Prelim 1 Content Flashcards
comparative advantage
ability to do a task at a lower opportunity cost
absolute advantage
the ability to do a task using fewer resources
law of demand
as price decreases quantity demanded increases
change in price –>
movement along the demand curve
demand curve shift –>
determinants: income, preferences, price of related goods, expectations, network affects, buyer demographics
congestion effect
when a good becomes less valuable because other people also use it
network effect
when a good becomes more useful because other people use it
law of supply
quantity supplied will be higher when price is higher
conditions of perfect competition
businesses are selling identical goods, many sellers and many buyers, firms are price-takers
diminishing marginal product
the increase in output that arises from an additional unit of input declines as you add more input
shift of supply curve –>
input prices, productivity, technology, expectations, price of related goods, type/number of sellers
complements in production
goods that are produced together
substitutes in production
goods where producing one requires you produce less of another
planned economies
centralized decisions are made about what and how goods and services are produced/allocated
market economies
individual markets make their own production and consumption decisions
shortage
when quantity demanded exceeds quantity supplied (price rises)
