Chapter 1, 2, 3 Flashcards Preview

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Flashcards in Chapter 1, 2, 3 Deck (56):
1

circular flow diagram

a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market

2

command economy

an economy where economic decisions are passed down from government authority and where resources are owned by the government

3

division of labor

the way in which the work required to produce a good or service is divided into tasks performed by different workers

4

economics

the study of how humans make choices under conditions of scarcity

5

economies of scale

when the average cost of producing each individual unit declines as total output increases

6

exports

products (goods and services) made domestically and sold abroad

7

fiscal policy

economic policies that involve government spending and taxes

8

globalization

the trend in which buying and selling in markets have increasingly crossed national boarders.

9

goods and services market

a market in which firms are sellers of what they produce and households are buyers

10

gross domestic product (GDP)

measure of the size of the total production in an economy

11

imports

products (goods and services) made abroad then sold domestically

12

labor market

the market in which households sell their labor as workers to business firms or other employers

13

macroeconomics

the branch of economics that focuses on broad issues such as growth, unemployment, inflation and trade balance

14

market

interaction between potential buyers and sellers; a combination of demand and supply

15

market economy

an economy where economic decisions are decentralized, resources are owned by private individuals, workers, and business firms

16

microeconomics

the branch of economics that focuses on actions of particular agents within the economy, like households, workers and business firms

17

monetary policy

policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing

18

private enterprise

system where the means of production (resources and businesses) are owned and operated by private individuals or groups of private individuals

19

scarcity

when human wants for goods and services exceed the available supply

20

specialization

when workers or firms focus on particular tasks for which they are well-suited within the overall production process

21

theory

a representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation

22

traditional economy

typically an agricultural economy where things are done the same as they have been done

23

allocative efficiency

when the mix of goods being produced represents the mix that society most desires

24

budget constraint

all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set

25

comparative advantage

when a country can produce a good at a lower cost in the terms of other goods; or, when a country has a lower opportunity cost of production

26

invisible hand

idea that self-interested behavior by individuals can lead to positive social outcomes

27

law of diminishing marginal utility

as we consume more of a good or service, the utility we get from additional units of the good or service tend to become smaller than what we received from earlier units

28

marginal analysis

examination of decisions on the margin, meaning a little more or a little less from the status quo

29

normative statement

statement which describes how the world should be

30

opportunity cost

measures cost by what is given up in exchange; opportunity cost measures the value of the forgone alternative

31

opportunity set

all possible combinations of consumption that someone can afford given the prices of goods and the individual's income

32

positive statement

statement which describes the world as it is

33

production possibilites frontier (PPF)

a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available

34

productive efficiency

when it is impossible to produce more of a good or service without decreasing the quantity produced of another good or service

35

sunk cost

costs that are made in the past and cannot be recovered

36

utility

satisfaction, usefulness, or value one obtains from consuming goods and services

37

ceteris paribus

other things being equal

38

complements

goods that are often used together so that consumption of one good tends to enhance consumption of the other

39

consumer surplus

the extra benefit consumers receive from buying a good or service, measured by what the individuals would have been willing to pay minus the amount that they actually paid

40

deadweight loss

the loss in social surplus that occurs when a market produces an inefficient quantity

41

demand

the relationship between price and the quantity demanded of a certain good or service

42

demand curve

a graphic representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis

43

demand schedule

a table that shows a range of prices for a certain good or service and the quantity demanded at each price

44

equilibrium

the situation where quantity demanded is equal to the quantity supplied; the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change

45

equilibrium price

the price where quantity demanded is equal to quantity supplied

46

equilibrium quantity

the quantity at which quantity demanded and quantity supplied are equal for a certain price level

47

excess demand

at the existing price, the quantity demanded exceeds the the quantity supplied; also called shortage

48

excess supply

at the existing price, quantity supplied exceeds the quantity demanded; also called a surplus

49

factors of production

the combination of labor, materials and machinery that is used to produce goods and services; also called inputs

50

inferior good

a good in which the quantity demanded falls as income rises, and in which quantity demanded rises and income falls

51

law of demand

the common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constant

52

law of supply

the common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, while all other variables are held constant

53

normal good

a good in which the quantity demanded rises as income rises, and in which quantity demanded falls as income falls

54

price

what a buyer pays for a unit of the specific good or service

55

price ceiling

a legal maximum price

56

price control

government laws to regulate prices instead of letting market forces determine prices