Economics Semester 1 Exam Review – Flashcards
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Scarcity
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the idea that human wants exceed the ability to produce goods and services from our limited resources to fulfill these wants
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Economics
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the study of how people and societies choose to use their scarce resources in an attempt to satisfy unlimited wants
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Opportunity Cost
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the next best alternative foregone when an economic decision is made
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capital good
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man-made good used in the production of other goods
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Entrepreneurship
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the willingness and ability of certain individuals organize the other three factors of production and to take risks
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ceteris paribus
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"all else being equal": all other factors remaining constant
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Positive Statement
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a statement of fact that can be tested against data
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Normative Statement
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a statement of assumption/opinion
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Market
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a platform/situation in which goods/services are exchanged
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Demand
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the quantity of goods/services that a consumer is able and willing to buy at a certain price
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Law of Demand
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as the price of a good increases, the quantity demanded decreases, and vice versa, ceteris paribus
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Market demand
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the combination of all individual demands within a market
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Supply
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the willingness and ability of producers to provide a certain quantity of a good at a certain price
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Market supply
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the sum of all the individual supplies within a market
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Market equilibrium
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the amount at which the quantity demanded and the quantity supplied of a certain product are equal
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shortage
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when the quantity demanded of a good is bigger than the quantity supplied
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surplus
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when the quantity demanded of a good is smaller than the quantity supplied
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Producer surplus
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the excess of actual earnings that a producer makes from a given quantity of output, above the amount the producer would be willing to accept for that output
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consumer surplus
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the extra utility gained by consumers from paying a price that is lower than that which they are prepared to pay
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marginal benefit
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the extra amount of benefit gained from producing just one more unit of output
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marginal cost
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the extra amount of cost gained from producing just one more unit of output
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Price Elasticity of Demand
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measure of the responsiveness of demand to a change in price
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Indirect tax
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a tax imposed upon expenditure
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specific tax
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a fixed amount of tax that is imposed upon a product per unit sold
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ad valorem tax
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a tax levied as a percentage of the selling price per unit sold
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Cross Elasticity of Demand
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measure of the responsiveness of demand for one good to a change in the price of another
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Income Elasticity of Demand
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measure of the responsiveness of demand to a change in income
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normal goods
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demand for the good rises as income rises
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inferior goods
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demand for the good falls as income rises
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luxury goods
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Goods and SERVICES that have a high ELASTICITY of DEMAND, non-essential products
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Price Elasticity of Supply
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a measure of the responsiveness of the supply of a product to changes in the price of the product
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Stakeholders
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someone for whom something that's happening has an impact on them
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tax incidence
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tax burden, the burden of the tax on either the producers or consumers
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price ceiling
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a maximum price set by the government or a regulatory body, below the market equilibrian (usually to protect consumers)
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price floor
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a minimum price set by the government or a regulatory body, above the market equilibrium (usually to protect producers)
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underground/parallel market
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black market
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Market failure
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when market forces alone (demand/supply) fail to allocate scarce resources efficiently, meaning that either too much or too little of a good is produced/consumed
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externalities
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when an economic activity creates benefits or imposes costs for which these do not pay/get compensated respectively
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Positive Externality
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an economic activity creates a benefit for a third party for which it does not pay
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Negative Externality
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an economic activity imposes a cost for a third party for which it does not benefit
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Demerit goods
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consumption of these goods creates significant externalities on society, so governments try to decrease/prohibit their consumption
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Merit goods
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goods whose consumption creates significant positive externalities to society
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Subsidy
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a payment made by the government to firms aimed at lowering costs/prices, thus raising production/consumption of the product, as well as firm revenue
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Public goods
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goods which are non-rivalrous and non-discriminate
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Non-Rivalrous
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one person's use does not exclude another's
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Non-Discriminate
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even a black guy can use it
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sustainability
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meeting the needs of the present generation without decreasing the ability of future generations to meet their needs
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Asymmetric Information
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when all the details of an economic exchange are not known to all members of the exchange,This kind of asymmetry can distort people's incentives and result in significant inefficiencies.
