ECON Exam 1

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tenorsextets
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127544
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ECON Exam 1
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2012-01-12 21:14:12
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microeconomics
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  1. scarcity:
    the resources we use to produce goods and services are limited
  2. economics:
    the study of choices when there is scarcity
  3. factors of production:
    • the resources used to produce goods and services
    • AKA production inputs OR resources
  4. natural resources:
    resources provided by nature and used to produce goods and services
  5. labor:
    human effort, including physical and mental effort, used to produce goods and services
  6. physical capital:
    the stock of equipment, machines, structures, and infratstructure that is used to produce goods and services
  7. human capital:
    the knowledge and skills acquired by a worker through education and experience and used to produce goods and services
  8. entrepreneurship:
    the effort used to coordinate the factors of production - natural resources, labor, physical captial, and human capital - to produce and sell goods
  9. positive analysis:
    answers the question "What is?" or "What will be?"
  10. normative analysis:
    answers the question "What ought to be?"
  11. economic model:
    a simplified representation of an economic environment, often employing a graph.
  12. variable:
    a measure of something that can take on different values.
  13. ceteris paribus
    the Latin expression meaning that other variables are held fixed
  14. marginal change:
    a small, one-unit change in value
  15. Macroeconomics
    the study of the nation's economy as a whole; focuses on the issues of inflation, unemployment, and economic growth.
  16. Microeconomics
    the study of the choices made by households, firms, and government and how these choices affect the markets for goods and services.
  17. What are 3 key economic questions?
    • What products do we produce?
    • How do we produce the products?
    • What consumes the products?
  18. How do economists simplify things and why?
    make assumptions to isolate variables.
  19. opportunity cost:
    what you sacrifice to get something
  20. production possibilites curve (or frontier)
    a curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used.
  21. marginal benefit
    the additional benefit resulting from a small increase in some activity
  22. marginal cost
    the additional cost resulting from a small increase in some activity
  23. nominal value
    the face value of an amount of money
  24. real value
    the value of an amount of money in terms of what it can buy
  25. what notion does the production possibilites curve show?
    opportunity cost
  26. why is a production possibilites curve bowed out?
    resouces are not perfectly adaptable for the production of both goods
  27. marginal principle
    increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost
  28. principle of voluntary exchange
    a voluntary exchange between two people makes both people better off
  29. principle of diminishing returns
    one output is produced with two or more inputs, and an input is increased while the other(s) aren't. Beyond some point (the point of diminishing returns) output will increase at a decreasing rate (output increase is smaller and smaller with each input addition)
  30. real-nominal principle
    what matters to people is the real value of money or income - its purchasing power - not it's face value
  31. comparative advantage
    the ability of one person or nation to produce a good at a lower opportunity cost than another person or nation
  32. absolute advantage
    the ability of one person or nation to produce a product at a lower resource cost than another
  33. repetition:
    the more someone does something the better they get
  34. continuity
    a specialized worker doesn't waste time switching from one task to another
  35. innovation
    a specialized worker gains insights into a particular task that leads to better production methods
  36. market economy
    an economy in which people specialize and exchange goods and services in markets
  37. centrally planned economy
    an economy where government decides how much is produced, how to produce, and who gets the products
  38. why does market failure happen?
    a market doesn't generate the most efficient outcome.
  39. what are some sources of market failure?
    • pollution
    • public goods (available to everyone)
    • imperfect information (informing customers enough)
    • imperfect competition (monopoly)
  40. perfectly competetive market
    a market with many sellers and buyers of the same product and no barriers to entry
  41. quantity demanded
    the amount of a product that consumers are willing and able to buy
  42. demand schedule
    a table that shows the relationship between the price of a product and the quantitiy demanded
  43. individual demand curve
    a curve that shows the relationship between the price of a good and quantity demanded by an individual consumer
  44. law of demand
    there is a negative relationship between price and quantity demanded (slope of graph is NEGATIVE)
  45. change in quantity demanded
    a change in the quantity consumers are willing and able to buy when the price changes
  46. market demand curve
    a curve showing the relationship between price and quantity demanded by all consumers
  47. quantity supplied
    the amount of a product that firms are willing and able to sell
  48. supply schedule
    a table that shows the relationship between the price of a product and quantity supplied
  49. market equilibrium
    a situation in which the quantity demanded equals the quantity supplied at the prevailing market price
  50. excess demand
    the quantity demanded exceeds the quantity supplied
  51. excess supply
    the quantity supplied exceeds the quantity demanded at the prevailing price
  52. change in demand
    shift of the demand curve caused by a change in a variable other than the price of the product
  53. normal good
    a good for which an increase in income increases demand
  54. inferior good
    a good for which an increase in income decreases demand
  55. substitues
    two goods for which and increase in the price of one good increases the demand for the other good
  56. complements
    two goods for which a decrease in the price of one good increase the demand of the other good
  57. change in supply
    a shift in the supply curve caused by a change in a variable other than the price of the product

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