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| The study of how people use their scarce resources to satisfy their unlimited wants |
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| The inputs, or factors or production, used to produce the goods and services that people want; resources consist of labor, capital, natural, resources, and entrepreneurial ability |
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| The physical and mental effort used to produce goods and services |
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| Jobs without the use of machinery |
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| The buildings, equipment, and human skills used to produce goods and services |
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| All gifts of nature used to produce goods and services; includes renewable and exhaustible resources |
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| The imagination required to develop a new product or process, the skill needed to organize production, and the willingness to take the risk of profit or loss |
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A profit-seeking decision maker who starts with an idea, organizes an enterprise to bring that idea to life, and assumes the risk of the operation.
-Hours of operation, consistency, quality |
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| Payment to resource owners for their labor |
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| Payment to resource owners for the use for their capital. |
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| Payment to resource owners for the use of their natural resources |
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| Reward for entrepreneurial ability; sales minus resource cost |
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| A tangible product used to satisfy human wants |
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| An activity, or intangible product, used to satisfy human wants |
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| Occurs when the amount of people desire exceeds the amount available at a zero price. |
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| A set of arrangements by which buyers and sellers carry out exchange at mutually agreeable terms |
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| A market in which a good or service is bought and sold. Consumer Market |
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| A market in which a resource is bought and sold |
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| A diagram that traces the flow of resources, products, income, and revenue among economic decision makers |
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| Each individual tries to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit. |
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| Incremental, additional, or extra; used to describe a change in an economic variable. +1 |
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| The study of the economic behavior in particular markets, such as that for computers or unskilled labor |
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| The study of the economic behavior of entire economics, as measured, for example, by total production and employment |
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| The rise and fall of economic activity relative to the long-term growth trend of the economy; also called business cycle. |
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| A simplification of reality used to make predictions about cause and effect in the real world |
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| ...Starts with a Question |
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| A measure, such as price or quantity that can take on different values at different times. |
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| Other-Things-Constant Assumption |
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| The assumptions, when focusing on the relation among key economic variables, that other variables remain unchanged, in Latin, ceteris paribus |
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| An assumption that describes the expected behavior of economic decision makers; what motivates them |
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| A theory about how key variables relate to each other |
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| The benefit of taking an action minus its cost |
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| The value of what must be forgone to undertake an activity |
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| A cost that is beyond recovery at the moment a decision is made |
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| The increase in total cost that results from carrying out one more unit of activity |
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| The increase in total benefit that results from carrying out one additional unit of an activity. |
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| Income Effect of a Price Change |
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| a fall in a price of a good increases consumer’s real income making consumers more able to purchase goods; for a normal good, the quantity demanded increases |
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| a curve showing the relation between the price of a good and the quantity demanded during a given period (other things constant) (static) |
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| the amount demanded at a particular price, as reflected by a point on a given demand curve |
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| sum of the individual demands of all consumers in the market |
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| a good, such as new clothes, for which demand increases, or shifts rightward, as consumer incomes rise |
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| a good, such as used clothes, for which demand decreases, or shifts leftward, as consumer incomes rise |
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| goods, such as Coke and Pepsi, that are related in such a way that an increase in the price of one shifts the demand for the other rightward |
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| goods, such as milk and cookies, that are related in such a way that an increase in the price of one shifts the demand for the other leftward |
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| consumer preferences; likes and dislikes in consumption; assumed to be constant along a given demand curve |
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| Movement Along a Demand Curve |
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| change in quantity demanded resulting from a change in the price of the good (o.t.c) |
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| Law of Comparative Advantage |
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| The individual, firm, region or country with the lowest opportunity cost of producing a particular good should specialize in that good. |
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| The ability to make something using fewer resources than other producers use |
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| The ability to make something at a lower opportunity cost than other producers face |
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| The direct exchange of one good for another good without using money. (Relevance Today) |
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| Breaking down the production of a good into separate tasks (increases Productivity) |
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| Workers specialize at a task in the production process at which they are most efficient |
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| Breaking down the production of a good into separate tasks (increases Productivity) |
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| Workers specialize at a task in the production process at which they are most efficient |
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| Breaking down the production of a good into separate tasks (increases Productivity) |
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| Workers specialize at a task in the production process at which they are most efficient |
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| The production Possibilities frontier |
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| A curve showing alternative combinations of goods that can be produced when available resources are used efficiently. (A boundary between inefficient and unattainable combinations.) |
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| The condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another good. |
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| When resources are not employed efficiently (Any point inside the PPF) |
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| Cannot be achieved with the existing resources, technology, human capital, and or rules of the game. (Any point outside of the PPF) |
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| Law of increasing opportunity cost |
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| to produce each additional increment of a good, a successively larger increment of an alternative good must be sacrificed it the economy's resources are already being used efficiency |
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An increase in the economy's ability to produce goods and services; an upward shift of the production possibilities frontier
Example. Population growth |
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| A set of mechanisms and institutions that resolve the what, how, and for whom questions. |
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| An economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets. |
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| Laissez-faire (physiocrats); Supply and demand; Division of labor; invisible hand |
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| An economic system characterized by the private ownership of some resources and the public ownership of other resources; some markets are unregulated and others are regulated (features...) |
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| An economic system characterized by the public ownership of resources and centralized planning (features) |
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| Satisfaction received from consumption; Sense of well being |
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Jeremy Bentham
Does something serve a useful purpose? Applied this to Parts of government/ political system |
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| cash or in-kind benefits given to individuals as outright grants from the government |
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Developments of large scale factory production that began in Great Britain around 1750 and spread to the rest of Europe, North America, and Austria
Doubled because of the French revolution |
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| Economic units formed by profit seeking entrepreneurs who use resources to produce goods and services for sale. |
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A firm with a single owner who has the right to all profits and who bears unlimited liability for the firm's debts
oMake up about 80% of America
o10% of our GDP |
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A firm with multiple owners who share the firm’s profits and bear limited liability for the firm's debts.
