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The social science concerned with making optimal choices under conditions of scarcity.
The study of the entire economy or a major aggregate of the economy.
The study of individual, consumer, firm or markets in the economy.
To obtain more than one thing, society forgoes the opportunity of getting the next best thing. That sacrifice is the ________ of the choice.
Displays the different combinations of goods & services that society can produce in a fully employed economy, assuming a fixed availability of supplies of resources & fixed technology.
Production Possibilities Curve
US economic system is...
- Individual capitalist
- Free market economy
- Consumer driven
Economic goals include:
- Economic growth
- Price stability
- Economic Security
- Economic Freedom
Other things equal, as price falls, the quantity demanded rises, & as price rises, the quantity demanded falls.
Law of Demand
- Price acts as an obstacle from buyers being able to buy everything so when price is low consumers will buy more.
Determinants of Demand:
- Change in consumer tastes & preference
- Change in the # of buyers
- Change in income
- -Normal goods
- -Inferior goods
Goods that we buy more of as our incomes increase.
We buy more of as our income decreases.
Goods that are consumed jointly
Goods that we use in place of others
Other things equal, as the price rises, the quantity supplied rises & as the price falls, the quantity supplied falls.
Law of Supply
- Price acts as an incentive to producers
Determinants of supply:
- A change in:
- Resource prices
- The number of sellers
- Taxes & subsidies
- Prices of other goods
- Producer expectations
A good economy must have
Occurs where the demand curve and supply curve intersect
Producing goods in the least costly way.
Using the best technology
Using the right mix of resources.
Producing the right mix of goods.
The combination of goods most highly valued by society.
Allocative & productive efficiency occur at the...
Equilibrium price & quantity in a competitive market.
The ability of the competitive forces of demand and supply to establish a price at which selling and buying decisions are consistent.
Rationing Function of Prices
An increase in demand:
Results in an increase in price & quantity.
A decrease in demand:
Results in a decrease in price & quantity
An increase in supply:
Results in a decrease in price and increase in quantity.
A decrease in supply:
Results in an increase in price & a decrease in quantity.
Maximum prices that can be charged on a good; set on goods that are considered necessities.
A minimum price fixed by the government; A price at or above is legal; a price below is illegal.
A nation has a comparative advantage in those activities in which it has ____ opportunity cost.