defenitions Flashcards
(22 cards)
What are the four core principles of economics?
Cost-Benefit Principle, Opportunity Cost Principle, Marginal Principle, and Interdependence Principle.
What does the Cost-Benefit Principle state?
Pursue choices where benefits outweigh costs. Convert costs and benefits into monetary terms to evaluate decisions.
Define opportunity cost.
The value of the next best alternative you give up when making a choice.
What is economic surplus?
The difference between benefits and costs, measuring how much a decision improves well-being.
What is the Marginal Principle?
Decisions about quantities are best made incrementally, using marginal cost and marginal benefit to decide.
What is the Interdependence Principle?
Your best choice depends on other choices you make, the choices of others, developments in other markets, and future expectations.
What is a demand curve?
A graph showing the quantity consumers plan to buy at each price, holding other factors constant.
Explain the law of demand.
As the price of a good decreases, the quantity demanded increases, and vice versa.
What shifts a demand curve?
Changes in income, preferences, prices of related goods, expectations, and number/type of buyers.
What is the difference between a movement along and a shift of a demand curve?
A movement occurs due to price changes, while a shift occurs due to changes in other economic factors.
What is a supply curve?
A graph showing the quantity a business plans to sell at each price, holding other factors constant.
Explain the law of supply.
As the price of a good increases, the quantity supplied increases, and vice versa.
What shifts a supply curve?
Changes in input prices, productivity, technology, prices of related outputs, expectations, and number/type of sellers.
What is market equilibrium?
The point where supply equals demand, with no tendency for price or quantity to change.
What causes shifts in market equilibrium?
Changes in supply or demand curves.
What is price elasticity of demand?
A measure of how responsive buyers are to price changes.
What factors affect price elasticity of demand?
Availability of substitutes, necessity of the good, time frame, and proportion of income spent on the good.
What is the difference between elastic and inelastic demand?
Elastic demand means quantity demanded is very responsive to price changes; inelastic demand means it is not.
What is cross-price elasticity of demand?
A measure of how the quantity demanded of one good responds to price changes of another good.
What is income elasticity of demand?
A measure of how demand for a good changes with consumer income.
What is price elasticity of supply?
A measure of how responsive the quantity supplied is to price changes.
What factors affect price elasticity of supply?
Availability of inventories, flexibility of inputs, extra capacity, ease of entry/exit, and time frame.
