Test Answers on MicroEconomics Chapters 1-4 – Flashcards
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Scarcity
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the condition that arises because wants exceed the ability of rescources to use them
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Economics
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The social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity, the incentives that influence those choices, and the arrangements that coordinate them.
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Microeconomics
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the study of the choices that individuals and businesses make and the way these choices intereact and are influnced by governments
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Macroeconomics
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the study of the aggregate(total) effects on the national economy and the global economy of the choices that individuals, businesses, and governmetns make
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Goods and Services
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The objects (goods) and the actions(services) that people value and produce to satisfy human wants
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What
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determines the quantities of what is produced
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How
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determines how something is produced
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For Whom
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determines who the services are produced for
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Self Interest
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THe chocies that are best for the individual that makes them
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Social Interest
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THe choices that are best for society as a whole
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Globalization
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the expansion of international trade and production of components and services by firms in other countries
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Tradeoff
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an exchange-giving up one thing to get something else
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Rational choice
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a choice that uses the available resources to best achieve the objective of the person making the choice
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Benefit
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gain or pleasure that something brings
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Opportunity Cost
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the best thing you must give up in order to get something
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Margin
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A choice that is made by comparing all the relevent alternatives systematically and incrementally
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Marginal Benefit
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The benefit that arises from a one-unit increase in an activity; measured by what you are willing to give up to get one additional unit of something
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Marginal Cost
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The opportunity cost that arises from a one a one-unit increase in an activity; what you must give up to get one additional unit of it
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Incentive
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a reward or a penalty that encourages or discourages an action
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Economic Model
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a description of some feature of the economic world that includes only those featrues assumed necessary to explain the observed facts
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Correlation
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the tendency for the values of two variables to move together in a predictable and related way
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Normative statement
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states what ought to be
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Positive statement
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states what is
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Personal Economic Policy
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involves a marginal benefit and a marginal cost based on personal decisions
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Business Economic Policy
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involves the evaluation of a marginal benefit and a marginal cost for a company
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Governement Economic Policy
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calls for decisions taht involve the evaluation of a marginal benefit and a marginal cost and an investigation of the interactiosn of individuals and businesses
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Consumption Goods and Services
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goods and services that are bought by individuals and used to provide personal enjoyment and contribute to a person's quality of life.
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Capital Goods
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goods that are bought by businesses to increase their productive resources
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Government Goods and Services
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goods and services that are bought by governments
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Export Goods and Services
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goods and services taht are proudced in one country and sold in another
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Factors of Production
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The productive resources that are used to produce goods and services-land, labor, capital, and entrepreneurship
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Land
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the "gifts of nature" or natural resources that we use to produce goods and services
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Labor
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The work time and work effort that people devote to producing goods and services
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Human Capital
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the knowledge and skill that people obtain from education, on the job training, and work experience
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Capital
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Tools, instruments, machines, buildings, and other items that have been produced in the past and that businesses now use to produce goods and services *financial capital is not capital*
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Entrepreneurship
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the human resource that organizes labor, land, and capital to produce goods and services
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Rent
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income paid for the use of land
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Wages
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income paid for the services of labor
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Profit (or loss)
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income earned by an entrepreneur for running a business
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Circular Flow Model
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a model of the economy that shows the circular flow of expenditures and incomes that result from decision makers' choices and the way those choices interact to determine what, how, and for whom gods and services are produced
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Households
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Individuals or groups of people living together
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Firms
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The institutions that organize the production of goods and services
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Market
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Any arrangement that brings buyers and sellers together and enables them to get information and do business with each other
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Goods Market
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Market in which goods and services are bought and sold
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Factor market
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Markets in which the services of factors of production are bought and sold
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Real Flow
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the flows of the factors of production that go from households through factor markets to firms; goods and services that go from firms through goods and markets to households *opposites*
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Money Flow
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the flow of payments made in exchange for the services of factors of production and of expenditures on goods ands services; Goes from households to goods market to firms
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Production Possibilities Frontier(PPF) or Production Possibilities Curve( PPC)
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the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production adn the state of technology
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Production Efficiency
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a situation in which the economy is getting all that it can from its resources and cannot produce more of one good or service without producing less of something else
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"Free Lunch"
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A gift- getting something without giving up omething else
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Economic Growth
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The sustained expansion of production possibilities
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Absolute Advatage
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When one person/nation is more productive than another- needs fewer inputs or takes less time to produce a good or perform a production task
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Comparative Advantage
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the ability of a person to perform an activity or produce a good or service ata lower opportunity cost than anyone else
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Quantity Demanded
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The amount of any good, service, or resource taht people are willing and able to buy during a specified period at a specified price
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Law of Demand
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other things remaining the same, if the price of a good rises, the quntity demanded of that good decreases; and if the price of a good falls, the quantity demanded of that good increases
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Demand
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The relationship beween the quantity demanded and the price of a good when all other influences on buying plans remain the same
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Demand Schedule
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A list of the quantities demanded at each different price when all the other influences on buying plans remain the same
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Demand Curve
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A graph of the relationship between the quantity demanded of a good and its price when all the other influences on buying plans remain the same
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Market Demand
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The sum of the demands of all the buyers in the market
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Change in Demand
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a change in the quantity that people plan to buy when any influences on buying plans other than the price of the good changes
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Substitute
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A good that can be consumed in place of another good
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Complement
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A good that is consumed with another good
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Normal Good
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a good for which demand increases when income increases; and demand decreases when income decreases
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Inferior Good
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a good for which demand decreases when income increase; and demand increases when income decreases
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Change in Quantity Demanded
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a change in the quantity of a good taht people plan to buy that results from a change in the price of a good with all other influences on buying plans remaining the same
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Quantity Supplied
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the amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price
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Law of Supply
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other things remaining the same, if the price of a good rises, the quantity supplied of that good increases(have more to sell); and if the price of a good falls, the quantity supplied of that good decreases(less to sell).
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Supply
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the relationship between the quantity supplied and the price of a good when all other influences on selling plans reamain the same
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Supply Schedule
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A lisst of the quantities supplied as each different price when all the other influences on selling plans remain the same
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Supply Curve
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a graph of the relationship between the quantity supplied of a good and its price when all other influences on selling plans remain the same
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Market Supply
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The sum of all the supplies of all the sellers in the market
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Change in Supply
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A change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes
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Substitute in Production
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a good that can be produced in place of another good
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Complement in Production
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a good that is produced along with another good
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Change in the Quantity Supplied
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A change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good
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Market Equilibrium
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when the quantity demanded equals the quantity supplied-buyers' and sellers' plans are in balance
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Equilibrium Price
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The price at which the quantity demanded equals the quantity supplied
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Equilibrium Quantity
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The quantity bought and sold at the equilibrium price
