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West Point USMA SS201
Lessons 1-12 (1st Micro Writ)
124
Economics
Undergraduate 2
09/25/2017

Additional Economics Flashcards

 


 

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Term
Economic Agent
Definition
an individual or a group that makes choices
Term
Scarce Resources
Definition
things that people want, where the quantity that people want exceeds the quantity that is available
Term
Scarcity
Definition
the situation of having unlimited wants in a world of limited resources
Term
Economics
Definition
the study of how agents choose to allocate scarce resources and how those choices affect society
Term
Positive Economics
Definition
analysis that generates objective descriptions or predictions about the world that can be verified with data
Term
Normative Economics
Definition
analysis that prescribes what an individual or society ought to do
Term
Microeconomics
Definition
the study of how individuals, households, firms, and governments make choices, and how those choices affect prices, the allocation or resources, and the well-being of other agents
Term
Macroeconomics
Definition
the study of the economy as a whole
Term
Optimization
Definition
trying to choose the best feasible option, given the available information
Term
Equalibrium
Definition
the special situation in which everyone is simultaneously optimizing, so nobody would benefit personally by changing his or her own behavior
Term
Empiricism
Definition
analysis that uses data. Economists use data to test theories and to determine what is causing things to happen in the world
Term
trade-off
Definition
when the agent needs to give up one thing to get something else.
Term
budget constraint
Definition
shows the bundles of good or services that a consumer can choose given his or her limited budget
Term
Opportunity Cost
Definition
the best alternative use of a resource
Term
Cost-Benefit Analysis
Definition
a calculation that adds up costs and benefits using a common unit of measurement, like dollars
Term
Scientific Method
Definition
is the name for the ongoing process that economists use to (1) develop models of the world and (2) test those models with data
Term
Model
Definition
a simplified description, or representation, of the world
Term
Data
Definition
facts, measurements, or statistics that describe the world
Term
Empirical Evidence
Definition

is a set of facts established by observation and measurement

 

Term
Hypotheses
Definition
predictions that can be tested with data
Term
Mean aka Average
Definition
the sum of all the different values divided by the number of values
Term
Causation
Definition
occurs when one thing directly affects another through a cause-and-effect relationship
Term
Correlation
Definition
means that there is a mutual relationship between two things
Term
Variable
Definition
a factor that is likely to change or vary
Term
Positive Correlation
Definition
implies that two variables tend to move in the same direction.
Term
Negative Correlation
Definition
implies that two variables tend to move in opposite directions
Term
Zero Correlation
Definition
when variables have movements that are not related
Term
Omitted Variable
Definition
something that has been left out of a study that, if included, would explain why two variables that are in the study are correlated
Term
Reverse Causality
Definition
occurs when we mix up the direction of cause and effect
Term
Experiment
Definition

is a controlled method of investigating casual relationships among variables

 

