Term
| Scarcity vs shortage — what is the difference? |
|
Definition
| Scarcity is limited resources and unlimited wants. It never goes away. A shortage is quantity demanded greater than quantity supplied at the current price, usually because the price is too low. A shortage can disappear if price adjusts. Scarcity cannot. |
|
|
Term
|
Definition
| Limited resources and unlimited wants. This is the basic fact that creates the economic problem. Every choice has an opportunity cost. |
|
|
Term
|
Definition
| Quantity demanded is greater than quantity supplied at the current price. Often caused by a price ceiling. Raise the price and the shortage can disappear. |
|
|
Term
| Memory hook: scarcity vs shortage |
|
Definition
| Scarcity is always. Shortage is a price that is too low. |
|
|
Term
| Public good vs common-property resource — what is the difference? |
|
Definition
| A public good is non-excludable AND non-rivalrous (national defense, basic research). A common-property resource is rivalrous but hard to exclude people from (fish, some water) and can be overused — tragedy of the commons. |
|
|
Term
|
Definition
| Non-excludable and non-rivalrous. You cannot easily stop people from using it, and one person's use does not use it up. Markets underprovide these because of free riders. |
|
|
Term
| What is a common-property resource? |
|
Definition
| Rivalrous but hard to exclude people from. One person taking more leaves less for others. Can be overused (tragedy of the commons). |
|
|
Term
| Memory hook: public good vs commons |
|
Definition
| Public good = cannot exclude + does not get used up. Commons = cannot exclude + does get used up. |
|
|
Term
| Explicit cost vs implicit cost — what is the difference? |
|
Definition
| Explicit cost is cash you actually pay (wages, rent, materials). Implicit cost is an opportunity cost you do not write a check for (forgone wages, forgone rent on a building you own). |
|
|
Term
| What is total economic cost? |
|
Definition
| Explicit cost + implicit cost. Accountants often count only explicit costs. Economists count both. |
|
|
Term
| Memory hook: explicit vs implicit |
|
Definition
| Explicit = money out the door. Implicit = what you gave up. |
|
|
Term
| Positive vs normative — what is the difference? |
|
Definition
| Positive statements are about what is and can be tested. Example: A price ceiling can cause a shortage. Normative statements are about what should be (value judgments). Example: We should tax the rich more. |
|
|
Term
| Memory hook: positive vs normative |
|
Definition
| Positive = is. Normative = should. |
|
|
Term
| Mercantilism vs Adam Smith — what is the difference? |
|
Definition
| Mercantilists treated wealth as gold and favored government-managed trade and monopolies. Smith treated wealth as real goods and productivity. Self-interest plus competition = invisible hand. Limited government. |
|
|
Term
|
Definition
| Pre-Smith view: national wealth comes from gold, exports, and government control of trade. Smith rejected this. |
|
|
Term
| What did Adam Smith argue? |
|
Definition
| Author of The Wealth of Nations (1776). Self-interest plus competition in free markets can raise living standards through the invisible hand. |
|
|
Term
|
Definition
| Smith's long-run price covering the costs of land, labor, and capital. Market price gravitates toward it with competition. |
|
|
Term
| Why is competition essential to Smith's theory? |
|
Definition
| Without competition, self-interest becomes monopoly power. Competition disciplines sellers, pushes prices toward natural price, and forces producers to innovate and please buyers. The invisible hand needs rivalry. |
|
|
Term
| What does rational mean in this class? |
|
Definition
| Consistent goal-seeking with scarce means, NOT morally good. People maximize their own utility given constraints. Economics describes the behavior; it does not automatically approve it. |
|
|
Term
| Why do markets underprovide public goods? |
|
Definition
| Public goods are non-excludable, so people can free ride. Private firms cannot easily charge everyone who benefits, so too little is produced. Government provision or funding is the usual fix. |
|
|
Term
|
Definition
| Someone who benefits from a good without paying. Main reason public goods are underprovided by markets. |
|
|
