Economics Quiz 1 (Ch.1-3) – Flashcards
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The Study of how we allocate scarce resources to meet needs
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Economics
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How to spend time, how to spend money. Constrained by the idea of time and budget. Choices lead to opportunity cost.
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Individual choices
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Highest valued alternative you give up in order to engage in an activity.
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Opportunity Cost
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The dollars sacrificed-and actually paid out-for a choice
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Explicit Cost
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The value of something sacrificied when no direct payment is made.
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Implicit Cost
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Land, Labor, Capital, and Entrepreneurship
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4 economic resources
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The physical place where production could take place and all natural resources still in their natural state.
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Land
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The time and effort by humans to produce goods and services for the market (personal use, such as chores, not included)
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Labor
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Long lasting tools, equipment, buildings that are used to produce goods and services. They can be reused.
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Capital
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Person's ability to combine other resources into a productive enterprise, to innovate, to take risks.
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Entrepreneurship
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Produced or altered goods that are used up in the production process or become part of the good that is sold.
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Raw Materials
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A line or curve showing the maximum amounts of 2 goods or services that could be produced with available resources and technology.
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Production Possibilities Frontier (PPF)
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Any assumption that makes a model simpler without affecting any of its important conclusions
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Simplifying Assumption
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Any assumption that affects the conclusions of a model in an important way. (Technology not allowed to change. All resources held constant in quantity or quality. All resources are used efficiently.
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Critical Assumption
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Negative (inverse) relationship. As resources are given to producing more of one good, there is an OC of producing the other good.
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Opportunity Cost slop
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Due to the fact that not all resources are equally skilled for all things, the more of something we produce, the greater the opportunity cost of producing even more of it.
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Law of Opportunity Cost
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A method of production in which each person concentrates on a limited number of activities.
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Specialization
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Trade with others to get what we want
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Exchange
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Ability to produce a given amount of a good at a lower OC
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Comparitive Advantage
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Ability to produce more of a good using the same amount of resources.
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Absolute Advantage
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An economy in which resources are allocated according to long-lived practices from the past
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Traditional Economy
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An economic system in which resources are allocated according to explicit instructions from a central authority.
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Command or Centrally planned Economy
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An economic system in which resources are allocated through individual decision making.
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Market Economy
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A group of buyers and sellers with the potential to trade with each other
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Market
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Sellers can influence prices
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Imperfectly competitive markets
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No one can influence the price
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Perfectly competitive makets
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The number of units of a good or service that all buyers are willing and able to buy at a specific price, all else held constant.
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Quantity Demanded
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As the price increases, quantity demanded decreases (inverse/negative relationship)
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Law of Demand
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A list of all the different quantities demanded at different prices, all else held constant (ceteris paritres)
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Market Demand
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Cause demand to change at every price. 1) Income/Wealth 2) Prices of Related goods 3) Population 4)Expected Future Price Changes 5) Tastes and Preferences. TIPPE
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Non-price determinants of demand
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Have an increase in demand when income/wealth increases (+ relationship)
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Normal Good
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Decrease in demand when income wealth decreases (- relationship)
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Inferior Good
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A number of units of a good or service that all sellers in the market are willing to sell at a given price, all else held constant
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Quantity Supplied
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As price of a good rises, quantity supplied will increase (+ relationship)
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Law of Supply
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1) Input prices 2) Profits of an alternate good 3) Technology advances 4) Productive capacity 5) Expected future price change. PIPET
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Determinants of Supply (Cause a shift)
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The market price is not equal to the equilibrium price
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Market Disequilibrium