Term
Randomization
Definition
is the assignment of subjects by chance, rather than by choice, to a treatment group or control group
Term
Natural Experiment
Definition
is an empirical study in which some process -out of the control of the experimenter- has assigned subjects to control and treatment groups in a randomly or nearly random way
Term
Optimization in Levels
Definition
calculates the total net benefit of different alternatives and then chooses the best alternative
Term
Optimization in Differences
Definition
calculates the change in net benefits when a person switches from one alternative to another and then uses these marginal comparisons to choose the best alternative
Term
Behavioral Economics
Definition
jointly analyzes the economic and psychological factors that explain human behavior
Term
Optimum
Definition
the best feasible choice
Term
Comparative Statistics
Definition
is the comparison of economic outcomes before and after some economic variable is changed
Term
Marginal Analysis
Definition
a cost benefit calculation that studies the difference between a feasible alternative and the next feasible alternative
Term
Marginal Cost
Definition
the extra cost generated by moving from one feasible alternative to the next feasible alternative
Term
Principle of Optimization at the Margin
Definition
states that an optimal feasible alternative has the property that moving to it makes you better off and moving away from it makes you worse off
Term
Market
Definition
a group of economic agents who are trading a good or service, and the rules and arrangements for trading
Term
Market Price
Definition
all sellers and all buyers face the same price
Term
Perfectly Competitive Market
Definition
(1) sellers sell an identical good or service, and (2) any individual buyer or any individual seller isn't powerful enough on his or her own to affect the market price of that good or service
Term
Price Taker
Definition
a buyer or seller who accepts the market price
Term
Quantity Demanded
Definition
the amount of a good that buyers are willing to purchase at a given time
Term
Demand Schedule
Definition
a table that reports the quantity demanded at different prices, holding all else equal
Term
Holding All Else Equal
Definition
implies that everything else in the economy is held constant
Term
Demand Curve
Definition
plots the quantity demanded at different prices
Term
Negatively Related
Definition
if the variables move in the opposite direction
Term
Law of Demand
Definition
In almost all cases, the quantity demanded rises when the price falls (holding all else equal)
Term
Willingness to Pay
Definition
the highest price that a buyer is willing to pay for an extra unit of a good
Term
Diminishing Marginal Benefit
Definition
As you consume more of a good, your willingness to pay for an additional unit declines
Term
Aggregation
Definition
the process of adding up individual behaviors
Term
Market Demand Curve
Definition
the sum of the individual demand curves of all potential buyers. It plots the relationship between the total quantity demanded and the market price, holding all else equal
Term
Demand Curve Shifts
Definition
only happen when the quantity demanded changes at a given price
Term
Movement Along the Demand Curve
Definition
If a good's own price changes its demand curve hasn't shifted, the own price change produces _____
Term
Normal Good
Definition
an increase in income causes the demand curve to shift to the right (holding the good's price fixed)
Term
Inferior Good
Definition
an increase in income causes the demand curve to shift left (holding the good's price fixed)
Term
Substitutes
Definition
two goods are ____ when the fall in the price of one leads to a left shift in the demand curve of the other
Term
Complements
Definition
two goods are _____ when the fall in price of one, leads to a right shift in the demand curve for the other
Term
Supply Schedule
Definition
is a table that reports the quantity supplied at different prices, holding all else equal
Term
Quantity Supplied
Definition
the amount of a good or service that sellers are willing to sell at a given price
Term
Supply Curve
Definition
Plots the quantity supplied at different prices and the supply schedule
Term
Positively Related
Definition
two variables are ____ if the variables move in the same direction
Term
Law of Supply
Definition
In almost all cases, the quantity supplied rises when the price rises (holding all else equal)
Term
Willingness to Accept
Definition
is the lowest price that a seller is willing to get paid to sell an extra unit of a good. This is also the same as the marginal cost of production.
Term
Market Supply Curve
Definition
the sum of the individual supply curves of all the potential sellers. It plots the relationship between the total quantity supplied and the market price, holding all else equal.
Term
Input
Definition
is a good or service used to produce another good or service
Term
Supply Curve Shifts
Definition
this happens only when the quantity supplied changes at a given price
Term
Movement Along the Supply Curve
Definition
if a good's own price changes and its supply curve hasn't shifted, the own price change produces a ______
Term
Competitive Equilibrium
Definition
the crossing point of the supply curve and the demand curve
Term
Competitive Equilibrium Price
Definition
equates quantity supplied and quantity demanded
Term
Competitive Equilibrium Quantity
Definition
the quantity that corresponds to the competitive equilibrium price
