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Econ200 > Exam 1 > Flashcards

Exam 1 Flashcards

0
Q

Scarcity

A

Society has limited resources and therefore cannot produce all the goods and services people wish to have

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1
Q

Economy

A

Comes from Greek word oikonomos, which means “one who manages a household”

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2
Q

Economics

A

The study of how society manages it’s scarce resources

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3
Q

Economists study…

A

How people make decisions: how much they work, what they buy, how much they save, and how they invest.
Analyze forces and trends that affect the economy as a whole, including the growth in average income, the fraction of the population that cannot find work, and the rate at which prices are rising.

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4
Q

Principle 1

A

People face trade-offs

To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another

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5
Q

Efficiency

A

Society is getting the maximum benefits from it’s scarce resources

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6
Q

Equality

A

The property if distributing economic prosperity uniformly among the members of society

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7
Q

Principle 2

A

The cost of something is what you give up to get it.

Not usually just money can also be time or other goods

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8
Q

Opportunity cost

A

What you give up to get that item

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9
Q

Principle 3

A

Rational people think at the margin

Rational people know that decisions in life are rarely black and white but usually involve shades of gray

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10
Q

Rational people

A

People who systematically and purposefully do the best they can to achieve their objects

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11
Q

Marginal cost

A

A small incremental adjustment to an existing plan of action

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12
Q

Marginal adjustments

A

Adjustments around the edges of what you are doing

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13
Q

Principle 4

A

People respond to incentives

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14
Q

Incentive

A

Something that induces a person to act, such as the prospect of punishment or a reward

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15
Q

Principle 5

A

trade can make everyone better off

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16
Q

Principle 6

A

Markets are usually a good way to organize economic activities

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17
Q

Centrally planned economies

A

Only the government could analyze economic activity in a way that promoted economic well-being for the country as a whole

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18
Q

Market economy

A

An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

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19
Q

Adam Smith

A

Book “An Inquiry into the Nature and causes of the wealth of nations”
in 1776: made the most famous observation in all of economics: Households and firms interacting in markets act as if they are guided by an “invisible hand” that leads them to desirable market outcomes

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20
Q

Principle 7

A

Governments can sometimes improve market outcomes

we need the government to enforce the rules and maintain the institutions that are key to a market economy

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21
Q

Property rights

A

the ability of an individual to own and exercise control over scarce resources

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22
Q

Market failure

A

a situation in which a market left on its own fails to allocate resources efficiently

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23
Q

Externality

A

the impacts of one person’s actions on the well-being of a bystander

ex. pollution

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24
Q

market power

A

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

ex. if everyone in town needs water but there is only one well, the owner of the well is not subject to the rigorous competition with which the invisible hand normally keeps self-interest in check

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25
Q

Principle 8

A

A country’s standard of living depends on its ability to produce goods and services

26
Q

Productivity

A

the quantity of goods and services produced from each unit of labor input

27
Q

Principle 9

A

prices rise when the government prints too much money

28
Q

Inflation

A

an increase in the overall level of prices in the economy

29
Q

Principle 10

A

the society faces a short-run trade-off between inflation and unemployment

30
Q

short-run effects of monetary injections

A

increasing the amount of money in the economy stimulates the overall level of spending and thus the demand for goods and services

higher demand may over the time cause firms to rise their prices, but in the meantime, it also encourages them to hire more workers and produce a larger quantity of goods and services

more hiring means lower unemployment

31
Q

business cycle

A

fluctuations in Economic activity, such as employment and production

32
Q

Circular-flow diagram

A

a visual model of the economy that shows how dollars flow through markets among households and firms

REFER TO DIAGRAM pg. 25

33
Q

Production possibilities frontier

A

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

34
Q

Microeconomics

A

the study of how households and firms make decisions and how they interact in markets

35
Q

Macroeconomics

A

the study of economywide phenomena, including inflation, unemployment, and economic growth

36
Q

Positive statements

A

claims that attempt to describe the world as it is

37
Q

Normative statements

A

claims that attempt to prescribe how the world should be

38
Q

absolute advantage

A

the ability to produce a good using fewer inputs than another producer

39
Q

Opportunity cost

A

whatever must be given up to obtain some item

40
Q

comparative advantage

A

the ability to produce a good at a lower opportunity cost than another producer

41
Q

imports

A

goods produced abroad and sold domestically

42
Q

exports

A

goods produced domestically and sold abroad

43
Q

Market

A

a group of buyers and sellers of a particular good or service

44
Q

Competitive market

A

a market in which there are many buyers and many sellers so that each has a negligible impact of the market price

45
Q

quantity demanded

A

the amount of a good that buyers are willing and able to purchase

46
Q

law of demand

A

the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

47
Q

Demand schedule

A

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

48
Q

demand curve

A

a graph of the relationship between the price of a good and the quantity demanded

49
Q

normal good

A

a good for which, other things equal, an increase in income leads to an increase in demand

50
Q

Inferior good

A

a good which, other things equal, an increase in income leads to a decrease in demand

51
Q

Substitutes

A

Two goods for which an increase in the price of one leads to an increase in the demand for the other

52
Q

complements

A

two goods for which an increase in the price of one leads to a decrease in the demand for the other

53
Q

Quantity supplied

A

the amount of a good that sellers are willing and able to sell

54
Q

Law of supply

A

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

55
Q

supply schedule

A

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

56
Q

supply curve

A

a graph of the relationship between the price of a good and the quantity supplied

57
Q

Equilibrium

A

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

58
Q

Equilibrium price

A

the price that balances quantity supplied and quantity demanded

59
Q

equilibrium quantity

A

the quantity suppled and the quantity demanded at the equilibrium price

60
Q

surplus

A

a situation in which quantity supplied is greater than quantity demanded

61
Q

shortage

A

a situation in which quantity demanded is greater than quantity supplied

62
Q

law of supply and demand

A

the claim that the price of any good adjust to bring the quantity suppled and the quantity demanded for that good into balance

Econ200 (2 decks)

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