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Market

answer

group of economic agents who are trading a good or service, and the rules and arrangements for trading

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Market price

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if all sellers and all buyers face the same price

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Perfectly Competitive Market

answer

sellers al sell an identical good or service, and (2) any individual buyer or any individual seller isn't powerful enough on his or her own to affect the market price of that good or service

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Price taker

answer

buyer or seller who accepts the market price---buyers can't bargain for a lower price and sellers can't bargain for a higher price

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Quantity Demanded

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amount of a good that buyers are willing to purchase at a given price

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Demand Schedule

answer

table that reports the quantity demanded at different prices, holding all else equal

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Holding all Else Equal

answer

implies that everything else in the economy is held constant. The Latin phrase ceteris paribus means "with other things the same" and is sometimes used in economic writing to mean the same thing as "holding all else equal"

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Demand Curve

answer

plots the quantity demanded at different prices. A demand curve plots the demand schedule

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Negatively Related

answer

if the variables move in the opposite direction

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Law of Demand

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in almost all cases, the quantity demanded rises when the price falls (holding all else equal)

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Willingness to Pay

answer

is the highest price that a buyer is willing to pay for an extra unit of a good

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Diminishing Marginal Benefit

answer

as you consume more of a good, your willingness to pay for an additional unit declines

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Aggregaton

answer

process of adding up individual behaviors is referred to as aggregation

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Market Demand Curve

answer

sum of the individual demand curves of all the potential buyers. It plots the relationship between the total quantity demanded and the market price, holding all else equal

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Demand Curve Shifts

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only when the quantity demanded changes at a given price

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Movement Along the Demand Curve

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if a good's own price changes and its demand curve hasn't shifted, the own price change produces this

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Normal Good

answer

increase in income causes the demand curve to shift to the right (holding the good's price fixed)

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Inferior Good

answer

increase in income causes the demand curve to shift to the left (holding the good's price fixed)

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Substitutes

answer

when the fall in the price of one, leads to a right shift in the demand curve for the other

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Complement

answer

two goods are this when the fall in the price of one, leads to a right shift in the demand curve for the other

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Quantity Supplied

answer

amount of a good or service that sellers are willing to sell at a given price

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Supply Schedule

answer

table that reports the quantity supplied at different prices, holding all else equal

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Supply Curve

answer

plots the quantity supplied at different prices. A supply curve plots the supply schedule

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Positively Related

answer

two variables are this if the variables move in the same direction

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Law of Supply

answer

in almost all cases, the quantity supplied rises when the price rises (holding all else equal)

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Willingness to Accept

answer

lowest price that a seller is willing to get paid to sell an extra unit of a good. Willingness to accept is the same as the marginal cost of production

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Market Supply Curve

answer

sum of the individual supply curves of all the potential sellers. It plots the relationship between the total quantity supplied and the market price, holding all else equal

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Input

answer

good or service used to produce another good or service

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Supply Curve Shifts

answer

only when the quantity supplied changes at a given price

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Movement Along the Supply Curve

answer

if a good's own price changes and its supply curve hasn't shifted, the own price change produces this

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Competitive Equilibrium

answer

crossing point of the supply curve and the demand curve

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Competitive Equilibrium price

answer

equates quantity supplied and quantity demanded

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Excess Supply

answer

when the market is above the competitive equilibrium price, quantity supplied exceeds quantity demanded, creating this

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Excess Demand

answer

when the market price is below the competitive price, quantity demanded exceeds quantity supplied, creating this

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Optimization in Levels

answer

calculates the total net benefit of different alternatives and then chooses the best alternative

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Optimization in Difference

answer

calculates the change in net benefits when a person switches from one alternative to another and then uses these marginal comparisons to choose the best alternatives

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Behavioral Economics

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jointly analyzes the economic and psychological factors that explain human behavior

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Optimum

answer

is the best feasible choice. In other words, the optimum is the optional choice

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Comparative Statics

answer

is the comparison of economic outcomes before and after some economic variable is changed

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Marginal Analysis

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is a cost-benefit calculation that studies the difference between a feasible alternative and the next feasible alternative

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Marginal Cost

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is the extra cost generated by moving from one feasible alternative to the next feasible alternative

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Principle of Optimization at the Margin

answer

states that an optimal feasible alternative has the property that moving to it makes you better off and moving away from it makes you worse off

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Scientific Method

answer

name for the ongoing process that economists and other scientist use to (1) develop models of the world and (2) test those models with data

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Model

answer

a simplified description, or representation, of the world. Sometimes, economists will refer to a model as a theory these terms are often used interchangeably

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Data

answer

facts, measurements, or statistics that describe the world

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Empirical Evidence

answer

is a set of facts established by observation and measurement

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Hypotheses

answer

predictions (typically generated by a model) that can be tested with data

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Mean/Average

answer

sum of all the different values divided by the number of values

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Causation

answer

occurs when one thing directly affects another through a cause-and-effect relationship

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Correlation

answer

means that there is a mutual relationship between two things

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Variable

answer

factor that is likely to change or vary

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Positive Correlation

answer

implies that two variables tend to move in the same direction

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Negative Correlation

answer

implies that two variables tend to move in opposite directions

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Zero Correlation

answer

when the variables have movements that are not related, we say that the variables have zero correlation

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Omitted Variable

answer

something that had been left out in a study that, if included, would explain why two variables that are in the study are correlated

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Reverse Causality

answer

occurs when we mix up the direction of cause and effect

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Experiment

answer

a controlled method of investigating causal relationship among variables

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Randomization

answer

assignments by chance, rather than by choice, to a treatment group or control group

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Natural Experiment

answer

empirical study in which some process out of the control of the experimenter has assigned subjects to control and treatment groups in a random or nearly random way.

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Economic Agent

answer

an individual or a group that makes choices

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Scarce Resources

answer

things that people want, where the quantity the people want exceeds the quantity that is available

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Scarcity

answer

exists because people have unlimited wants in a world of limited resources

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Economics

answer

is the study of how agents choose to allocate scare resources and how those choices effect society

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Positive Economics

answer

analysis that generate objective descriptions or predictions about the world that can be verified with data

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Normative Economics

answer

analysis that prescribes what and individual or society ought to do

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Microeconomics

answer

study of how individuals households, firms, and governments, make choices, and how those choices affect prices, the allocation of resources, and the well-being of other agents

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Macroeconomics

answer

the study of the economy as a whole. Macroeconomics study economy-wide phenomena, like the growth rate of a country's total economic output, the inflation rate, or the unemployment rate.

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Optimization

answer

trying to choose the best feasible option, given the available information, is optimization

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Equilibrium

answer

special situation in which everyone is simultaneously optimizing, so nobody would benefit personally by changing his or her own behavior

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Empiricism

answer

analysis that uses data. Economists use data to test theories and to determine what is causing things to happen in the world

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Trade-offs

answer

An economic agent faces a trade-off when the agent needs to give up one thing to get something else

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Budget Constraint

answer

shows the bundles of goods or services that a consumer can choose given her limited budget

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Opportunity Cost

answer

is the best alternative use of a source

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Cost-Benefit analysis

answer

calculation that adds up costs and benefits using a common unit of measurement, like dollars

Economics Chapters 1-4 Terms – Flashcards

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