Term
Excess Supply
Definition
when the market is above the competitive equilibrium price, quantity supplied exceeds quantity demanded, creating _____
Term
Excess Demand
Definition
When the market price is below the competitive equilibrium price, quantity demanded exceeds quantity supplied, creating ______
Term
Budget Set
Definition
the set of all possible bundles of goods and services that can be purchased with a consumer's income
Term
Consumer Surplus
Definition
the difference between willingness to pay and the price paid for the good
Term
Elasticity
Definition
the measure of sensitivity of one variable to a change in another
Term
Price Elasticity of Demand
Definition
measures the percentage change in quantity demanded of a good due to a percentage change in its price
Term
Arc Elasticity
Definition
a method of calculating elasticities that measures at the mid-point of the demand range
Term
Elastic Demand
Definition
goods that have ____ have a price elasticity of demand greater than 1
Term
Perfectly Elastic Demand
Definition
A very small increase in price causes consumers to stop using goods that have ______
Term
Unit Elastic Demand
Definition
goods that have ____ have a price elasticity of demand equal to 1
Term
Inelastic Demand
Definition
goods that have _____ have a price elasticity of demand less than 1
Term
Perfectly Inelastic Demand
Definition
Quantity demanded is unaffected by prices of goods with ______
Term
Cross-Price Elasticity of Demand
Definition
measures the percentage change in quantity demanded of a good due to a percentage change in another good's price
Term
Income Elasticity of Demand
Definition
measures the percentage change in quantity demanded due to a percentage change in income
Term
Normal Good
Definition
when income rises and consumers buy more of a good, it is a ______
Term
Inferior Good
Definition
When income rises and consumers buy less of a good, it is an _____
Term
Firm
Definition
any business entity that produces or sells a goods or services
Term
Production
Definition
the process that by which the transformation of inputs to outputs occurs
Term
Physical Capital
Definition
any good, including machines and buildings used for production
Term
Short Run
Definition
a period of time when only some of the firm's inputs can be varied
Term
Long Run
Definition
is a period of time when all of the firm's inputs can be varied
Term
Fixed Factor of Production
Definition
an input that cannot be changed in the short run
Term
Variable Factor of Production
Definition
an input that can be changed in the short run
Term
Marginal Product
Definition
the change in total output associated with using one more unit of input
Term
Specialization
Definition
the result of workers developing a certain skill set in order to increase total productivity
Term
Law of Diminishing Returns
Definition
states that successive increases in inputs eventually lead to less additional output
Term
Cost of Production
Definition
is what a firm must pay for its inputs
Term
Total Cost
Definition
is the sum of variable and fixed costs
Term
Variable Cost
Definition
A _____ is the cost of variable factors of production, which change along with a firm's output
Term
Fixed Cost
Definition
A _____ is the cost of fixed factors of production, which a firm must pay even if it produces zero outputs
Term
Average Total Cost (ATC)
Definition
the total cost divided by the total output
Term
Average Variable Cost (AVC)
Definition
the total variable cost divided by the total output
Term
Average Fixed Cost (AFC)
Definition
the total fixed cost divided by the total output
Term
Marginal Cost
Definition
the change in total cost associated with producing one more unit of output
Term
Revenue
Definition
the amount of money the firm brings in from the sale of its outputs
Term
Marginal Revenue
Definition
the change in total revenue associated with producing one more unit of output
Term
Profits
Definition
revenue minus costs
Term
Accounting Profits
Definition
equal to total revenue minus explicit costs
Term
Economic Profits
Definition
equal to total revenue minus both explicit and implicit costs
Term
Price Elasticity of Supply
Definition
the measure of how responsive quantity supplied is to price changes
Term
Shutdown
Definition
a short-run decision to not produce anything during a specific period
Term
Sunk Costs
Definition
costs that, once committed, can never be recovered and should not affect current and future decisions
Term
Producer Surplus
Definition
the difference between the market price and the marginal cost curve
Term
Economies of scale
Definition
this occurs when ATC falls as the quantity produced increases
Term
Constant returns of scale
Definition

exist when ATC does not change as the quantity produced changes

 

Term
Diseconomies of scale
Definition
This occurs when ATC rises as the quantity produced increases
Term
Exit
Definition
is a long-run decision to leave the market
Term
Social Surplus
Definition
the sum of consumer surplus and producer surplus
Term
Pareto efficient
Definition
An outcome is ______ if no individual can be made better off without making someone else worse off
Term
Value of Marginal Product of Labor
Definition
the contribution of an additional worker to a firm's revenues
Term
Value of Marginal Product of Physical Capital
Definition
the contribution of an additional unit of physical capital to a firm's revenues
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