Principles of Economics (10th Edition) by Case, Fair, Oster (Chapters 1-5) – Flashcards
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Economics
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The study of how individuals and societies choose to use the scarce 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 opportunity cost give up, when we make a choice or a decision.
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Scarce
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Limited
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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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Industrial Revolution
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The period in England during the Industrial Revolution late eighteenth and early nineteenth centuries in which new manufacturing technologies and improved transportation gave rise to the modern factory system and a massive movement of the population from the countryside to the cities.
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Microeconomics
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The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units—that is, firms and households.
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Macroeconomics
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The branch of economics that examines the economic behavior of aggregates—income, employment, output, and so on—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 operation of systems without making judgments. It describes what exists and how it works.
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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 courses of action. Also called policy economics.
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Descriptive Economics
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The compilation of data that describe phenomena and facts
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Economic Theory
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A statement or set of related economic theory 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 from 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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Ceterus Paribus
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A device used to analyze the relationship between two variables while the values of other variables are held unchanged.
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Post Hoc, Ergo Propter Hoc
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Literally, "after this (in time), therefore because of this." A common error made in thinking about causation: If Event A happens before Event B, it is not necessarily true that A caused B.
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Fallacy of Composition
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The erroneous belief that what is true for a part is necessarily true for the whole.
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Emprirical Economics
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The collection and use of data to test economic theories.
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Efficiency
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n economics, allocative efficiency. An efficient economy is one that produces what people want at 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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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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Opportunity Cost
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The best alternative that we give up, or forgo, when we make a choice or decision.
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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 a comparative 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 Goods
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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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Production Possibility Frontier (ppf)
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A graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently.
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Marginal Rate of Transformation (MRT)
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The slope of the production possibility frontier (ppf ).
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Economic Growth
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An increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources.
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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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Literally from the French: "allow [them] to do." 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 (or not produced) by choosing what to purchase (and what not 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 (inputs) into products (outputs). Firms are the primary producing units in a market economy.
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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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capital market 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/factor market in which households supply land or other real property in exchange for rent.
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Factors of Production
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The inputs into the production process. Land, labor, and capital are the three key factors of production.
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Quantity Demanded
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The amount (number of units) 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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Demand Schedule
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A table showing how much of a given demand schedule 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: As price rises, quantity demanded decreases; as price falls, quantity demanded increases.
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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. It is a flow measure.
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Wealth or New Worth
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The total value of what a household owns minus what it owes. It is a stock measure.
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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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Compliments
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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. The shift is brought about by a change in the original conditions.
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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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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: An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity 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 a 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. The shift is 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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Equilibrium
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The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.
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Excess Demand or Shortage
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The condition that exists when quantity demanded exceeds quantity supplied at the current price.
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Excess Supply or Surplus
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The condition that exists when quantity supplied exceeds quantity demanded at the current price.
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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: a nonprice rationing mechanism.
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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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Price Elasticity of Demand
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The ratio of the percentage of change in quantity demanded to the percentage of change in price; measures the responsiveness of quantity demanded to changes in price.
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Perfectly Inelastic Demand
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Demand in which quantity demanded does not respond at all to a change in price.
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Perfectly Elastic Demand
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Demand in which quantity drops to zero at the slightest increase in price.
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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 (a demand elasticity with an absolute value greater than 1).
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Inelastic Demand
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Demand that responds somewhat, but not a great deal, to changes in price. Inelastic demand always has a numerical value between zero and -1.
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Unitary Elasticity
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A demand relationship in which the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity of -1).
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Midpoint Formula
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A more precise way of calculating midpoint formula percentages using the value halfway between P1 and P2 for the base in calculating the percentage change in price and the value halfway between Q1 and Q2 as the base for calculating the percentage change in quantity demanded
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Income Elasticity of Demand
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A measure of the responsiveness of demand to changes in income.
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Cross-price Elasticity of Demand
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A measure of the response of the quantity of one good demanded to a change in the price of another good.
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Elasticity of Supply
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A measure of the response of quantity of a good supplied to a change in price of that good. Likely to be positive in output markets.
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Elasticity of Labor Supply
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A measure of the response of labor supplied to a change in the price of labor.