oProblems, disagreements, uneven work, theft |
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A legal entity by stockholders whose liability is limited to the value of their stock
o A realized capital gain is any increase in the market value of a shore that occurs between the time that the share is purchased and the time it is sold
oAbout 12% of America
oAbout 82% of GDP
oThe sole proprietor ship is the most important form in the sheer number of firms, but the corporation is the most important in terms of total sales. |
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| An organization of people who pull their resources together to buy and sell more efficiently than they could individually. |
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| Groups that do not pursue profit as a goal; they engage in charitable, educational, humanitarian, cultural, professional, or other activities, often with a social purpose. |
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| Technological change spawn by the invention of the microchip and the internet that enhanced the acquisition, analysis, and transmission of information. |
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A condition that arises when the unregulated operation of market yields socially undesirably results
oAirlines comparing prices so they were all the same |
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Prohibitions against price fixing and other anticompetitive practices
oLowering price to drive the competitor out of business
oAgreeing on prices between companies |
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| A sole producer of a product for which there are no close substitutions. |
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| One firm that can serve the entire market at a lower per-unit cost than can two or more firms |
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| A good that is both rival in consumption and exclusive, such a pizza |
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| A good that once produced, is available for all to consume, regardless of who pays and who doesn't such a good is non rival and nonexclusive. |
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| A cost or a benefit that falls on a third party and is therefore ignored by the two parties to the market transactions |
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| The use of government purchases, transfer payments, taxes, and borrowing to influence economy-wide activity such as inflation, employment, and economic growth. |
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| Regulation of the money supply to influence economy-wide activity such as inflation, employment, and economic growth |
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| Ability-to-pay tax principle |
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| Those with a greater ability to pay such as those with a higher income or those who own more property should pay more taxes |
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| Benefits-received tax principle |
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| Those who receive more benefits from the government program funded by a tax should pay more taxes |
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| The distribution of tax burden among the taxpayers; who ultimately pays tax. |
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| The tax as a percentage of income remains constant as income increases also called a flat tax. |
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| The tax as a percentage of income increases as income increases |
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| The percentage of each additional dollar of income that goes to the tax |
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| The tax as a percentage of income decreases as income increases. |
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| Merchandise trade balance |
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| The value of a country's exported goods minus the value of it's imported goods during a given period. |
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| A record of all economic transactions between residents of one country and residents of the rest of the world during a give period |
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| Foreign money needed to carry our international transactions |
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| A legal limit on the quantity of a particular product that can be imported or exported. |
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| A relationship between the price of a good and the quantity that consumers are willing and able to buy during a given period (o.t.c) (Other things constant) |
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| The quantity of a good demanded during a given period relates inversely to its price (O.t.c) |
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| Substitution effect of a price change |
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| When the price of a good falls, consumers substitute that good for other goods, which become relatively more expensive. |
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| The number of dollars a person receives per period, such as $400 per week |
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| Income measured in terms of the goods and services it can buy. |
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| Income effects of a price change |
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Definition
| A fall in the price of a good increases consumers real income making consumers more able to purchase goods; for a normal good, the quantity demanded increases |
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Definition
| A curve showing the relation between the price of a good and the quantity demanded during a given period (o.t.c.) (static) |
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Definition
| The amount demanded at a particular price, as reflected by a point on a given demand curve. |
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Definition
| A good, such as new clothes, for which demand increases, or shifts rightward, as consumer incomes rise |
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Definition
| A good, such as used clothes, for which demand decreases, or shifts leftward, as consumer incomes rise |
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Definition
| Goods, such as coke or Pepsi, that are related in such a way that an increase in the price of one shifts the demand for the other rightward |
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Definition
| Goods, such as milk and cookies, that are related in such a way that an increase in the price of one shifts the demand for the other leftward. |
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Definition
| Consumer preferences; likes and dislikes in consumption; assumed to be constant along a given demand curve |
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| Movement along a demand curve |
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Definition
| Change in quantity demanded resulting from a change in the price of the good (o.t.c.) (static) |
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Definition
| movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good. |
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| A relationship between the price of a good and the quantity that producers are willing and able to sell during a given period (o.t.c.) |
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| The quantity of a good supplied during a given period is usually directly related to it's price (o.t.c.) |
