Economics Test One – Flashcards
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Economics
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the study of how individuals and societies choose to use the scare resources that nature and previous generations have provided
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Opportunity Cost
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the best alternative that we forgo, or give up, when we make a choice or decision
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Marginalism
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the process of analyzing the additional or incremental costs or benefits arising from a choice or decision
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Sunk Costs
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costs that cannot be avoided because they have already been incurred
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Efficient Market
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a market in which profit opportunities are eliminated almost instantaneously
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Microeconomics
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the branch or economics that examines the functioning of individual industries and the behavior of individual decision-making units (firms and households)
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Macroeconomics
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the branch f economics that examines the economy behavior of aggregates- income, employment, output on a national scale
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Positive Economics
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an approach to economics that seeks to understand behavior and the operations of systems without making judgement
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Normative Economics
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an approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe a course of action
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Descriptive Economics
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the complication of data that describe phenomena and facts
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Economic Theory
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a statement or set of related statements about cause and effect, action and reaction
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Model
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a formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables
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Variable
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a measure that can change from time to time or observation to observation
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Ockham's Razor
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the principle that irrelevant detail should be cut away
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Ceteris Paribus
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"all else equal"; a device use to analyze the relationship between two variables while the values of other variables are held constant
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Empirical Economics
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the collection and use of data to test economic theories
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Efficiency
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an efficient economy is one that produces what people want as the least possible cost
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Equity
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fairness
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Economic Growth
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an increase in the total output of an economy
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Stability
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a condition in which national output is growing steadily, with low inflation and full employment of resources
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Capital
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things tat are produced and then used in the production of other goods and services
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Factors of Production
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the inputs into the process of production (land, labor, and capital)
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Production
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the process that transforms scarce resources into useful goods and services
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Inputs or Resources
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anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants
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Outputs
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goods and services of value to households
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Theory of Comparative Advantage
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Ricardo's theory that specialization and free trade will benefit all trading parties, even those that may be absolutely more efficient producers
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Absolute advantage
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a producer has an absolute advantage over another in the production of a good or service if he or she can produce that product using fewer resources
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Comparative Advantage
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a producer has an absolute advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost
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Consumer good
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goods produced for present consumption
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Investment
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the process of using resources to produce new capital
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PPF
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a graph that shows all the combinations of goods and services that can be produced if all society's resources are used efficiently
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Marginal Rate of Transformation
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the slope of the PPF
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Economic Growth
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an increase in the total output of an economy
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Command Economy
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an economy in which a central government either directly or indirectly sets output targets, incomes, and prices
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Laissez-faire Economy
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an economy in which individual people and firms pursue their own self-interest without any central direction or regulation
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Market
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the institution through which buyers and sellers interact and engage in exchange
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Consumer Sovereignty
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the idea that consumers ultimately dictate what will be produced by choosing what to purchase
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Free Enterprise
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the freedom of individuals to start and operate private businesses in search of profits
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Firm
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an organization that transforms resources into products
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Entrepreneur
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a person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business
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Households
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the consuming units in an economy
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Product or Output Markets
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the markets in which goods and services are exchanged
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Input or Factor Markets
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the markets in which the resources used to produce goods and services are exchanged
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Labor Market
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the input/factor market in which households supply work for wages to firms that demand labor
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Capital Market
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the input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods
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Land Market
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the input/output market in which households supply land or other real property in exchange for rent
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Quantity Demanded
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the amount of a product that a household would buy in a given period if it could buy all it wanted at the current market price
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Profit
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the difference between revenues and costs
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Quantity Supplied
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the amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period
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Supply Schedule
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a table showing how much of a product firms will sell at alternative prices
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Law of Supply
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the positive relationship between price and quantity of a good supplied
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Supply Curve
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a graph illustrating how much of a product a firm will sell at different prices
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Movement Along a Supply Curve
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the change in quantity supplied brought about by a change in price
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Shift of Supply Curve
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the change that takes place in a supply curve corresponding to a new relationship between quantity supplied of a good and the price of that good brought about by a change in the original conditions
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Market Supply
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the sum of all that is supplied each period by all producers of a single product
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Demand Schedule
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a table showing how much of a given product a household would be willing to buy at different prices
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Demand Curve
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a graph illustrating how much of a given product a household would be willing to buy at different prices
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Law of Demand
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the negative relationship between price and quantity demanded
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Income
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the sum of all a household's wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time
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Wealth
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the total value of what a household own minus what it owes
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Normal Goods
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goods for which demand goes up when income is higher and for which demand goes down when income is lower
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Inferior Goods
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goods for which demand tends to fall when income rises
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Substitutes
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goods that can serve as replacements for one another, when the price of one increases, demand for the other increases
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Perfect Substitutes
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identical products
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Complements
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goods that "go together"; a decrease in the price of one results in an increase in demand for the other and vice versa
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Shift of a Demand Curve
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the change that takes place in a demand curve corresponding to a new relationship between quantity demanded of a good and price of that good
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Movement Along a Demand Curve
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the change in quantity demanded brought about by a change in price
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Market Demand
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the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service
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Equilibrium
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the condition that exists when quantity supplied and quantity demanded are equal
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Shortage
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the condition that exists when quantity demanded exceeds quantity supplied at the current price
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Surplus
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the condition that exists when quantity supplied exceeds quantity demanded at the current price
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Price Rationing
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the process by which price tends towards equilibrium when there is a shortage
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Price Ceiling
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a maximum price that sellers may charge for a good, usually set by government
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Queuing
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waiting in line as a means of distributing goods and services
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Favored Customers
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those who receive special treatment from dealers during situations of excess demand
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Ration coupons
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tickets or coupons that entitle individuals to purchase a certain amount of a given product per month
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Black Market
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a market in which illegal trading takes place at market determined prices
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Price Floor
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a minimum price below which exchange is not permitted
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Minimum Wage
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a price floor set for the price of labor
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Consumer Surplus
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the difference between the maximum amount a person is willing to pay for a good and its current market price
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Producer Surplus
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the difference between the current market price and the full cost of production for the firm
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Deadweight Loss
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the total loss of producer and consumer surplus from underproduction or overproduction
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Elasticity
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a general concept used to quantify the response in one variable when another variable changes
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Elastic Demand
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a demand relationship in which the percentage change in quantity demanded is larger than the percentage change in price in absolute value
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Inelastic Demand
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demand that corresponds somewhat, but not a great deal, to changes in price
