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Econ 201 1st Exam
Cowen & Tabarrok's "Modern Principles: Microeconomics"
27
Economics
Undergraduate 1
02/20/2013

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Term
Incentives
Definition
Rewards and penalties that motivate behavior.
Term
Good institutions align...
Definition
Self-interest with social interest.
Term
Opportunity cost of a choice
Definition
The value of the opportunities lost.
Term
Thinking on the margin
Definition
All trade-offs involve decisions about a little bit more or a little bit less
Term
Tampering with the laws of supply and demand has consequences
Definition
Government interference usually makes things worse
Term
The importance of wealth and economic growth
Definition
Wealth and growth bring higher standards of living
Term
Institutions matter
Definition
Strong institutions foster economic growth
Term
Booms and busts can't be avoided, but can be moderated
Definition
Monetary and fiscal policies smooth out the ups and downs
Term
Inflation
Definition
Rise in prices when the govt prints too much money
Term
Central banking is a hard job
Definition
There is a lag between policy making and its effect on the economy during which economic conditions can change
Term
Supply and demand
Definition
most important tool in econ
Term
Demand curve
Definition
shows quantity demanded at different prices
Term
quantity demanded
Definition
quantity that buyers are willing and able to purchase at a certain price
Term
Law of demand
Definition
when prices rise, quantity demanded falls, when prices fall, QD rises
Term
Consumer surplus
Definition
difference between maximum price a customer will pay and market price, measured by area below demand curve and above price
Term
Increase in demand
Definition
curve moves up and to the right
Term
decrease in demand
Definition
curve moves towards origin
Term
demand shifters
Definition
income, population, price of substitutes,price of complements, expectations, tastes
Term
Normal good
Definition
good for which demand increases when income increases
Term
inferior good
Definition
good for which demand decreases when income increases
Term
substitutes
Definition
decrease in price of one good leads to decrease in demand of other good
Term
complements
Definition
decrease in price of one good leads to increase in demand of another
Term
Law of supply
Definition
when prices rise quantity supplied rises, when prices fall, QS falls
Term
producer's surplus
Definition
difference between market price and minimum price producers would sell for, area above the supply curve and below the price
Term
increase in supply
Definition
down and to the right
Term
decrease in supply
Definition
up and to the left
Term
supply shifters
Definition
technological innovations, input prices, taxes and subsidies, expectations, entry or exit of producers, changes in opportunity costs
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