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| A curve showing the relation between the price of a good and the quantity supplied during a given period |
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| The amount offered for sale at a particular price, as reflected by a point on a given supply curve. |
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| The supply of an individual producer |
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| The sum of individual supplies of all producers in the market |
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| Resources used to produce the good in question |
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| Other good that use some or all of the same resources as the good in question |
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| Movement along a supply curve |
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| Change in quantity supplied resulting from a change in the price of the good (o.t.c.) |
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| Movement along a supply curve left or right resulting from a change in one of the determinants of supply other than the price of the good |
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The costs of time and information required to carry out market
-Chicago board of trade (agricultural stock market) |
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| At a given price, the amount by which quantity supplied exceeds quantity demanded; a surplus usually forces the price down. |
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| At a given price, the amount by which quantity demanded exceeds quantity demanded; a shortage usually forces the price up. |
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| The condition that exists in a market when the plans of buyers match those of sellers, so quantity demanded equals quantity supplied and the market clears. |
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| The condition that exists in a market when the plans of buyers do not match those of seller' a temporary mismatch between quantity supplied and quantity demanded as the marked seeks equilibrium. |
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| A minimum legal price below which a good or service cannot be sold' to have an impact, a ______ must be set above the equilibrium. |
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| A maximum legal price above which a good or service cannot be sold; to have an impact |
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| Price Elasticity of demand |
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Definition
| Measures how responsive quantity demanded is to a price change' the percentage change in quantity demanded divided by the percentage change in price. |
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Definition
| Percentage change in quantity demanded divided by the percentage change in price; the average quantity and average price are used as bases for computing percentage changes in quantity and in price |
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| A change in price has relatively little effect on quantity demanded; the percentage change in quantity demanded is less than the percentage change in price; the resulting price elasticity has an absolute value less than one. |
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Definition
| The percentage change in quantity demanded equals the percentage change in price; the resulting price elasticity has an absolute value of one |
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| a change in price has a relatively large effect on quantity demanded; the percentage change in quantity demanded exceeds the percentage change in price; the result in price elasticity has an absolute value exceeding one. |
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| price multiplied by the quantity demanded at the price |
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| A straight line curve; such as a demand curve has a constant slope but usually has a varying price elasticity |
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| Perfectly elastic demand curve |
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Definition
| A horizontal line reflecting a situation in which and price increase reduces quantity demanded to zero; the elasticity has an absolute value of infinity |
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| Perfectly inelastic demand curve |
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| A vertical line reflecting a situation in which any price change has no effect on the quantity demanded; the elasticity value equals zero |
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| Unit-Elastic demand curve |
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Definition
| Everywhere along the demand curve, the percentage change in price causes an equal but offsetting percentage change in quantity demanded, so total revenue remand the same; the elasticity has an absolute value of one |
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| Constant-elasticity demand curve |
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| The type of demand that exists when price elasticity is the same everywhere along the curve; the elasticity value is constant. |
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| Price Elasticity of supply |
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Definition
| A measure of the responsiveness of quantity supplied to a price change; the percentage change in quantity supplied divided by the percentage change in price |
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Definition
| A change in price has relatively little effect on quantity supplied; the percentage change in quantity supplied is less than the percentage change in price; the price elasticity of supply has a value less than 1 |
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Definition
| The percentage change in quantity supplied equals the percentage change in price; the resulting price elasticity of supply equals 1 |
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Definition
| A change in price has a relatively large effect on quantity supplied; the percentage change in quantity supplied exceeds the percentage change in price; the resulting price elasticity of supply exceeds 1 |
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| Perfectly elastic supply curve |
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| A horizontal line reflecting a situation in which any price decrease drops the quantity supplied to 0; the elasticity value is infinity |
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| Perfectly inelastic supply curve |
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| A vertical line reflecting a situation in which a price change has no effect on the quantity supplied; the elasticity value is zero |
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| Unit- elastic supply curve |
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Definition
| A percentage change in price causes an identical percentage change in quantity supplied; depicted by a supply curve that is a straight line from the origin; the elastic value equals 1 |
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| Income Elasticity of demand |
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| The percentage change in demand divided by the percentage change in consumer income; the value is positive for normal goods and negative for inferior goods. |
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| Cross-price elasticity of demand |
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Definition
| The percentage of change in the demand of one good divided by the percentage of change in the price of another good. |
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