Test Answers on Ap Economics Terms – Flashcards
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scarcity
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limited resources and unlimited wants
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economics
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study of how society manages its scarce resources
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efficiency
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the property of society getting the most from its scarce resources
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equity
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the property of distributing economic prosperity fairly among society's members
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rational
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systematically and puposefully doing the best you can to achieve your objective
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opportunity cost
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whatever is given up to get something else
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marginal changes
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incremental adjustments to an existing plan
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incentive
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something that induces a person to act
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market economy
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an economic system where interaction of households and markets determines the allocation of resources
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property rights
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the ability of an individual to own and exercise control over scarce resources
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invisible hand
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the principle that self-interested market participants may unknowingly maximize the welfare of society as a whole
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market failure
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a situation in which the market fails to allocate resources efficiently
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externality
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when one persons actions have an impact on a bystander
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market power
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the ability of an individual or group to substantially influence market prices
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monopoly
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the case in which there is only one seller in the market
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productivity
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the amount of goods and services produced per hour by a worker
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inflation
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an increase in the overall level of prices
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business cycle
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fluctuations in economic activity
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scientific method
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objective development and testing of theories
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economic models
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simplifications of reality based on assumptions
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circular-flow diagram
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a diagram showing the flow of goods etc between housebolds and firms
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factors of production
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inputs such as land, labor, and capital
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production possibilities frontier
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a graph that shows the comibations of output the economy can possibly produce given the available factors of production and the available production technology
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micro economics
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the study of how households and firms make decisions and how they interact in markets
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macroeconomics
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the study of economy wide phenomena
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positive economics
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descriptions of the world as it is
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normative economics
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prescription for how the world ought to be
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utility
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the pleasure, happines, or satisfaction obtained from consuming a good or service
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marginal analysis
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comparisons of marginal benefits and marginal costs, usually for decision making
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aggregate
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collection of specific economic units treated as if they were one unit
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land
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all natural resources used in the production precess
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labor
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physical and mental talents of individuals used in producing goods and services
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capital
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all manufactured aids used in producing consumer goods
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factors of production
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land, labor, capital, and entrepreneurial ability
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full employment
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the economy is employing all its available resources
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consumer goods
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products that satisfy our wants directly
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fallacy of composition
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the assumption that what is true for one individual is necessarily true for a group of individuals
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economic growth
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result of increases in supplies of resources, improvements in resource quality, or technological advances
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economic system
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a particular set of institutional arrangements and a coordinating mechanism
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command system
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socialism or communism: government owns most property resources and economic decision making occurs through a central economic plan
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market system
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capitalism: characterized by pricate ownership of resources and the use of markets and prices to coordinate and direct economic activity
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private property
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enables individuals and businesses to obtain, use, and dispose of resources as they see fit
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self-interest
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the motivation force of the various economic units as they express their free choices
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competition
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what drives a market based system
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specialization
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specialization is the use of resources of an individual, firm, region, or nation, to produce one or a few goods or services
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law of demand
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the inverse relationship between the price of a good and the quantity demanded
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diminishing marginal utility
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each buyer of a product will derive less utility from each sucessive unit consumed
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income effect
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lower price increases the purchasing power of a buyer's money income, enabling the buyer to purchase more of the product
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substitution effect
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lower price buyers have incentive to buy a less expensive product that are now relatively more expensive
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determinants of demand
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(1) consumers tastes (preferences), (2) the number of potential buyers in the market, (3) consumers income, (4) price of complement, (5) price of substitute, (6) consumer expectations
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normal good
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products whose demand varies directly with money income
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inferior good
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goods whose demand varies inversely with money income
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substitute good
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a good that can be used in the place of another
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complementary good
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a good that is used together with another good
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law of supply
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direct relationship between the price of a good and the quantity supplied
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determinants of supply
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(1) resource prices, (2) technology, (3) taxes and subsidies, (4) prices of other goods, (5) producer expectations, (6) number of sellers in the market
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change in supply
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shift of the supply curve
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change in demand
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shift of demand curve
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change in quantity supplied
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movement along the supply curve
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change in quantity demanded
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movement along the supply curve
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equilibrium quantity
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the intersection between the demand and supply curve
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surplus
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(excess supply) left overs after a price floor has been set above equilibrium price
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shortage
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(excess demand) result of a price ceiling below equilibrium price
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price ceiling
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sets the maximum legal price a seller may charge for a produce or service (must be set below equilibrium to have effect)
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price floor
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a minimum price a seller may charge for a product or service (must be set below equilibrium to have an effect0
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price elasticity of demand
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the responsivness of consumers to price change
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perfectly elastic
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when change in price results in no change whatsoever in quantity demanded
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elastic
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specific percentage change in price results in larger percentage change in quantity demanded
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inelastic
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percentage change in price produces smaller percentage change in quantity demanded
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unit elasticity
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where pecentage change in price and quantity demanded are the same
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total revenue
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the total amount the seller receives from the sale of a product in a particular time period
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price elasticity of supply
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depends how easily producers can shift resources between alternative uses
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market period
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the period that occurs when the time immediately after a change in market price is too short for producers to respond
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short run
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in microeconomics is a period of time too short to change plant capacity but long enough to use fixed plant more or less intesively
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long run
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in microeconomics is a time period long enough for firms to adjust their plant sizes and for new firms to enter the industry
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cross elasticity of demand
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measures how sensitive consumer purchases of one product are to a change in the price of some other product
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income elasticity of demand
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measures the degree to which consumers respond to a change in their incomes by buying more or less of a particular good
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consumer surplus
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the difference between the maximum price a consumer is willing to pay for a product and the actual price
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producer surplus
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the difference between the actual price a producer receives and the minimum acceptable price
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efficiency losses
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reductions of combined consumer and producer surplus associated with underproduction or overproduction of a product
