Term
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Definition
| Economics is the study of how people, institutions, and societies make choices under conditions of scarcity |
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Term
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Definition
| It is important because both individuals and societies cannot possibly fulfill all of their wants and needs. Economics helps people make decisions in order to best fulfill their wants and needs. |
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Term
| What is Opportunity Cost? |
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Definition
| Opportunity Cost is the value of a good or service that a person gives up to obtain something else in return. |
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Term
| How does opportunity cost factor in decision making? |
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Definition
| b. It factors into decision making because we cannot possibly fulfill all of our wants and needs. Economics assumes people are rational and self-interested so it allows us to assess what each item we want or need might cost us. |
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Term
| What is the difference between Microeconomics and Macroeconomics? |
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Definition
Micro: involves businesses or individuals, etc.
Macro: involves starts, national governments, global decisions, etc. |
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Term
| How does economics help us to make decisions as individuals? |
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Definition
| We as individuals have unlimited wants and needs, but limited time and resources. Economics helps us to decide what we can obtain with the time and resources that we do have to use. |
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Term
| How does econ help us to make decisions as a society? |
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Definition
| As a society our resources are scarce (Land, Labor, Capital, & Entrepreneurial Ability). Economics assumes that people are rational and self-interested, and it allows us to best utilize our scare resources. |
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Term
| What are the major economic systems? (2) |
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Definition
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Term
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Definition
"communist" or socialism.
decisions made my central planning board |
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Term
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Definition
| Capitalism, private ownership of resources, |
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Term
| Name the Four Fundamental Questions that each economy must answer. |
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Definition
a. What goods/services will be produced?
b. How will these goods/services be produced?
c. Who will get these goods/services?
d. How will the system promote progress? |
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Term
| What is the circular flow diagram? |
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Definition
| The circular flow diagram shows how the economy works in the most simplistic of terms |
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Term
| How does the circular flow diagram depict the economy |
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Definition
| It depicts the economy as a system where people and businesses are constantly buying and selling |
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Term
| What is the law of demand? |
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Definition
| The law of demand states that, other things equal, as price falls quantity demanded rises and as the price raises quantity demanded falls. (Indirect Relationship |
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Term
| What does the law of demand tell us about consumers behavior? |
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Definition
It tells us that consumers are willing to buy more if it costs less because:
i. Common Sense
ii. Law of Diminishing Marginal Utility
iii. Income Effect
iv. Substitution Effect |
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Term
| What is elasticity of demand ? |
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Definition
| Elasticity of demand is a measure of responsiveness of the quantity of a product demanded by consumers when product price changes |
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Term
| What is the law of supply? |
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Definition
| The law of supply states that, other things equal, as price falls the quantity supplied falls and as price raises the quantity supplied rises. (Direct Relationship) |
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Term
| What does the law of supply tell us about consumers behavior? |
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Definition
This tells us that producers are willing to make more the higher the price they can charge
i. Price acts as an incentive to producers
ii. At some level of production, cost will rise |
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Term
| What is the elasticity of supply? |
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Definition
| Measure’s sellers’ responsiveness to price changes |
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Term
| How does supply and demand interact |
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Definition
| They interact inversely with the demand curve sloping downward and the supply curve sloping upward. There are shortages, equilibriums, and surpluses depending on the specific interaction. |
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Term
| What is the point of interaction called? |
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Definition
| The point of interaction is called market equilibrium. |
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Term
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Definition
| the price where demand & supply curve intersect |
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Term
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Definition
| the quantity where the demand & supply curve intersect |
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Term
| How does a shift in demand affect the market? |
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Definition
| It affects the market in that if demand increases the curve moves right and if demand decreases the curve moves left |
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Term
| How does a shift in supply affect the market? |
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Definition
| It affects the market in that if the supply increases the curve will move right and if the supply decreases the curve will move left. |
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Term
| 1How does elasticity play a role in the magnitude of change? |
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Definition
| Elasticity plays a role in the magnitude of change because the more elastic the good, the more vastly the curve will move if any of the factors are changed. If it is more inelastic (something like insulin) it doesn’t affect it as greatly because people HAVE to have the insulin. |
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Term
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Definition
a legal maximum on the price of a good or service
i. Binding if it is set below equilibrium price
ii. Example: rent control |
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Term
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Definition
is a legal minimum on the price of a good or service
i. Binding if set above the equilibrium price
ii. Example: Minimum Wage |
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Term
| How do price ceilings and price floors affect market outcomes? |
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Definition
| The cause surpluses and shortages which the government then has to go in and intervene. |
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Term
| How do taxes affect market outcomes? |
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Definition
| Taxes drive a wedge between the supply and demand curves so then the buyer and seller are left to share the burden. |
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Term
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Definition
| the difference between the equilibrium price and the new price, as well as how the burden is shared between the buyers and sellers. |
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Term
| What determines incidence? |
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Definition
| The incidence is determined by who in the situation is more elastic. |
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Term
| If the supply is more elastic then the demand then the _____ will pay more |
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Definition
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Term
| If the demand is more elastic than the supply, then the ______ will pay more |
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Definition
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Term
| When do markets fall? Why? |
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Definition
| a. Markets fail when scarce resources are underallocated or overallocated, or in other words when things are non-rival and non-excludable. This is due to free riders as well as the fact that public goods have inefficient market outcomes. |
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Term
| What are the 4 classifications of goods? |
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Definition
| Private, Common, Low-Congestion, Public |
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Term
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Definition
| Externalities are side effects borne by people who are not directly involved in market exchanges→ externalities are unintended side effects while public goods are under allocation of goods shared by all |
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