Term
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Definition
| scarcity (unlimited wants for limited resources) |
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Term
| Factors of Production (definition) |
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Definition
| productive resources (inputs) that are used to create goods and services |
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Term
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Definition
-Capital
-Entrepreneurship
-Land
-Labor
(or CELL) |
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Term
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Definition
| natural resources that we use to produce goods/services |
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Term
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Definition
| the work time and work effort that people devote to make goods/services (the Productive Human Effort) |
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Term
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Definition
| a type of Labor that is the knowledge and skills that people obtain from education, on-the-job training, work experience, etc.) |
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Term
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Definition
| tools, machines, instruments, buildings, and other items that have been produced in the past that bisinesses now use to produce goods/services |
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Term
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Definition
| individuals that organize the 3 other factors of production to produce goods/services |
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Term
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Definition
| the cost of the best thing you must give up to get what you chose to get. (ex: the cost of skipping class to go to work) |
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Term
| Opportunity Cost Principle |
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Definition
| in order to get more of one thing, we must give up something else |
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Term
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Definition
-What to produce?
-How to produce?
-For whom to produce? |
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Term
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Definition
| an economic system that answers the basic economic questions the way they have always been answered |
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Term
| Centrally-Planned Economy |
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Definition
allocates resources by the order (command) of someone in authority
(a.k.a. Command System) |
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Term
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Definition
when a market price allocates a scarce resource, the people who get the resource are those who are willing and able to pay the price
(relies on the profit-motive to answer basic economic questions) |
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Term
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Definition
| what is left over after the total cost of producing the resource (total revenue-total cost) |
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Term
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Definition
the study of the aggregate (total) effects on the national economy and the global economy that individuals, businesses, and governments make
(maximizes total output and tries to maintain full employment of resources) |
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Term
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Definition
the study of the choices of individuals and businesses and the way these choices interact and are influenced by governments
(emphasizes efficiency in the production and distribution of goods/services) |
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Term
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Definition
| satisfying as many human wants as possible from society's limited resources |
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Term
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Definition
| Allocative and Production |
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Term
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Definition
getting the largest quantity of output possible from society's limited resources
(cost minimization) |
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Term
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Definition
a situation in which the quantities of goods/services produced are those that people value most highly
(revenue maximization) |
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Term
| What do captitalistic economists believe is the best answer to both Efficiencies? |
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Definition
free operations of market because it combines profit motive and competition
(Profits provide the incentives needed to produces goods/services and Competition keeps sellers from exploiting buyers) |
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Term
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Definition
| any institutional arrangement that brings buyers and sellers together |
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Term
| Elements that are common in all markets |
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Definition
-Buyers (Demand)
-Sellers (Supply)
-Something to buy/sell |
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Term
| Roles that Price plays in markets |
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Definition
-rations available goods/services among competing buyers
-provides incentives to producers
-distributes income among individuals in a population |
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Term
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Definition
| the relationship between the quantity demanded and the price of a good when all other influences on buying remain the same (certeris paribus) |
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Term
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Definition
Other things being constant, if the price of a good rises, the quantity demanded decreases (and vice versa)
-inversely related |
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Term
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Definition
| the good's price has risen relative to the prices of goods that may be substituted for it |
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Term
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Definition
| the good's price risen relative to the buyer's income |
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Term
| Price Increase has 2 effects |
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Definition
| substitution effect and income effect |
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Term
| Determinants of Demand: PRICE |
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Definition
Buyer's response to change in this for a good is shown as a movement along the demand curve
-change in quantity demanded |
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Term
| Determinants of Demand: NONPRICE determinants |
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Definition
these are the things held constant in deriving a good's demand curve
-cause a shift in the demand curve and is called a change in demand |
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Term
| Nonprice Demand Determinants |
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Definition
-Prices of related goods consumed
-expected future prices
-income
-expected future income/credit
-number of buyers
-buyer preferences/tastes |
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Term
| Prices of Related Goods Consumed |
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Definition
-substitutes in consumption
-complements in consumption |
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Term
| Substitutes in Consumption |
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Definition
goods that represent alternative means of satisfying a consumer's wants/needs
(example: if the price of chicken goes up, the demand for pork chops will increase) |
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Term
| Complements in Consumption |
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Definition
goods used together to satisfy a consumer's wants/needs
(example: smartphone and apps)
(example: if the price of gasoline goes up, the demand for tires will go down--inverse relationship) |
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Term
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Definition
