Term
| What are the 10 Principles of Economics? |
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Definition
1. People Face Trade-Offs.
2. The Cost of Something is what you give up to get it.
3. Rational People Think at the Margin.
4. People Respond to Incentives.
5. Trade Can Make Everyone Better Off.
6. Markets Make Are a Good Way to Organize the Economy.
7. Governments Can Improve Markets Outcomes.
8. A Country's Standard of Living is based on it's Goods and Services.
9. Prices Rise when the government prints too much money.
10. Society faces a short-run trade off between inflation and unemployment. |
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Term
| What are 10 Things Most Economicists Agree On? |
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Definition
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Term
| Define Demand, construct a demand curve, and discuss the slope and shifters of the curve. |
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Definition
Demand - Utility for a good or service.
Determinants Include:
1.Income - more income = more demand.
2. Consumer Preferences - Favorable Items = higher demand.
3. # of Buyers - More Buyers = More Demand.
4. Price of Related Goods
5. Expectation of Future |
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Term
| Define Supply, construct a supply curve, and discuss the slope and shifters of the curve. |
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Definition
Supply - amount of a good that buyers are willing to sell.
Determinants Include:
1. Production Cost - cost to make = more money to sell it.
2. Technology - better technology + less production cost = more supply.
3. # of Sellers - more sellers = more supply.
4. Future - Sale in Future = more supply now. |
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Term
| Construct a Supply and Demand Model and discuss the process by which prices are driven to a market-clearing equilibrium. Provide an example. |
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Definition
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Term
| Define and give the formula for the price elasticity of demand; Explain how the elasticity changes as the curve is rotated through a point; Discuss the relationship between total revenue and elasticity along a linear demand curve. |
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Definition
Elasticity = % change in quantity demanded/supplied
%change in price
As the curve goes clockwise the price rises and the quantity demanded decreases which would decrease elasticity.
Demand is inelastic + increase in price = higher revenue
Demand is elastic + increase in price = lower revenue |
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Term
Discuss either price ceilings or price floors.
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Definition
Price Ceilings - maximum price a good can be priced at
Price Floor - minimum price a good can be priced at
Ceilings that bind - above maximum price
Ceilings that don't bind - below maximum price
Floor that bind - below minimum price
Floor that don't bind - above minimum price
Ceiling -> shortage
Floor -> surplus |
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Term
| Show a market at equilibrium maximizes the sum of producer and consumer surplus. |
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Definition
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Term
| Show how the imposition of a tax affects economic welfare. |
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Definition
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Term
| Discuss the effect of a deadweight loss and tax revenue as the size of the tax varies. |
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Definition
Supply & Demand is inelastic - deadweight loss is small
Supply & Demand is elastic - deadweight loss is large
Small Tax - small tax revenue
Size of the Tax increases - deadweight loss increases |
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Term
| Discuss the effects of international trade in an importing country. |
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Definition
An Importing country has lower prices for consumers but higher prices for producers.
World price is lower than domestic price. |
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Term
| Discuss the effects of international trade in an exporting country. |
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Definition
An exporting country has lower prices for producers but higher prices for consumers.
World price is higher than the domestic price. |
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Term
| What is the circular flow diagram? |
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Definition
| Visual model of the economy that shows how dollars flow through markets among households and firms. |
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Term
| What is the production possibilities frontier? |
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Definition
| A graph that shows the combinations of output that they economy can possibly produce given the available factors of production and the available production technology. |
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Term
| Contrast Positive and Normative Statements. |
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Definition
Positive Statement - statements that attempt to describe the world as it is (Descriptive Analysis).
Normative Statement - statements of how the world should be (Perceptive Analysis). |
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Term
| Contrast Comparative and Absolute Advantage. |
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Definition
Absolute Advantage - making more with what you have on hand.
Comparative Advantage - lower opportunity cost. |
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Term
| What is a competitive market? |
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Definition
| Market where there are many buyers and sellers so that each has an impact on market price. |
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Term
| Define the Law of Demand. |
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Definition
| The quantity demanded of a good falls when the price of a good rises. |
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Term
| Define the Law of Supply. |
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Definition
| The quantity of a supply rises when the price of a good rises. |
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Term
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Definition
| The situation in which the price has reached the level where quantity supplied equals the quantity demanded. |
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Term
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Definition
| The buyers willingness to pay for a good minus the amount the buyer actually pays for it. |
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Term
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Definition
| The amount a seller is paid minus the sellers cost. |
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Term
| Contrast Equity and Efficiency. |
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Definition
Equity - benefits of the resources that are distributed equally among members of society.
Efficiency - Getting the most that we can from scarce resources. |
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Term
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Definition
| The fall in total surplus that results from a market distortion. |
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Term
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Definition
| A Tax on goods produced abroad and sold domestically. |
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