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| Fundamental Nature of Economics |
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Definition
| The use of scarce resouces to satisfy virtually unlimited wants |
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| Organizing available resources to produce the goods/services that people most value |
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| Main Characteristics of Market Economies |
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| Self-Interest, Incentives, Market Prices and Quantities, Institutions |
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| LAND, LAbour, Capital(all manufactured aids to production such as toold, machinery, and buildings)...NOT $$ |
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| theat choices must be made, and making choices implies the existence of costs |
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| Concave shapes of PRODUCTION POSSIBILITIES BOUNDARY |
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Definition
| as move down the curve the opp. cost of either good increases as we increase the amount of it that is produced. |
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| the study of the causes and consequences of the allocation of resources as it is affected by the workings of he price system |
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| Specializing is more efficient than... |
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| A Production Poss. Boundary shifts outward when... |
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| there is an economic growth and it is possible to produce more of all products |
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| factor market vs goods market |
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| selling of services (employment) vs Selling of goods |
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| determines the quantities of various goods that are produced. |
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| Steers away from the generic type of manufacturing and incorporates craft-based form of organization |
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| major cause is rapid reduction in transportation costs and revolution in information technologies |
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| based on tradition, customs, habits. more primitive. ex) feudal systems |
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| resource allocation is led by centralized govt. |
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| allocation of resources is determined without any central direction>> result from innumerable ind. decisions made by individ. producers and consumers |
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| Failures of the Command Economy |
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Definition
Coordination: eco decisions about production, investment, trade, and consumption.
Quality Control
Lack of Incentives
Environmental degradation |
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| endogenous vs exogenous variables |
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Definition
| one whose value is determined within the theory (dependent variable) vs one that's determined outside the theory (independent) |
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| Assumptions in Theories are used to>> |
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| abstract from the complexities of the real world those issues that are not essential for the issues under examination |
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different observations on the x-axis
Time is fixed |
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different time periods on the x-axis
Observation is fixed |
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| an avg that measures change over time of such variables as the price level and industrial production; conventially expressed as a percentage relative to a base period (100) |
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| CPI : Consumer Price Index |
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Definition
| measure estimating the average price of consumer goods and services purchased by households |
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Definition
| [(New CPI-Old CPI)/Old CPI]x 100 |
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Definition
Shows the relationship between two diff. variable
Can be either cross-sectional or time-series |
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Definition
| obtained by averaging the indexes together |
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| take into account the weight of each category (find the percentage by comparing one category to a total of all the categories) |
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| w/in a give time period vs no time period attached |
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Determine Prices
Allocate resources
Coordinate the indiv. decisions of a HUGE # of people |
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| qty demanded vs qty bought |
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Definition
| total amount that consumers desire to purchase in some time vs actual purchases |
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| Demand for one results in a positive relationship between the 2 goods |
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| Negatively Related. When one goes up the other goes down |
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| Goods for which qty demanded increases when income rises |
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| Qty demanded decreases when income rises (neg relationship) |
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| Total Amount of some product that consumers in the relevant market wanna buy influenced by: |
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Definition
product's own price
Avg Income
Prices of Other Products
Tastes
Dist. of Income
Population
Expectations about the future |
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| Price of a product and qty. demanded are __________ related |
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Definition
| NEGATIVELY. Fall in price = more people want it! |
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| Tech Improvement and Supply |
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Definition
| Tech improves^, Qty Supplied ^ |
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Definition
| Every buyer finds a seller and every seller finds a buyer>>>MARKET CLEARS |
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| 4 laws of Supply and Demand |
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Definition
1)^ in demand causes an ^ in both equi. price and equ. qty
2) decrease in demand causes a decrease in both equil. price and equil qty
3) ^ in supply causes a decrease in equil price and an ^ in equil qty
4) decrease in supply causes ^ in equil price and ^ in equil qty |
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| Change in Demand vs Change in QTY Demanded |
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Definition
| chang in the qty demanded at each possible price of the commodity (shift in the whole curve) vs a change in the specific qty of the good demanded, represented by a change from one point to another...either on the orig demand curve or on a new one |
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Definition
| Show the relationship between qty demanded and price |
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Definition
| amount of a product consumers desire to purchase at a specific price vs refers to the entire relationship between price and qty demanded. |
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| The price of the product and the qty supplied are _______________ related |
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Definition
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| Increase in QTY supplied @ each price results in |
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Definition
| rightward shift in supply curve |
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| Decrease in QTY supplied at each price would appear as____________ |
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Definition
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Definition
| a shift in the whole supply curve (at each price) |
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Term
| Changes in These will result in a shift in the supply curve |
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Definition
prices of inputs
technology
and number of suppliers |
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| amount of money that must be spent to acquire one unit of the product |
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| ratio of 2 absolute prices (expresses price of one good in terms of another) |
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| The derivation of predictions by analyzing the effect of a change in some exogenous variable on the equilibrium. |
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| Goods with Substitutes have __________ elasticity |
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| When price on an elastic good goes down, Total Expenditure ______________ |
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| When price on an inelastic good falls the TE _________________ |
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Definition
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| TE reaches a MAX when demand= |
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| THe resonse to a price change >>> measured price elasticity of demand will be ____________ the __________ the time span |
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| The long run supply for a product is ____________ elastic than the short run supply |
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| When demand is inelastic relative to supply ___________ bear most of the burden of the excise tax |
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Definition
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| When demand is inelastic relative to demand ___________ bear most of the burden |
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| Computing Economic Surplus |
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Definition
| $ Suppliers willingness to accept-$consumers willingness to pay |
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| Binding price floors and ceilings lead to a loss in economic surplus and therefore create ____________ |
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| Area below demand curve+ area above supply curve (use the equilibrium as a dividing line) |
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| change in total utility/change in units consumed |
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| If consumer's real income is constant>>>if the price of a good goes up the consumers is more apt to buy increased amounts of its substitute |
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when a price rises, it makes one feel poorer even though they are not necessarily
*** LEads consumers to buy more of all normal goods whose prices fall |
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Definition
An Inferior Good for which the income effect outweighs the subst. effect so that the demand curve is + sloped
*** People consume more as price ^ |
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Definition
The amount the consumers benefit by being able to purchase a product for a price that is less than they would be willing to pay
***THe max amount the consumer is prepared to pay for that unit and the price the consumer actually pays |
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Term
| Finding the consumer surplus on a graph |
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Definition
| Area under Demand curve and above market price |
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