if buyers expect the price of a good to go up, the demand for the good will increase now (and vice versa)
-directly related to demand |
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Term
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Definition
-the demand for a normal good is directly related to income
-the demand for an inferior good is inversely related to income (we don't want to buy the inferior good if we can afford something better) |
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Term
| Expected Future Income/Credit |
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Definition
-directly related to demand
-if you expect your income to go up in the future, you probably will buy more today (demand will increase) |
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Term
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Definition
-directly related to demand
-as people move into a market, the demand for goods rise (and vice versa) |
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Term
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Definition
Public attitudes towards a good/service
-directly related to demand
(may be influenced by a great deal of factors, such as weather, fashion, health concerns, etc.) |
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Term
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Definition
| the relationship between the quantity supplied and the price of a good when all other influences on selling remains the same |
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Term
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Definition
if the price of a good rises, the quantity supplied for the good will increase as well (and vice versa)
-price and quantity have a direct relationship |
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Term
| Determinants of Supply: PRICE |
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Definition
seller response to change in price of a good is shown as a movement along the supply curve
-change in quantity supplied |
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Term
| Determinants of Supply: NONPRICE Determinants |
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Definition
-the other things that are held constant in deriving a good's supply curve
-seller's response to a change in the nonprice supply determinants is shown as a shift of the supply curve (change in supply) |
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Term
| Nonprice Supply Determinants |
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Definition
-prices of related goods produced
-prices of inputs
-expected future prices (sellers)
-number of sellers
-productivity |
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Term
| Prices of Related Goods Produced |
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Definition
| substitutes in production and complements in production |
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Term
| Substitutes in Production |
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Definition
represent alternative uses of a key resource/s
(example: if the price of cotton is higher that the price of corn, the supply of corn will decrease, because suppliers want to sell something that has a higher profit)
-the two goods are inversely related |
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Term
| Complements in Production |
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Definition
represent goods that are produced together from a given resource/s (by-products)
(example: if diesel fuel is a by product of gasoline, and the price of gas goes up, the SUPPLY of diesel fuel will increase because sellers are making more and more gasoline)
-direct relationship |
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Term
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Definition
The prices of the resources used to produce a good/service
(example: if the price of jet fuel goes down, the supply of air travel will increase)
-inversely related to supply |
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Term
| Expected Future Prices (sellers) |
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Definition
if the price of a good/service is expected to increase in the future, the sellers will hold back from supplying as many now
-inversely related to supply |
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Term
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Definition
more sellers=more of that good
-directly related to supply |
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Term
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Definition
-as productivity increases, the supply will increase
-directly related to supply
-includes things such as new technology, more efficient workers, etc. |
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Term
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Definition
where the quantity demanded and the quantity supplied equal each other
-found at the point of intersection of the demand and supply curves
-no incentive to change |
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Term
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Definition
| when the price is above equilibrium, so the quantity supplied is greater than the quantity demanded (price will drop) |
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Term
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Definition
| when price is below equilibrium, so the quantity demanded is higher than the quantity supplied (price will rise) |
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Term
| Steps to predicting the effects of a change in demand or supply on equilibrium |
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Definition
1) identify the relevant market
2) identify the demand and/or supply condition that changes
3) identify the curve/s that shift/s
4) identify the direction/s of the shift/s
5) shift the curve/s
6) predict the effect of the shift/s on price and quantity |
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Term
| What happens when both curves shift? |
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Definition
| one (either price or quantity) will be indeterminant |
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Term
| According to your instructor, _______________________ exists because individuals want more goods and services than our limited resources allow us to produce. |
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Definition
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Term
| Our authors define ________________________ as “the work time and work effort that people devote to producing goods and services.” |
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Definition
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Term
| “Tools, instruments, machines, buildings, and other items that have been produced in the past and that businesses now use to produce goods and services,” is the definition of |
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Definition
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Term
| “The ‘gifts of nature’ or natural resources that we use to produce goods and services,” is our authors’ definition of |
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Definition
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Term
| Economists refer to individuals who “organize labor, land, and capital to produce goods and services,” as |
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Definition
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Term
| “The _________________________ of something is the best thing you must give up to get it.” |
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Definition
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Term
| A _________________________ is an economic system that answers the basic economic questions the way they have always been answered. |
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Definition
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Term
| A _________________________ allocates resources based on who is willing and able to pay the market price. |
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Definition
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Term
| “A system that allocates resources by the order of someone in authority,” is the authors’ definition of |
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Definition
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Term
| “The study of the choices that individuals and businesses make and the way these choices interact and are influenced by governments,” is the authors’ definition of |
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Definition
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Term
| “The study of the aggregate (or total) effects on the national economy and the global economy of the choices that individuals, businesses, and governments make,” is the authors’ definition of |