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welfare/deadweight loss
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the net cost to society as a result of an economic decision, The extent to which the value and impact of a tax, tax relief or SUBSIDY is reduced because of its side-effects.
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Command Economy
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when the government controls all aspects of economic activity
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complementary goods
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two products, for which an increase (or fall) in DEMAND for one leads to an increase (fall) in demand for the other.
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Diminishing Returns
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The more you have, the smaller is the extra benefit you get from having even more
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Elasticity
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A measure of the responsiveness of one variable to changes in another.
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Factors of Production
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The ingredients of economic activity: land, labour, capital and enterprise.
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GDP
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Gross Domestic Product, the total value of all goods and services produced in a country in a year
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HDI
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Human Development Index, a measure of country's development in terms of such things as education, length of life and clean water, as well as INCOME.
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Inelastic
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WHen supply or demand for a product is unresponsive to changes in another variable
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Minimum Wage
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A minimum rate of pay that FIRMS are legally obliged to pay their workers.
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Moral Hazard
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Moral hazard means that people with insurance may take greater risks than they would do without it because they know they are protected, so the insurer may get more claims than it bargained for.
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Price Mechanism
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the process by which markets set prices
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Substitute goods
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Goods for which an increase (or fall) in DEMAND for one leads to a fall (or increase) in demand for the other
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Tragedy of the Commons
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common resources are destroyed because no individual has the property rights or incentive to make them consider saving them
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Utility
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measure of satisfaction
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Natasha
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The most amazing and beautiful person i know :) i guess i don't know too many good people...
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Bhavesh
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#1 most attractive male 2013
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Short run
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the period of time in which at least one factor of production is fixed
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Long Run
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the period of time where all factors of production are variable, but the state of technology is fixed. Also called the planning period.
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Total Product
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The total output that a firm produces using its fixed and variable factors in a given time period.
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Average Product
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The output that is produced, on average, by each unit of the variable factor. AP = Total Product/# of variable factors employed
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Law of diminishing returns
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as the extra units of a variable factor are added to a given quantity or fixed factor, the output from each additional unit of the variable factor will eventually diminish
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Total Cost
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total cost of all the fixed and variable factors used to produce a certain output Total Cost = Total Fixed Cost + Total Variable Cost
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Implicit Costs
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Implicit costs are the earnings that a firm could have had if it used its time and resources differently.
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Explicit Costs
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Any costs to a firm that involves the direct payment of money.
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Total Variable Cost
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The total costs of the variable assets that a firm uses in a given time period.
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Average Fixed Cost
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The fixed cost per unit of output. AFC = total fixed cost/quantity
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Average Variable Cost
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The variable cost per unit of output AVC = total variable cost/quantity
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Average Total Cost
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The total cost per unit of output ATC = Total cost/quantity
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Marginal Cost
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The increase in total cost of producing an extra unit of output. MC = change in total cost/change in quantity
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Increasing returns to scale/Economies of scale
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The percentage increase in all factors of production will lead to an even greater increase in output, thus reducing the long-run average costs.
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Constant returns to scale
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The percentage increase in all factors of production will lead the same production increase in output, thus the long-run average costs stay the same.
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Decreasing returns to scale/Diseconomies of scale
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The percentage increase in all factors of production will lead to a decrease in smaller percentage increase in output, thus increasing the long-run average cost
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Revenue
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The income that a firm receives from selling its products, goods, and services over a given time period.
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Total Revenue
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The total amount of money that a firm receives from selling a certain amount of a good or service in a given time period. TR = (Price)(Quantity)
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Average Revenue
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The revenue a firm receives per unit of its sales. AR = Total revenue/Quantity
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Marginal Revenue
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The extra revenue that a firm earns from producing one more unit of product in a given time period.
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Total Profit
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Total Revenue - economic cost (implicit and explicit cost)
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productive efficiency
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when a firm produces at level of output where resources are being used effinicently and there is no resources going to "waste" MC=AC
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allocative efficiency
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when the value of a product to the consumer is the same as to the producer so both are equal satisfied MC=AR
