Card Set Information
Assume the government imposes a price control on butter, i.e., the price control is below equilibrium price. The most likely outcome of this policy is
The butter market will exhibit excess demand.
“As the price of personal computers continue to fall, demand increases.” This headline is inaccurate because
Falling prices of personal computers increase quantity supplied
If the price of computers increase and the demand decrease, then
Computers and monitors are compliments
Suppose one observes that when the price of peanut butter increases, the demand for jelly increase. One must conclude
Peanut butter and jelly are substitutes
what is economics?
the study of how people make choices under conditions of scarcity and of the results of those choices for society.
The Scarcity Principle
-boundless needs and wants, but the resources available are liimited.
-Also called the "No-Free Lunch Principle"
individual should take actions IF the extra benefits from taking the actions are at least as great as extra cost
someone with well-defined personal goals who tries to fulfill those goals as best as he or she can
the economic surplus from taking theat action minus its cost
the value of what must be lost in order to do the activity
cost that is beyond recovery at the moment a decision must be made
the increase in total cost that results from carrying out one additional unit of an activity
increase in total benefits from carrying out one additional unit of an activity
total cost of taking
units of an activity divided by
total benefit of taking
units of an activity divided by
Normative Economic Priniciple
one that says how people
Positive Economic Principle
one that predicts how people will behave.
choices under scarcity and its implications for the behavior of prices and the quantities in individual markets.
study of the performace of
economics and the
that governments use to try to improve the performances.
variable in equation tha tis determined byt the value taken by another variable in same equation
variable whose value determines the value taken by another
a quantity that is fixed in value
one person has an absolute advantage over another is he/she takes fewer hours to perform task
one person has a comparative advantage over another if his/her opportunity cost of performing a task is lower than other person's opportunity cost
Principle of comparative advantage
when 2 people have different opportunity costs for tasks, they can always increase total value of available goods & services by trading w/ one another
Production possibilities curve
a graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good
any combination of goods that can be produced using currently available resources
a term increasingly used to connote having services performed by low-wage workers overseas
a schedule or graph showing the quantity of a good that buyers wish to buy at each price
the change in quantity demanded that results bcs. buyers switch to/from substitutes when the price of good changes
change in the quantity demanded of a good because a change in the price of a good changes the buyer's purchasing power
buyer's reservation price
largest dollar amount buyer would be willing to pay for a good
graph or schedule showing the quantity of a good that sellers wish to sell at each price
Seller's reservation price
smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost
when there is no tendency for it to change
values of price/quantity for which quantity supplied & demanded are equal
when all buyer's & seller's are satisfied with their respective quantities at market price
amount by which supplied exceeds demanded; when price exceeds equilibrium price
amount by which demanded exceeds supplied whin price is below equilibrium price
max. allowable price specified by law
change in quantity demanded
movement along demand curve that occurs in response to change in price
change in demand/supply
shift of demand/supply curve
if increased price for one cause less demand for the other
if increase in price for one causes more demand for another
demand curve shifts rightward(more) when income of buyer increases
one whose demand curve shifts leftward(less) when income of buyer increases
difference between buyer's reservation price and what actually paid
difference of price recieved by seller and reservation price
difference between buyer's reservation price and seller's reservation price
"cash on the table"
metaphor for unexploited gains from exchange
when all goods & services are produced & consumed at their respective socially optimal levels
socially optimal quantity
results in max. possible economic surplus from producing & consuming the good