Eco Test #1`

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elizabethjones514
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65192
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Eco Test #1`
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2011-02-09 02:52:14
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eco
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  1. Economics
    study of choices consumers, business managers, and governmetn officials make to attain their goals, given their scarce resources
  2. We must make choices because of SCARCITY
    our wants exceed our needs
  3. Marginal
    Exctra or additional
  4. Optimal decision
    to continue any activity up to the point where the marginal benefirt = the marginal cost
  5. 3 key economic ideas
    • 1. people are rational
    • 2. people respond to incentives
    • 3. optimal decisions are made at the margin
  6. Trade offs
    producing more of one good or service means producing less of another good or service
  7. opportunity cost
    such as producing a good or service--> highest valued alternative that must be given up to engage in that activity
  8. Centrally Planned Economy
    most economic decisions are made by the government
  9. Market economy
    economic decisions are made by consumers and firms
  10. Mixed economies
    (United States) economic decisions are made by consumers and firms but in which the government plays a significant role
  11. productive efficiency
    when a good/service is produced at the lowest possible cost
  12. allocative efficiency
    when production is in accordance with consumer preference
  13. voluntary exchange
    occurs in markets when both the buyers and sellers of a product are made better by the transaction
  14. equity
    usually involves a fair distribution of economic benefits
  15. 3 questions asked
    • 1. What goods and services to produce
    • 2. How to produce them
    • 3. Who receives the goods and services
  16. Economic Models
    simplified versions of reality used to analyze real world economic situations
  17. positive analysis
    what is
  18. normative analysis
    what ought to be
  19. Product possibilities frontier (PPF)
    curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
  20. Economic growth
    the ability of the economy to increasethe production of goods and services
  21. trade
    the act of buying and selling
  22. Absolute advantage
    the ability of an individual, a afirm, or a country ot produce more of a good or service than competitors, using the same amount of resources
  23. comparative advantage
    the ability of an individual, firm, or a country to produce a good or service at a lower opportunity cost than competitors
  24. Market
    a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
  25. product markets
    markets for goods -- such as computers-- and services--such as medical treatment

    **households are demanders and firms are suppliers
  26. Factor markets
    markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability
  27. factors of production
    the inputs used to make goods and services
  28. free market
    a market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed
  29. entrepreneur
    someone who operates a business, bringing together the factors of production--labor, capital and natrual resources-- to produce goods and services
  30. property rights
    the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it
  31. perfectly competitive market
    • a market that meets the conditions of
    • (1) many buyers and sellers
    • (2) all firms selling identical products
    • (3) no barriers to new firms entering the market
  32. Demand schedule
    a table showing the relationship between the price of a product and the quantity of the product demanded
  33. Quantity Demanded
    the amount of a good or service that a consumer is willing and able to purchase at a given price
  34. Demand curve
    a curve that shows the relationship between the price of a product and the quantity of the product demanded

    EX. as the price of energy drinks falls, the quanityt demanded increases
  35. Market demand
    the demand by all the consumers of a given good or service
  36. Law of demand
    the rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease
  37. Substitution effect
    the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes

    EX. when the price of energy drinks falls, consumers will substitute buying energy drinks for buying other goods, such as sports drinks or coffee
  38. Income Effect
    the change in the quantity demanded of a good that results from the effect of a change in the goods price on consumers purchasing power

    EX. when the price of a good falls, the increased purchasing power of consumers incomes will usually lead them to purchase a larger quantity of the good (visa versa)
  39. Ceteris paribus
    • "all else equal"
    • the requirement that when analyzing the relationship between two variables--such as price and quantity demanded-- other variables must be held constant
  40. Variables that shift the demand curve
    • 1. income
    • 2. prices of related goods
    • 3. tastes
    • 4. population and demographics
    • 5. expected future prices
  41. Normal good
    a good for which the demand increases as income rises and decreases as income falls
  42. Inferior good
    a good for which the demand increases as income falls and decreases as income falls
  43. substitutes
    goods and services that can be used for the same purpose
  44. complements
    goods and services that are used together
  45. demographic
    the characteristics of a population with respect to age, race, and gender
  46. A shift in the demand curve (change in demand) occurs when
    variables, other than the price of the product, affects the willingness of consumers to buy the product
  47. a shift in quantity demand refers to
    movement along the demand curve as a result of a change in the products price
  48. Quantity supplied
    the amount of a good or service that firm is willing and able to supply at a given price

    *when the price of a good rises, the good is more profitable, and the quantity supplied will increase
  49. supply schedule
    a table that shows the relationship between the price of a product and the quantity of the product supplied
  50. supply curve
    a curve that shows the relationship between the price of a product and the quantity of the product supplied
  51. law of supply
    the rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied
  52. VAriable that shift Market Supply
    • 1. Prices of inputs
    • 2. tech. change
    • 3. prices of substitutes in production
    • 4. number of firms in the market
    • 5. expected future prices
  53. technological change
    a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
  54. Market equilibrium
    a situation in which quantity demanded equals quantity supplied
  55. competitive market equilibrium
    a market equilibrium with many buyers and many sellers
  56. surplus
    a situation in which the quantity supplied is greater than the quantity demanded
  57. shortage
    a situation in which the quantity demanded is greater than the quantity supplied

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