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ECO 110 Exam 1
Chapters 1-4
Term | Definition |
---|---|
Incentives Matter | rewards and penalties motivate behavior |
Good Institutions Align Self-Interest with the Social Interest | when markets work well, individuals pursuing their own interests also promote social interest |
Trade-offs are Everywhere | we live in a world of scarcity and thus constantly facing choices |
Thinking on the Margin | making choices by thinking in terms of marginal benefits (MB) and marginal costs (MC) |
The Power of Trade | trade leads to increased production through specialization |
The Importance of Wealth and Economic Growth | economic growth creates wealth |
Institutions Matter | institutions are growth promoting and provide incentives to invest |
Economic Booms and Busts Cannot Be Avoided but Can Be Moderated | government can use fiscal and monetary policy to reduce the swings in output and unemployment |
Prices Rise When the Government Prints Too Much Money | a country's central bank regulates the supply of money. a sustained increase in the supply of money without an increase in the supply of goods, causes prices to rise |
Central Banking is a Hard Job | "the fed" is often called to combat recessions |
People Face Tradeoffs | principle of economic model |
Trade-offs Involve Choices About A Little More or A Little Less | principle of economic model |
Thinking on the Margin is Just Making Choices by Thinking In Terms of MB and MC | principle of economic model |
Opportunity Cost is the Value of Opportunities Lost | principle of economic model |
Comparative Advantage | can produce a good at a lower opportunity cost |
Opportunity Cost | value of opportunities lost |
marginal | one more or one less |
Law of Comparative Advantage | you should specialize in producing the good for which you have the lowest OC and then trade |
Production Possibility Frontier (PPF) | shows all the combinations of goods that a country can produce, given its productivity and supply of inputs. graphic representation of the mix of goods a person can produce |
Benefits of Trade | creates value, allows specialization, increases productivity, allows for division of knowledge |
Demand Curve | shows quantity demanded at any price and the maximum willingness to pay for any given quantity |
Slope of Demand Curve | negative |
Law of Demand | as price increases, the quantity demanded decreases |
Consumer Surplus | difference between the maximum price a consumer is willing to pay for a certain quantity and the market price OR consumer's gain from exchange |
Total Consumer Surplus | - area beneath the demand curve and above the price - 1/2(b*h) |
Income | Demand Shifter |
Population | Demand Shifter |
Price of Substitutes | Demand Shifter |
Prices of Complements | Demand Shifter |
Expectations | Demand Shifter |
Tastes | Demand Shifters |
Demand Shifts to the Right | at every single price, quantity demanded increases |
Demand Shifts to the Left | at every single price, quantity demanded decreases |
normal good | demand increases as income increases (cars) |
inferior good | demand decreases as income decreases (ramen) |
substitutes | goods that can be replaced for one another in consumption (coke and pepsi) |
complements | goods that you purchase together (burritos and guacamole) |
Supply Curve | shows the quantity supplied at different prices and the minimum price that a certain quantity will be supplied at |
slope of supply curve | positive |
Law of Supply | as prices rise, the quantity supplied increases |
Producer Surplus | difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity (producer's gain from exchange) |
Total Producer Surplus | area above the supply curve |
Technology | Supply Shifter |
Input Cost | Supply Shifter |
Taxes | Supply Shifter |
Market Supply Curve | Supply Shifter |
Opportunity Cost | Supply Shifter |
Equilibrium | when quantity supplied is equal to quantity demanded |