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Economics 1 > Chapter 1-6 Definitions > Flashcards

Chapter 1-6 Definitions Flashcards

1
Q

Economics

A

Study of choices consumers, business managers and gov’t make to attain their goals, given their scarce resources

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2
Q

Scarcity

A

Unlimited wants exceed the limited resources available to fulfill those wants;
As individuals, we face a scarcity of time (number of hours to satisfy our desires) and spending power (amount of money to satisfy desires)

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3
Q

3 assumptions: rational, margins, incentives

A

People are rational, respond to incentives, optimal decisions are made at the margin

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4
Q

Market

A

A group of buyers and sellers of a good and service and the institution or arrangement by which they come together; Three ideas of how people make choices and interact in markets

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5
Q

Centrally Planned Economy

A

Gov’t decides how economic resources will be allocated

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6
Q

Market Economy

A

An economy in which the decisions of households and firms interacting in markets allocate economic resources.

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7
Q

Mixed Economy

A

Most economic decisions are made by the market, but gov’t plays significant role in allocating resources

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8
Q

Trade Off

A

Production of one good means less of another; the one given up is opportunity cost

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9
Q

Opportunity Cost

A

Highest valued alternative that must be given up to engage in an activity

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10
Q

Sunk Cost

A

A cost that has already been paid that cannot be recovered

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11
Q

Absolute Advantage

A

The ability of an individual, a firm to produce more of goods & services than competitors using the same amount of resources

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12
Q

Comparative Advantage

A

The ability of an individual, a firm, or a country to produce goods & services at a lower opportunity cost than competitors

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13
Q

Productive Inefficiency

A

A situation in which goods and services are produced at the lowest cost; competition among firms

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14
Q

Allocative Efficiency

A

A state of the economy in which production is in accordance with consumer preferences; every good or service is produced to the point where the last unit provides marginal benefit to society = to marginal cost of producing it

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15
Q

Equity

A

fair distribution of economic benefits

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16
Q

Positive Analysis

A

Analysis concerned with what is

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17
Q

Normative Analysis

A

Analysis concerned with what ought to be

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18
Q

Microeconomics

A

the study of how households and firms make choices, how they interact in markets and how gov’t attempts to influence their choices

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19
Q

Macroeconomics

A

the study of the economy as a whole including inflation, unemployment and economic growth

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20
Q

Production Possibility Frontier (PPF)

A

A curve showing maximum attainable combination of two goods that can be produced with available resources and current technology

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21
Q

Demand Curve

A

shows the relationship between the price of a product and the quantity of the product demanded

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22
Q

Supply Curve

A

shows the relationship between the price of a product and the quantity of the product supplied

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23
Q

Law of Demand & Supply

A

Supply: quantity increases as price increases (vice versa)
Demand: quantity increases as price decreases

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24
Q

Outside Shock

A

An unexpected event that causes the short-run aggregate supply or demand curve to shift

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25
Q

Substitutes

A

goods & services that can be used for the same purpose

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26
Q

Complements

A

goods & services that are used together

27
Q

Normal Good

A

A good for which the demand increases as income rises and decreases as income falls

28
Q

Inferior Good

A

A good for which the demand increases as income falls and decreases as income rises

29
Q

Market Equilibrium

A

A situation in which quantity demanded equals quantity supplied

30
Q

Shortage

A

A situation in which the quantity demanded is greater than the quantity supplied

31
Q

Surplus

A

A situation in which the quantity supplied is greater than the quantity demanded

32
Q

Marginal Benefit

A

The additional benefit to a consumer from consuming one more unit of a good or service

33
Q

Marginal Cost

A

The additional cost to a firm producing one more unit of a good or service

34
Q

Price Ceiling

A

A legally determined maximum price that sellers may charge

35
Q

Price Floor

A

A legally determined minimum price that sellers may receive

36
Q

Deadweight Loss

A

The reduction in economic surplus resulting from a market not being in competitive equilibrium

37
Q

Winner/Loser

A

 Some people win: people who pay less for rent in rent-controlled apartments. May also be landlords who break the law by charging rents above legal maximum for their apartments provided that is it higher than the competitive equilibrium rents
 Some people lose: landlord of rent-controlled apartments who abide by the law and renters who cannot find apartments to rent at the controlled price
 There is a loss of economic efficiency: fewer apartments are rented compared to in a competitive market. The resulting deadweight loss measures decrease in economic efficiency

38
Q

Tax Incidence

A

the actual division of the burden of a tax between buyers and sellers in the market

39
Q

Externality

A

a benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service;
negative externality: market produces quantity greater than the efficient amount.
positive externality: market produces quantity lesser than the efficient amount.

40
Q

Private Cost

A

the cost borne by the producer of a good or service

41
Q

Social Cost

A

the total cost of producing a good or service, including both the private cost and any external cost

42
Q

Private Benefit

A

the benefit received by the consumer of a good or service

43
Q

Social Benefit

A

the total benefit from consuming a good or service, including both the private benefit and any external benefit

44
Q

Transaction Cost

A

the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services

45
Q

Coase Theorem

A

if transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities

46
Q

Command and control approach

A

a policy that involved the government imposing quantitative limits on the amount of pollution firms are allowed to emit or requiring firms to install specific pollution control devices

47
Q

Private Good

A

good that is both rival and excludable

48
Q

Public Good

A

a good that is both nonrival and nonexcludable

49
Q

Quasi-public Good

A

a good that is nonrival and excludable

50
Q

Common Good

A

a good that is rival and nonexcludable

51
Q

Free Rider

A

benefiting from a good without paying for it

52
Q

Merit Goods

A

goods and services that the gov’t feels that people will under-consume, which ought to be provided free so that consumption doesn’t depend on the ability to pay

53
Q

Tragedy of the Commons

A

the tendency for a common resource to be overused

54
Q

Pollution

A

negative externality; the optimum amount of pollution is when (MC=MCPR) marginal cost of pollution=marginal cost of pollution reduction

55
Q

Price Elasticity of Demand

A

The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage in the product’s price

56
Q

Income Elasticity of Demand

A

a measure of the responsiveness of the quantity demanded to changes in income, measured by the percentage change in the quantity demanded divided by the percentage change in income

57
Q

Cross Price Elasticity of Demand

A

the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good

58
Q

Midpoint Formula

A

%ΔQD / %ΔP = | [(Q2-Q1) / ((Q2+Q1)/2)] / [(P2-P1) / ((P2+P1)/2)]

59
Q

Elasticity

A

A measure of how much one economic variable responds to changes in another economic variable

60
Q

Perfectly Elastic Demand (Supply)

A

the case where the percent change in quantity demanded (supplied) is infinitely responsive to percent change price and the price elasticity of demand (supply) equals infinity

61
Q

Perfectly Inelastic Demand

A

the case where the percent change in quantity demanded (supplied) is completely unresponsive to percent change in price and the price elasticity of demand (supply) equals zero

62
Q

Unit-elastic demand (supply)

A

the percentage change in quantity demanded (supplied) is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value

63
Q

Profit

A

Difference between total revenue-total cost

64
Q

Total Revenue

A

Quantity*Price

Economics 1 (1 decks)

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