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Exam 1
Chapters 1-5: Opportunity Cost; Markets; and Supply and Demand
50
Economics
Undergraduate 1
02/23/2012

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Term
Subsidy
Definition
A government payment to buyers or sellers.
Term
Side Effects: Price Floor
Definition
Surplus
Fewer Trading
Illegal Markets
Term
Perfectly Competitive Market
Definition
When nor buyers or sellers have the power to influence the price in a market.
Term
Macroeconomics
Definition
The study of the behavior of the overall economy.
Term
Entrepreneurship
Definition
Coming up with an idea and making it an enterprise.
Term
Price Ceiling
Definition
Government imposed MAXIMUM price in a market.
Term
Side Effects: Price Ceiling
Definition
Shortage
Fewer Trades
Illegal Markets
Term
Normal Good
Definition
a good that people demand more of as their income goes up.
Term
Positive Analysis
Definition
A claim based off of facts.
Term
Rational Behavior
Definition
Reasonable choices are made--thinking things through and doing your research before making a decision.
Term
Simplifying Assumptions
Definition
When evaluating everything held constant--CETERIS PARIBUS
Term
Marginal Analysis
Definition
Studying choices one unit at a time. Choice by choice.
Term
Normative Analysis
Definition
Claim based off of opinion.
Term
Efficiency
Definition
Resources are being fully used to the best of their abilities.
Term
Resources
Definition
The labor, capital, land, and entrepreneurship that are used to produce goods and services.
Term
Labor
Definition
The time human being spend producing goods and services.
Term
Land
Definition
The physical place production takes place.
Term
Black Market
Definition
When goods are sold illegally at a price above the legal ceiling.
Term
Rent Controls
Definition
Government imposed maximum rents on apartments and homes.
Term
A rightward shift in demand
Definition
Equilibrium price and equilibrium quantity both rise.
Term
Price Floor
Definition
Government imposed MINIMUM price in a market.
Term
Excess Supply
Definition
Quantity supplied exceeds quantity demanded (price floor).
Term
Excess Demand
Definition
Quantity demanded exceeds quantity supplied (price ceiling).
Term
Shortage
Definition
Buyers want to buy more than sellers want.
Term
Surplus
Definition
Sellers want to sell more than buyers want to buy.
Term
Equilibrium
Definition
The "steady state" where the market tends towards. Quantity supplied= Quantity demanded.
Term
Law of Supply
Definition
Positive relationship between Price(P) and Quantity supplied(Qs).
Term
Capital
Definition
Physical plant equipment needed used to produce other goods.
Term
Inferior Good
Definition
A good that people demand less of as their income rises.
Term
Compliments
Definition
Goods you buy together (Peanut-butter and Jelly).
Term
Substitutes
Definition
Something in place of another goo (Pepsi or Coke).
Term
Quantity Demanded
Definition
The quantity of a good that all buyers in a market would choose to buy during a period of time, given their constraints.
Term
Demand Curve
Definition
A curve showing the quantity of a good or service demanded at various prices, with all other variables held constant (ceteris parabis).
Term
Quantity Supplied
Definition
The specific amount of a good that all sellers in a market would choose to sell over some time period, given their restraints.
Term
Physical Capital
Definition
Consisting of physical goods used to produce goods and services such as machinery, equipment, and factories.
Term
Implicit Cost
Definition
Does not always involve money, choices always involves this. For example, instead of spending money you may spend your time.
Term
Explicit Cost
Definition
Money sacrificed for a choice.
Term
Opportunity Cost
Definition
What is given up when making a choice. This involves both explicit (money)and implicit(time) costs.
Term
Scarcity
Definition
A situation where the amount of something available is insufficient to meet the desire for it.
Term
Economics
Definition
The social science that studies the behavior of how individuals, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants.
Term
Law of Demand
Definition
Negative relationship between Price (P) and Quantity demanded (Qd).
Term
Supply Price
Definition
The lowest price a seller is willing to take for a good.
Term
Microeconomics
Definition
The study of behavior of individual households, firms and governements; the choices they make; and their interaction in specific markets.
Term
Production Possibilities Frontier (PPF)
Definition
A curve showing all the combinations of two goods that can be produced w/ the resources and technology currently available.
Term
The Law of Increasing Opportunity Cost
Definition
PPF has a concave shape, becoming steeper as we move rightward and downward.
Term
Productively Efficient
Definition
A situation where more of at least one good can be produced w/o sacrificing the production of a any other good.
Term
A leftward shift in Demand
Definition
Equilibrium price rises, but equilibrium quantity falls.
Term
Alternate good
Definition
other goods that firms in a market could produce instead of the good in question.
Term
Market Economy
Definition
An economic system in which resources are allocated through individual decision making.
Term
Command Economy
Definition
An economic system in which resources are allocated according to explicit instructions from a central authority (dictatorships).
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