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| The study of how society uses its scarce resources to supply the insatiable wants and needs of said society both now and in the future. |
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| Something you must have or you will die. |
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| Something that makes your life better, but you won't die if you don't have it. |
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| Any tangible item which satisfies the criteria of a want or need. |
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| Any intangible, but useful activity which meets the criteria of a want or need. |
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| Study human action--man acts, and economists ask why. |
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| The study of human action |
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| Economists perform _______ experiments. i.e. they wait for things to happen and observe the results. |
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| Claims that attempt to describe the world as it is. |
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| claims that attempt to describe the world as it should be, or as people believe it to be (with no supporting evidence). |
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| All other things held equal |
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| The coming together of buyers and sellers whose joint decisions determine the price. |
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| What are the four factors of production? |
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| Land, Labor, Capital and Technology. |
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| Things we want to buy and bring home. |
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| The tools and machines used to make consumer goods. |
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| ______ ______ invented Cartesian graphing. |
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| Production of consumer goods _____ ______ when military production increases. |
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| Production Possibilities Frontier |
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| A graph which shows the combinations of output that the economy can possibly produce given the available land, labor, capital and technology. |
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| Producing at a point below the Production Possibilities Frontier results in _____ _____ and ____ ______. |
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| underused resources; high unemployment |
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| opportunity cost (verbal definition) |
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| the next best alternative foregone when making any decision. |
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| Actual out-of-pocket expenses |
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| costs that do not include contactual payments |
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| Opportunity cost (mathematical definition) |
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| Opportunity Cost = Explicit Costs + Implicit Costs |
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| When one country can produce more than another country in absolute terms |
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| Countries are autonomous (do not trade). |
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| Equation for the opportunity cost of production |
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| What you must give up/ What you want |
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| The ability to produce at a lower opportunity cost than a competitor. |
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| Mexico produces two goods: silver and lumber. In order to increase lumber production, ___________________________. |
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| silver production must fall. |
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| What two ways can a country move beyond its Production Possibilities Frontier? |
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1) A change in technology
2) Through Trade |
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| The amount of a good or service which will be purchased at a SPECIFIC price. |
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| The amount of a good or service which will be purchased at ANY given price. |
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| As price rises, quantity demanded falls and as price falls, quantity demanded rises, ceteris paribus. |
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| When price falls, ________ rises. |
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| When demand changes (entire curve shifts left or right) it means that... |
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| the demand for the good being considered has changed for every price. |
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| 5 common reasons for demand to change |
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| Change in taste and preferences, change in expectations, change in laws, change in income (inferior or normal goods), or change in the price of other goods (compliments and substitutes). |
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| When income rises, demand for a normal good will also rise. When income falls, demand for a normal good will also fall. |
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| When income falls, demand for an inferior good rises. When income rises, demand for an inferior good falls. |
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Two goods which are purchased together.
When the price of Good A rises, demand for Good B falls, and vice versa. |
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Goods that are purchased instead of another good.
When the price of Good A rises, demand for Good B rises, and vice versa. |
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| Normal, Perfect (consumers can't tell the difference, i.e. 2 electricity companies), and imperfect (flying vs. riding a bus to N.Y. City). |
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| When price rises, quantity supplied also rises; when price falls, quantity supplied also falls, ceteris paribus. |
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| The amount of a good or service which will be supplied at a SPECIFIC price. |
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| The amount of a good or service which will be supplied at ANY given price. |
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| 4 common reasons supply will change |
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| A change in input prices, a change in technology, a change in expectations, a change in the number of sellers. |
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| Why must the supply curve slope upwards? |
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| Because if the firm increases production, cost must rise, therefore price must rise, to offset the increase in cost. |
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| Whenever you have supply and demand together on one graph, you have a _________. |
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| When quantity demanded is greater than quantity supplied at a SPECIFIC price. |
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| When quantity demanded equals quantity supplied and there are no unintended shortages or surpluses. |
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| When quantity supplied is greater than quantity demanded at a SPECIFIC price. |
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| ________ brings more of a good to the market, and lowers the price. |
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| If demand increases ceteris paribus... |
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Definition
| We will have an increase in equilibrium price and an increase in equilibrium quantity. |
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| If demand decreases ceteris paribus... |
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| We will have a decrease in equilibrium price and a decrease in equilibrium quantity. |
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| If Supply decreases ceteris paribus... |
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| We will have an increase in equilibrium price and a decrease in equilibrium quantity. |
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| If supply increases ceteris paribus... |
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| We will have a decrease in equilibrium price and an increase in equilibrium quantity. |
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| The reason college students and senior citizens get discounts at some restaurants. They have time to shop for the best price while the middle aged do not. |
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| A measure of the responsiveness of an economic agent to a change in a variable. |
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| The flatter the curve, the more ______. The steeper the curve, the more _______. |
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| Formula for elasticity of demand as percentages. |
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% Change in QD
Ed=_______________________
% Change in Price |
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| Consumers are fairly unresponsive to a change in price (steeper demand curve). |
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| Consumers are fairly responsive to a change in price. |
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| Price Elasticity of Demand |
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| A measure of the responsiveness of a consumer to a change in price. |
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| 4 elements which help determine elasticity |
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Definition
| Availability of close substitutes, necessities vs. luxuries, definition of the market, and the time horizon. |
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| What groups are most interested in elasticity? |
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Definition
| Sellers ("Will raising the price increase or decrease revenue?") and Governments ("What items can we tax more highly?") |
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| If a seller wishes to increase the price of their goods, they should ensure demand for that good is relatively ________. |
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Definition
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| If the government wishes to increase tax revenue on taxable items, which items should they tax? |
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| Items with relatively inelastic demand (such as cigarettes and beer). |
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| Cross-Price Elasticity of Demand |
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| A measure of the responsiveness of consumers to a change in the price of ANOTHER good. |
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| How can you tell if two items are compliments or substitutes when calculating the cross-price elasticity of demand? |
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| If your answer before taking the absolute value is positive, the items are substitutes. If the answer is negative, they are compliments. |
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| Income Elasticity of Demand |
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| A measure of the responsiveness of consumers to a change in income. |
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| How can you tell if an item is a normal good or an inferior good when calculating the income elasticity of demand? |
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Definition
| If your answer is positive before taking the absolute value, you are dealing with a normal good. If your answer is negative, you are dealing with an inferior good. |
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| Price Elasticity of Supply |
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| A measure of the responsiveness of a producer to a change in price. |
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| If your demand curve is more inelastic than your supply curve, who will shoulder the burden of an excise tax? |
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| If your demand curve is more elastic than your supply curve, who will shoulder the burden of an excise tax? |
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