Limited resources and unlimited wants.
Study of how society manages its scarce resources.
The property of society getting the most from its scarce resources.
The property of distributing output fairly amonf society’s members.
Whatever is given up to get something else.
Incremental adjustments to an existing plan.
An economic system where interaction of households and firms in markets determine the allocation of resources.
The principle that self-interested market participants may unknowingly maximize the welfare of the economy as a whole.
A situation in which the market fails to allocatre resources efficiently.
When one person’s actions have an impact on a bystander.
The ability of an individual or group to substantially influence the maket prices.
The case in which there is only one seller in a market.
The amount of goods and services produced per hour by a worker.
An increase in the overall level of prices.
The short-run tradeoff between inflation and unemployment.
Objective development and testing of theories.
Simplifications of reality based on assumptions.
A diagram of the economy that shows the flow of goods and services, factors of production, and monetary payments between households and firms.
Factors of Production
Inputs such as land, labor, and capital.
Production Possibilities Frontier
A graph that shows the combinations of output the economy can possibly produce given the available factors of production and the available production technology.
The study of households and firms make decisions and how they interact in markets.
The study of economy wide phenomena,
Descriptions of the world as it is.
Prescription for how the world ought to be.
The comparison among producers of a good based on their productivity.
The comparison among producers of a good based on their oppurtunity cost.
Gains from Trade
The increase in total production due to specialization allowed by trade.
Goods produced abroad and sold domestically.
Goods produced domestically and sold abroad.
Make decisions by evaluating costs and benefits of marginal changes; think at the margin.
A cost or benefit that motivates a decision or action by consumers, businesses, or other participants in the economy.
Some item of value does not have an owner with the legal authority to control it.
Fluctuations in economic activity such as employment and production.
A group of buyers and sellers of a particular good or service.
A market with many buyers and sellers trading indentical products so that each buyer and seller is a price taker.
The amount of a good that buyers are willing and able to purchase.
Law of Demand
The claim that, other things equal, the quantity demanded of a good falls when the price of the good rises.
A table that shows the relationship between the price of a good and the quantity demanded.
A graph of the relationship between the price of a good and the quantity demanded.
A good for which, other things equal, an increase in income leads to an increase in demand.
A good for which, other things equal, an increase in income leads to a decrease in demand.
Two goods for which an increase in the price of one leads to an increase in demand for the other.
Two goods for which an increase in the price of one leads to a decrease in the demand for the other.
The amount of a good that sellers are willing and able to sell.
Law of Supply
The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.
A table that shows the relationship between the price of the good and the quantity supplied.
A graph of the relationship between the price of a good and the quantity supplied.
A situation in which supply and demand have been brought into balance.
The price that balances supply and demand.
The quantity supplied and the quantity demanded when the price has adjusted to balance supply and demand.
A situation in which quantity supplied is greater than quantity demanded.
A situation in which quantity demanded is greater than quantity supplied.
Law of Supply and Demand
The claim that the price of any good adjusts to bring the supply and demand for that good into balance.
A measure of the responsiveness of the quantity demaded or quantity supplied to one of its determinants.
Price Elasticity of Demand
A measure of how much the quantity demanded of a good responds to a change in the price of that good.
When the quantity demanded or supplied responds substantially to a change in one of its determinants.
When the quantity demanded or supplied responds only slightly to a change in one of its determinants.
The amount paid by buyers and recieved by sellers of a good computes as P*Q.
Income Elasticity of Demand
A measure of how much the quantity demanded of a good responds to a change in consumers’ income.
Cross-Price Elasticity of Demand
A measure of how much the quantity demanded of one good responds to a change on the price of another good.
Price Elasticity of Demand
A measure of how much the quantity supplied of a good responds to a change om tje price of that good.
A legal maximum on the price at which a good can be sold.
A legal minimum on the price at which a good can be sold.
The study of who bears the burden of taxation.
The difference between what the buyer pays and the seller recieves after a tax has been imposed.
The study of how the allocation of resources affects economic well-being.
Willingness to Pay
The maximum amount that a buyer will pay for a good.
A buyer’s willingness to pay minus the amount the buyer actually pays.
The value of everything a seller must give up to produce a good.
The amount a seller is paid for a good minus the seller’s cost.
The reduction in total surplus that results from a tax.
A graph showing the relationship between the size of a tax and the tax revenue collected.
The price of a good that prevails in the world market for that good.
Market participants that cannot influence the price so they view the price as given.
A tax on goods produced abroad and sold domestically (imports).
Gross Domestic Product (GDP)
The market value of all final goods and services produced within a country in a given period of time.
Spending by households on goods and services, with the exception of purchases of new housing.
Spending on goods and services by local, state, and federal governments.
The value of a nation’s exports minus the value of its imports, also called trade balance.
The production of goods and services valued at current prices.
The production of goods and services valued at a constant prices.
A measure of the price level calculated as the ratio of nominal GDP to real GDP times 100.
A Latin phrase, translated as “other things being equal,” used as a reminder that all variables other than the ones being studied are assumed to be constant.