Exam 1 Flashcards
(23 cards)
What are the principles of Economics?
- People face Tradeoffs
- People responds to incentives
- The cost of something is what you give up to get it
- Rational people make decisions at the margin
- Trade can make everyone better off
- Markets are usually a good way to organize economic activity
- Government can sometimes improve market outcomes
- Price level increases when the government ‘prints’ too much money
- There is a short run trade off between inflation and unemployment.
- A country’s standard of living depends on its ability to produce good and services
Factors of Production
Land
Labour
Capital (not money)
Entrepreneurship
Production Possibilities Prontiers
A line showing all the combinations of goods and services that can be produced given the available resources
Opportunity Cost
Sacrifice of one or another, give it up to receive goods
loos/gain
Factors of Production
Land
Labour
Capital
Entrepreneurship
Production Possibilities Frontiers (PPF)
A line showing all the combinations of goods and services that can be produced given the available resources
Shift
Resources or technology for both goods are affected
Rotation
If the resources or technology are affected for only one good
Slope of PPF
Opportunity cost of 1 unit of good x
Positive Statement
Facts or can be tested
Normative Statement
Subjective statement that cannot be tested and is someone’s opoion
Correlation
Tells you if two variables move together, can sometimes not be related
Exogenous Variables
Independent variables
Endogenous Varianles
Dependent Variables
Law of Demand
As the price of a good decreases, the quantity demanded increases
How do you move along the demand curve?
If the price of a good changes and the quantity demanded changes
How do you shift the demand curve?
Factors other than price of a good change
Factors that shift demand curves
Income Price and availability of related goods Weather Tastes/trends Number of buyers Expectations Government Regulations
Normal Good
Demand increases when income increases and demand decreases when income decreases
Inferior Good
As income increases, demand decreases.
As income decreases, demand increases
Law of Supply
As the price of a good increases, the quantity supplied increases
Supply curve shifts
Change in technology Changes in input costs Number of sellers Weather Government regualtions Expectation
Types of changes in Equilibrium
Demand increases/decreases
Supply Increases/Decreases
