Term
click below
click below
Term
Normal Size Small Size show me how
Econ 1116 Exam 1
principles of microeconomics exam 1 study set
Term | Definition |
---|---|
scarcity | the limited nature of society's resources |
economics | the study of how society manages its scarce resources |
efficiency | the property of a resource allocation of maximizing the total surplus received by all members of society |
equality | the property of distributing economic prosperity uniformly among the members of society |
opportunity cost | whatever must be given up to obtain some item (the highest value thing being given up) |
rational people | people who systematically and purposefully do the best they can to achieve their objectives; rational people think at the margin |
marginal change | a small incremental adjustment to a plan of action |
incentive | something that induces a person to act |
market economy | an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services |
property rights | the ability of an individual to own and exercise control over scarce resources |
market failure | a situation in which a market left on its own fails to allocate resources efficiently |
externality | the uncompensated impact of one persons action not he well-being of a bystander |
market power | the ability of a single economic actor (or a small group of actors) to have substantial influence on market prices |
productivity | the quantity of goods and services produced from each unit of labor input |
inflation | an increase in the overall level of prices in the economy |
business cycle | fluctuations in economic activity such as employment and production |
circular-flow diagram | a visual model of the economy that shows hoe dollars flow through markets among households and firms |
production possibilities frontier | a graph that shows the combinations of output that the economy can possible produce given the available factors of production and the available production technology |
microeconomics | the study of how households and firms make decisions and how they interact in markets |
macroeconomics | the study of economy-wide phenomena, including inflation, unemployment, and economic growth |
positive statements | claims that attempt to describe the world as it is |
normative statements | claims that attempt to prescribe how the world should be |
absolute advantage | the ability to produce a good using fewer inputs than another producer |
comparative advantage | the ability to produce a good act a lower opportunity cost that another producer |
imports | goods and services that are produced abroad and sold domestically |
exports | goods and services that are produced domestically and sold abroad |
market | a group of buyers and sellers of a particular good or service |
quantity demanded | the amount of a good that buyers are willing and able to purchase |
competitive market | a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker |
law of demand | the claim that, other things being held constant, the quantity demanded of a good falls when the price of the good raises |
demand schedule | a table that shows the relationship between the price of a good and the quantity demanded |
demand curve | a graph of the relationship between the price of a good and the quantity demanded |
normal good | a good for which an increase in income rises the quantity demanded ex: steak |
inferior good | a good for which and increase in income reduces the quantity demanded ex: ramen |
substitutes | two goods for which and increase in the price of one leads to an increase in the demand for the other |
complements | two goods for which and increase in the price of one leads to a decrease in the demand for the other |
quantity supplied | the amount of a good that sellers are willing and able to sell |
law of supply | the claim that, other things being equal, the quantity supplied of a good raises when the price of the good rises |
supply schedule | a table that shows the relation |
supply curve | a graph of the relationship between the price of a good and the quantity. supplied |
equilibrium | a situation in which the market price has reached the level at which quantity supplied equals quantity demanded |
equilibrium price | the price that balances quantity supplied and quantity demanded |
equilibrium quantity | the quantity supplied and the quantity demanded at the equilibrium price |
surplus | a situation in which quantity supplied is greater than quantity demanded |
shortage | a situation in which quantity demanded is greater than quantity supplied |
the law of supply and demand | the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance |
elasticity | a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants |
price elasticity of demand | a measure of how much the quantity demanded of a good responds to a change in the price of that good. % change in Q demanded / % change in price |
total revenue | the abound a firm receives for the sale of its output |
income elasticity of demand | a measure of how much the quantity demanded of a good responds to a change in consumers income. % change in Q demanded / % change in income |
cross-price elasticity of demand | a measure of how much the quantity demanded of one good responds to a change in the price of another good. % change in Q demanded of A / % change in price of B |
price elasticity of supply | a measure of how much the quantity supplied of a good responds to a change in the price of that good. % change in Q supplied / % change in price |
Principle 1: People face trade-offs | to get something that we like, we usually have to give up something else that we also like. making decisions requires trading off one good against another. |
Principle 2: The cost of something is what you give up to get it | the opportunity cost is the highest value thing you give up for something else |
Principle 3: Rational people think at the margin | Rational people systematically and purposefully do the best they can to achieve their objectives, given the available opportunities. They compare marginal benefits to marginal costs. |
Principle 4: People respond to incentives | Because rational people make decisions by ciphering costs and benefits, they respond to incentives |
Principle 5: Trade can make everyone better off | Trade allows countries to specialize in what they of best and to enjoy a greater variety of goods and services. Trade outside of PPF |
Principle 6: Markets are usually a good way to organize economic activity | Even though no-one is looking out for the well-being of society as a whole, market prices reflect both the value of a good to society, and the cost to society of making it. |
Principle 7: Governments can sometimes improve market outcomes | government enforces the rules and maintains the institutions that are key to a market economy. |
Principle 8: A country's standard of living depends on its ability to produce goods | a nations productivity (amount of goods and services produced by each unit of labor input) determines its standard of living |
Principle 9: Prices rise when the government prints too much money | When a nations government prints large quantities of their currency, the value of the currency falls, and prices increase. High inflation imposes various costs on society. |
Principle 10: Society faces a short-run trade-off between inflation and unemployment | over a period of time, many economic policies push inflation and unemployment in opposite directions in the short run |