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Flashcards in Vocab First Midterm Deck (69):
1

Opportunity Cost

The highest valued alternative that must be given up to engage in an activity
(it isn't the time that something takes up, it is what could've been done otherwise with that time)

2

Centrally Planned Economy

An economy in which the government decides how economic resources are allocated

3

Market Economy

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

4

Mixed Economy

An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in allocation of resources

5

Productive efficiency

A situation in which a good or service is produced at the lowest possible cost

6

Allocative Efficiency

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

7

Voluntary exchange

Both buyer and seller are made better by a transaction

8

Equity

A fair distribution of economic benefits

9

Positive Analysis

objective and based on facts / is economic theory

10

Normative Analysis

subjective and based on opinion

11

Marginal Benefit

gain from one additional unit

12

Marginal Cost

Cost of one additional unit

13

Percentage change Formula

(Value in 2nd period - Value in 1st period) / (Value in first period) x 100

14

Scarcity

Limited resources but Unlimited wants

15

Trade

Act of buying and selling

16

Absolute advantage

The ability of an individual, a firm, or a country to produce more of a good or service than other competitors, using the same amount of resources.

17

Comparative Advantage

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

18

3 types of Factors of Production

1) Labor
2) Capital
3) Natural Resources

19

The law of demand

holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price rises, the quantity demanded will decrease

20

Substitution effect (explaining law of demand)

The change in the quantity demanded of a good that results from a change in price, making the food more or less expensive relative to other goods that are substitutes

21

The Income Effect (explaining the law of demand)

The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power.

22

Normal good

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

23

Inferior Good

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

24

Substitutes

a good or service that can be used for the same purpose (margarine or butter)

25

Complements

goods or services that are used together (toothbrush/toothpaste)

26

Quantity Demanded

The amount of a product that consumers are willing to purchase at a given price

27

Market Demand

Demand of all consumers of a good or service

28

5 Factors that change Demand

1) Income
2) Price of related goods (subs/complements)
3) Tastes
4) Populations and Demographics
5) Expected Future Prices

29

5 Factors that change Supply

1) Price of Inputs
2) Technological Change
3) Prices of related goods in production (substitutes/complements)
4) Numbers of Firms in the Market
5) Expected future prices

30

Price Ceiling

A legally determined maximum price that sellers may change

31

Price Floor

A legally determined minimum price that sellers may receive

32

Consumer Surplus

I the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays.

33

Marginal Benefit

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

34

Producer Surplus

The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives

35

Marginal Cost

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

36

Economic Surplus

The sum of consumer surplus and producer surplus

37

Deadweight loss

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

38

Economic Efficiency

A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumers surplus and producer surplus is at a maximum.

39

Black Market

A market in which buying and selling take place at prices that violate government and police regulations.

40

Tariff

A tax imposed by a government on imports

41

Imports

Goods and serviced bought domestically but produced in other countries

42

Exports

Goods and services produced domestically but sold in other countries

43

Autarky

A situation in which a country does not trade with other countries

44

Terms of Trade

The ratio at which a country can trade its exports for imports from other countries.

45

Free Trade

Trade between countries that is without government restriction

46

Quota

A numerical limit a government imposes on the quantity of a good that can be imported into the country.

47

Voluntary Export Restraint (VER)

An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country

48

Externalities

A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service

49

Private cost

The cost born by the producer of a good or service

50

Social cost

The total cost of producing a good or service, and it is equal to the private cost plus any external cost, such as the cost of polution

51

Coase Theorem

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

52

4 types of goods

1) private
2) public
3) quasi public goods
4) Common resource

53

Elasticity

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

54

Price elasticity of demand

% change in quantity demanded/ % change in price

55

Elastic demand

price elasticity is > 1

56

Inelastic demand

Price elasticity <1

57

Unit Elastic demand

Price elasticity = 1

58

Midpoint formula

(Q2-Q1)/(Q1+Q2/2) / (P2-P1)/(P1+P2/2)

59

Perfectly Inelastic Demand

Price elasticity of demand = 0

60

Perfectly Elastic Demand

Price elasticity of demand = infinity

61

Private Benefit

received by the consumer

62

Social Benefit

Received by the producer and everyone else

63

Rivalry

One person's consumption of a good means nobody else can consume it

64

Excludability

Anyone who does not pay for a good cannot consume it.

65

Price Elasticity Demand formula

(Percentage change in quantity demanded)/(Percentage change in price)

66

Cross Price Elasticity Demand formula

(Percentage change in Q demanded of one good)/(Percentage change on P of another good)

67

Income Elasticity Demand

(Percentage change in Q demanded)/(Percentage change in income)

68

Price elasticity of supply

(Percentage change in quantity supplied)/(Percentage change in price)

69

Cross Price elasticity of supply

Percentage change in Q supplied of 1 good / percentage change in P of another good