
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| Total output in an economy increases when each person specializes because... |
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Definition
| each person spends more time producing within each country due to specialization |
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Term
| The term market always refers to |
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Definition
| a group of buyers and sellers of a particular good or service |
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Term
| Buyers and sellers who have no influence on market price are referred to as |
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| If a seller in a comparative market chooses to charge more than the market price, then |
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Definition
| buyers will tend to make purchases from other sellers |
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| true or false technology is not a determinant of demand |
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| If a seller in a competitive market chooses to charge more than the market price, what will buyers do. |
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| buyers will tend to make purchases from other sellers |
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| an increase income will result in an increase in demand |
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Term
| Two goods are compliments if a decrease in the price of one good does this to demand |
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| What does the market demand curve represent |
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| the sum of the quantities demanded by all the buyers at each price of the good |
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Term
| Suppose you make jewelry. If the price of gold falls, we would expect you to do this... |
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Definition
| be willing and able to produce more jewelry than before at each possible price |
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Term
| An advance in technology does this to the supply and demand curves |
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Definition
| shifts the supply curve to the right, but demand curve is unaffected |
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Term
| If, at a current price, there is a shortage of a good, the price is said to be |
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Definition
| below the equilibrium price |
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Term
| When supply and demand both increase, equilibrium price can do this |
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Definition
| increase, decrease, or stay the same |
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Term
| when studying how some event or policy affects the market, elasticity provides information on |
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Definition
| the magnitude of the effect on the market |
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Term
| If a good has very few substitutes, it tends to be a(n) _______________ good |
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Term
| Economists compute the price elasticity of demand by |
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Definition
| the percent change in quatitiy demanded divided by the percent change in price |
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Term
| the greater the responsiveness of quantity demande to a change in price, the greater the _____________________. |
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Definition
| price elasticity of demand |
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Term
| Suppose a good is prefectly inelastic, and the supply of the good decreases what happens to the equilibrium price and quantity demanded |
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Definition
| price increases, quantity is unchanged |
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Term
| A price ceiling is binding when it is set |
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Definition
| below the equilibrium price causing a shortage |
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Term
| When policy makers set prices by legal decree, the |
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Definition
| are obscuring the signals that normally guide the allocation of societies resources |
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Term
| The equilibrium price of a product is considered the be the best price because is maximizes |
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Definition
| total revenue for firms and maximizes the quantity supplied of the product |
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Term
| If an allocation of resources is efficient what is said of the potential gains from trade |
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Definition
| all the potential gains from trade among buyers and sellers is being realized |
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Term
| moving production from a high cost producer to a low-cost producer will |
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Definition
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Term
| If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will |
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Definition
| increase consumer surplus |
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Term
| A simultaneous increase in both the demand for a good and the supply for a good would imply what about the value and cost of the good |
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Definition
| the value of the good to consumers has increased and the cost of producing radios has decreased |
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Term
| A technological advance in the production of a good will |
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Definition
| increase consumer surplus in the market for the good and increase producer surplus in a complementary market |
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Term
| What is the equation for loss in consumer surplus caused by a tax |
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Definition
| Loss of consumer surplus=(1/2)(P3-P2)(Q1+Q2) |
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Term
| Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, in these three properties |
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Definition
1. less elastic demand for the good
2. smaller the amount of tax
3. less elastic supply of the good |
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Term
| If the domestic price of a good in the US is lower than the world price of a good this suggests that |
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Definition
| The US has a comparative advantage over the other countries and the US will export the good |
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Term
| When a country allows trade and becomes an exporter of a good what happens to the domestic producers and consumers |
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Definition
| domestic producers gain and domestic consumers lose |
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Term
| when a country allows trade and becomes an importer of a good this happens to producers and consumers |
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Definition
| domestic producers become worse off, and domestic consumers become better off |
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Term
| This type of profit never exceeds accounting profit |
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Definition
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Term
| Economists normally assume that a goal of a firm is to do this with its profits |
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Definition
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Term
| what makes up the accounting profit |
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Definition
| accounting profit=economic profit+implicit costs |
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Term
| marginals cost tells us this |
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Definition
| the amount by which total cost rises when output is increased by one unit |
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Term
| when marginal cost exceeds average total cost |
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Definition
| average total cost must be rising |
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Term
| marginal cost is equal to average total cost when |
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Definition
| average total cost is at its minimum |
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Term
| In a competitive market the actions of any single buyer or seller will this impact on a market |
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Definition
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Term
| When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit |
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Definition
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Term
| The short run supply curve for a firm in a perfectly competitive market is |
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Definition
| the portion of its marginal cost curve that lies above its average variable cost |
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Term
| when profit maximizing firms in acompetitive markets are earning profits |
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Definition
| new firms will enter the market |
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Term
| A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will |
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Definition
| fall in the short run. all, some, or no firms will shut down, and some of them will exit the industry. prices will then rise to teach the new long-run equilibrium |
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Term
| True or False: the monopolist produces where P=MC |
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Definition
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Term
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Definition
| the uncompensated impact of one person's actions on the well-being of a bystander |
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Term
| When externalities are present in a market this happens to participants |
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Definition
| participants lose some market benefits to bystanders |
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Term
| When a market is characterized by an externality, the government |
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Definition
| can correct the market failure in the case of both positive and negative externalities by indicng market participants to internalize the externality |
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Term
| selling pollution permits is a better method for reducing pollution than imposing a corrective tax because |
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Definition
| it is hard to estimate the market demand curve and thus charge the "right" corrective tax |
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Term
| both public goods and common resources are |
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Definition
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Term
| the tragedy of commons occurs because |
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Definition
| social and private incentives differ |
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Term
| In computing the GDP, market prices are used to value final goods and services because |
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Definition
| market prices reflect the values of goods and services |
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Term
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Definition
| a measure of the overall cost of the goods and services bought by a typical consumer |
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Term
| Steps of calculating the CPI |
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Definition
1. Fix the basket
2. Find the prices
3. Compute the basket Cost
4. Choose a base year and compute the index
CPI=(Price of Basket/Base Yr. Basket)x100 |
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Term
| Given the situation when is GDP recoreded: A car dealership has an increase in inventory of 25 cars in 2006. In 2007 it sells all 25 cars. |
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Definition
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Term
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Definition
| values production at current prices |
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Term
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Definition
| values production at constant prices |
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Term
| GDP fails to account for this |
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Definition
| quality of the environment |
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