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Econ > Econ Midterm 1 Chap. 1-5 > Flashcards

Econ Midterm 1 Chap. 1-5 Flashcards

1
Q

Comparative advantage

A

refers to the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can.

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2
Q

Economics

A

is the study of how individuals and societies allocate their limited resources to satisfy their practically unlimited wants.

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3
Q

Economic thinking

A

requires a purposeful evaluation of the available opportunities to make the best decision possible

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4
Q

Incentives

A

factors that motivate someone to act or exert effort

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5
Q

Macroeconomics

A

The study of the overall aspects and workings of an economy

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6
Q

Marginal-thinking

A

Requires decision makers to evaluate whether the benefit of one more unit of something is greater than its cost

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7
Q

Markets

A

Brings buyers and sellers together to exchange goods and services

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8
Q

Microeconomics

A

The study of the individual units that make up the economy

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9
Q

Opportunity Cost

A

Is the highest-valued alternative that must be sacrificed to get something else

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10
Q

Scarcity

A

Refers to the inherently limited nature of society’s resources, given society’s unlimited wants and needs

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11
Q

Trade

A

The voluntary exchange of goods and services between two or more parties

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12
Q

Capitalist economic system

A

A system in which individuals answer the Who, What, and How questions of production

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13
Q

The three essential questions in an economic system

A

a) WHAT goods and services must be produced? b) HOW will these goods and services be produced? c) WHO uses the goods and services that are produced?

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14
Q

Ceteris paribus

A

means “all else equal” and is used to build economic models. It allows economists to examine a change in one variable while holding everything else constant.

For example, if the price of Coca-Cola falls, ceteris paribus, its demand will increase.

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15
Q

Circular Flow Diagram

A

shows how resources and final goods and services flow through the economy

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16
Q

Command Economic System

A

The government answers the What, How, and Who questions of production

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17
Q

Economic Model

A

A simplified version of reality used to forecast how components of the economy react to changes

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18
Q

Economic System

A

An organized scheme for producing and distributing goods in a society

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19
Q

homo-economicus

A

economic man, is a way to describe humans as rational decision-makers looking to maximize their own well-being

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20
Q

Long run

A

participants in a market can fully adjust to market conditions

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21
Q

Mixed economy

A

Contains components of both a capitalist and command economy (No economy is fully capitalist or command—it is a spectrum)

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22
Q

Natural Experiment

A

Occurs when real-world events meet the criteria of an experiment designed to test an experiment

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23
Q

Normative Statement

A

an opinion that cannot be tested or validated; it describes “what ought to be.”

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24
Q

Positive Statement

A

can be tested and validated; it describes “what is.”

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25
Q

Short Run

A

Participants in a market can only partially adjust to market conditions

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26
Q

Absolute Advantage

A

refers to one producer’s ability to make more than another producer with the same quantity of resources.

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27
Q

Law of Increasing Opportunity Cost

A

states that the opportunity cost of producing a good rises as a society produces more of it.

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28
Q

Production Possibilities Frontier (PPF)

A

is a model that illustrates the combinations of outputs a society can produce if all of its resources are being used efficiently

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29
Q

Specialization

A

is the limiting of ones work to a particular area

30
Q

competitive market

A

exists when there are so many buyers and sellers that each has only a small (negligible) impact on the market price and output.

31
Q

Complements

A

Two goods that are used together. When the price of a complementary good rises, the quantity demanded of that good falls and the demand for the related good goes down.

32
Q

Demand Curve

A

A graph of the relationship between the prices in the demand schedule and the quantity demanded at each of those prices

33
Q

Demand schedule

A

A table that shows the relationship between the price of a good and the quantity demanded

34
Q

Equilibrium

A

Occurs at the point where the demand curve and supply curve intersect

35
Q

Equilibrium Price

A

The price at which the quantity supplied is equal to the quantity demanded

36
Q

Equilibrium quantity

A

The amount at which the quantity supplied is equal to the quantity demanded

37
Q

Imperfect market

A

One in which either the buyer or seller can influence the market price or output

38
Q

Inferior good

A

one where demand declines as income rises

39
Q

Inputs

A

resources used in the production process

40
Q

The Invisible Hand

A

a phrase that refers to the unobservable market forces that guide resources to their highest-valued use.

41
Q

Law of demand

A

States that, all other things being equal, quantity demanded falls when the price rises, and rises when the price falls

42
Q

Law of supply

A

States that, all other things being equal, the quantity supplied of a good rises, and falls when the price of the good falls

43
Q

Law of Supply and Demand

A

states that the market price of any good will adjust to bring the quantity supplied and the quantity demanded into balance.

44
Q

Market Demand

A

The sum of all individual quantities demanded by each buyer in a market at each price

45
Q

Market economy

A

resources are allocated among households and firms with little or no government interference

46
Q

Market Power

A

A firms ability to influence the price of a good or service by exercising control by exercising control over its demand, supply, or both

47
Q

Market supply

A

The sum of the quantities supplied by each seller in the market at each price

48
Q

Price

A

A market determined opportunity cost of a good or service

49
Q

Purchasing Power

A

is the value of your income expressed in terms of how much you can afford

50
Q

Quantity Demanded

A

is the amount of a good or service buyers are willing and able to purchase at the current price.

51
Q

Quantity Supplied

A

is the amount of a good or service producers are willing and able to sell at the current price.

52
Q

Shortage

A

occurs whenever the quantity supplied is less than the quantity demanded. A shortage is also called excess demand.

53
Q

Subsidy

A

a payment made by the government to encourage the consumption or production of a good or service.

54
Q

Substitutes

A

two goods that are used in the place of each other (interchangeable.) When the price of a substitute good rises, the quantity demanded of that good falls and the demand for the related good goes up.

55
Q

Supply Curve

A

A graph of the relationship between the prices in the supply schedule and the quantity supplied at each of those prices

56
Q

Supply schedule

A

A table that shows the relationship between the price of a good and the quantity supplied

57
Q

Surplus

A

Occurs whenever the quantity supplied is greater than the quantity demanded. (a surplus is also called excess supply.)

58
Q

Black Markets

A

Illegal markets that arise when price controls are put in place

59
Q

Consumer surplus

A

Equals the buyer’s willingness to pay minus the price actually paid

60
Q

When is an outcome considered efficient

A

when an allocation of resources maximizes total surplus.

61
Q

Equity

A

refers to the fairness of the distribution of benefits among the members of a society

62
Q

Minimum Wage

A

The lowest hourly wage rate that firms may legally pay their workers

63
Q

Price ceiling

A

a legally established maximum price for a good or service.

64
Q

Price floor

A

a legally established minimum price for a good or service.

65
Q

Price controls

A

attempt to set prices through government involvement in the market

66
Q

Price Gouging Laws

A

place a temporary ceiling on the prices that sellers can charge during times of emergency.

67
Q

Producer Surplus

A

Equals the price the seller receives minus the willingness to sell

68
Q

Total surplus

A

is the sum of consumer surplus and producer surplus. It measures the well-being of all participants in a market, absent any government intervention.

69
Q

Willingness to pay

A

is the maximum price a consumer will pay for a good or service; also known as the reservation price.

70
Q

Willingness to sell

A

is the minimum price a seller will sell a good or service

Econ (2 decks)

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