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Definition
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Term
| Macroeconomics attempts to manage the economic problem of scarcity |
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Definition
| by maximizing total output and maintaining full employment of resources |
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Term
| Microeconomics attempts to manage the economic problem of scarcity |
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Definition
| by emphasizing efficiency in the production and distribution of goods and services |
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Term
| According to our authors, production efficiency is achieved |
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Definition
| when the economy is getting all [the output] that it can from its resources |
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Term
| According to your instructor, allocative efficiency is achieved |
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Definition
| when an economy produces the combination of goods and services that it values most highly |
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Term
| 17. Which of the following elements of the profit equation is more closely associated with the concept of allocative efficiency? |
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Definition
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Term
| Your instructor defines a market as |
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Definition
| any institutional arrangement that brings buyers and sellers together |
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Term
| Which of the following roles do prices play in a market economy? |
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Definition
-Rationing available goods and services among competing buyers
-Providing incentives to producers
-Distributing incomes among individuals |
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Term
| Your instructor defines demand as |
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Definition
| the quantities of a good or service buyers in a market are willing and able to purchase at different prices, other things being equal |
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Term
| According to the law of demand, the quantity of a good demanded increases when |
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Definition
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Term
| A curve that reflects the law of demand |
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Definition
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Term
| According to __________________ buyers purchase less of a good when its price rises because it is now more expensive relative to the prices of other goods that may be substituted for it. |
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Definition
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Term
| Buyer response to a change in the price of a good |
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Definition
| is called a change in quantity demanded and is shown as a movement along the demand curve |
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Term
| Buyer response to a change in a nonprice demand determinant |
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Definition
| is called a change in demand and is shown as a shift of the demand curve |
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Term
| Assume air travel represents a normal good. Other things being equal, an increase in consumer incomes will |
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Definition
| shift the demand curve to the right |
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Term
| Assume pinto beans represent an inferior good. Other things being equal, an increase in consumer incomes will |
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Definition
| shift the demand curve to the left |
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Term
| Assume natural gas and propane represent substitutes in consumption. Other things being equal, we predict a decrease in the price of natural gas will |
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Definition
| decrease the demand for propane, causing a shift of the demand curve for propane leftward |
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Term
| If cheese and butter represent complements in consumption, we predict an increase in the price of cheese will |
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Definition
| decrease the demand for butter, shifting the demand curve to the left |
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Term
| Assume an unusually warm spring increases buyer preferences for spring clothes. Other things being equal, we predict |
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Definition
| the demand for spring clothes to increase (shift right) |
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Term
| Other things being equal, if buyers expect the price of beef to increase in the near future |
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Definition
| the demand for beef would increase now |
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Term
| Assume Tarleton students represent a significant part of the apartment rental market in Stephenville. Other things being equal, we predict an increase in Tarleton’s enrollment will |
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Definition
| increase the demand for apartments |
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Term
| The law of supply implies the quantity of a good supplied will increase when |
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Definition
| the good’s price increases |
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Term
| Seller response to a change in a nonprice supply determinant is shown as a shift of the supply curve and is called |
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Definition
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Term
| Other things being equal, if the number of beef cattle producers (sellers of beef cattle) increases, we predict |
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Definition
| the supply of beef cattle will increase |
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Term
| Other things being equal, an improvement in technology, which increases the productivity gasoline production will |
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Definition
| increase the supply of gasoline |
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Term
| Jet fuel is a major resource used in the production of air travel. Other things being equal, we predict a decrease in the price of jet fuel will |
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Definition
| increase the supply of air travel |
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Term
| Other things being equal, if producers of a good expect that good’s price to decrease in the near future, we predict |
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Definition
| the good's supply curve will shift rightward now |
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Term
| At the market equilibrium price |
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Definition
quantity demanded equals quantity suplied
-no tendency for the price to change |
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Term
| Assume pinto beans represent an inferior good. Other things being equal, an increase in consumer incomes will |
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Definition
| decrease the equilibrium price and quantity of pinto beans |
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Term
| Other things being equal, if buyers expect the price of beef to increase in the near future, |
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Definition
| the equilibrium price and quantity of beef will increase |
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Term
| Other things being equal, if an improvement in technology increases the productivity of gasoline production, |
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Definition
| the equilibrium price of gasoline will decrease, and the quantity will increase |
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Term
| Assume air travel represents a normal good, and jet fuel is a major resource used in the production of air travel. Other things being equal, if consumer incomes increase at the same time the price of jet fuel decreases, we predict |
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Definition
| the equilibrium quantity of air travel will increase, and the change in price will be indeterminate |
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