Term
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Definition
| The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided |
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Term
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Definition
| The study of econimics that examins the functioning of individual industries and the behavior of individual decision making |
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Term
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Definition
| Seeks to understand behavior and operations of systems without judgement. What exists and how it works |
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Definition
| Analyzes ourcomes of economic behavior. Evaluates as good or bad. May prescribe course of action. |
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Term
| What is the goal of models and theory in economics |
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Definition
| Model: Formal statement of a theory |
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Term
| Why is abstraction an important part of model building? |
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Definition
| Abstraction removes irrelevant detail to allow a concise picture of reality. |
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Term
Ceteric poribus
and why is it important?
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Definition
all else equal
Makes it easier to see the relationship between two variables without outside influence |
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Term
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Definition
| Produces what the people want at the lease posible cost. |
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| What does equality mean in economics? |
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Definition
fariness.
ex: rent, social welfare |
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Term
What is scarcity?
Why is economics important in a world of scarcity? |
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Definition
unlimited want
limited resources |
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Term
| What are the three basic questions that every society must answer as a result of scarcity |
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Definition
What gets produced?
How is it produced?
To who is it distributed? |
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Term
What is opportunity cost?
How does it differ from monetary cost?
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Definition
Best alternative forgone
Money given up/time given up with decision |
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Term
What is corpartive advantage?
How does it differ from absolute advantage?
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Definition
Good can be produced at lower opportunity cost.
Can produce more/can produce with less resources. |
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Term
| How can specialzation and exchange make people better off in the face of conparitive advantage? |
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Definition
| More goods produced w/ specialzatin. Even with one party holding all absolute advantage. |
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Term
| What does the production possibilities froutier represent? |
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Definition
| All posible conbination of goods and services that can be produced if resources are used efficiently. |
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Term
| How does the slope of the production possibilities frontier relate to opportunity cost? |
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Definition
| Society can choose only one point on the curve |
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Term
Why does the opportunity cost of a good rise as a society produces more of it?
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Definition
| The best resources for x are theoreticially already allocated to produce x. |
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Term
How can you use the production possibilities frontier to illustrate inefficient use of resources?
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Definition
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Term
| What types of economic systems do societies use to answer the three basic questions? |
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Definition
Command economy: central government sets output targets, incomes, and prices
Laissez-Faire economy: pursue self interest w/o government intervention.
we use a mix of these two...
called a mixed economy you fuck'n dum ass |
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Term
What roles do firms and households play in the economy?
In what markets do they interact?
What do households provide to firms?
What do firms provide to households?
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Definition
Firms:transform resources into product producing units.
Households: consuming units |
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Term
What is the demand schedual?
What is the demand curve? |
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Definition
Demand schedual: A table showing how much of a given product a household would be willing to buy at a different price
Demand Curve: A graph illustrating how much of a given product a household would be willing to buy at a different price |
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Term
| What is the law of demand? Why does it hold? |
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Definition
| As prices rise, quality demanded decreases |
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Term
What other factors affect the demand for a product?
What impacts are changes in these factors going to have?
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Definition
Income and wealth
other prices
Expectations
tastes and preferences |
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Term
What are substitutes and complementary goods?
What happens to the demand for somthing when the price of one of its subsitutes rises, ceteris poribus?
One of its compliments rises? |
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Definition
substitutes: Goods that can serve as replacement for another.
When price for one increases demand for the other increases.
complementary: Goods that go together.
A decrease in price in one increases demand for the other |
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Term
What are normal and inferior goods?
What happens to the demand for each when income rises?
Why is ceteris poribus important in the last two questions? |
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Definition
Normal:Demand goes up when income goes up
Inferior: Demand goes up when income decreases
Other factors effecting demand |
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Term
What causes the demand curve to shift?
What causes the quantity demand to change?
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Definition
| Any factor other than a change in price that changes demand. |
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Term
What is the difference between household demand curves and the market demand curve?
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Definition
| Market demand is the sum of all household demands. |
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Term
What is a supply schedual?
What is a supply curve? |
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Definition
supply schedual: a table showing how much of a product firms will sell at alternative prices.
Supply curve: a graph showing how much of a product firms will sell at alternative prices. |
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Term
What is the law of supply?
why does it hold? |
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Definition
| Law of supply: 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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Term
What other factors affect the supply for a product?
What impacts are changes in these factors going to have? |
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Definition
Cost of production:lower cost=higher output/supply
higher cost=lower output/supple
prices of related products. |
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Term
What causes the supply curve to shift?
What causes quantity supplied to change? |
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Definition
Shift: when factors other than price change it
Quantity supplied:change movement along the supply curve |
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Term
| What is the relationship between firms supply curve and the market supply curve? |
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Definition
| Market supply is the sum of all that is supplied by all producers at a single product. |
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Term
What are the equilibium price and quantity?
How do you find them on a supply abd demand curve? |
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Definition
| Quantity supplied and demanded are equal. |
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Term
What is excess demand?
What does demand imply about the price? |
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Definition
More demand than quantity supplie?
price is too low |
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Term
| What two roles does the the market system play in dealing with the problems of scarcity? How do these roles differ? |
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Definition
| It decides who gets goods when quantity demanded exceeds the quantity supplied and determines allocation of resources among producers final mix of outputs |
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Term
When the market rations the existing supply of a good, who gets it?
Why might people object to the fairness to the result? |
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Definition
Those who are willing and able to play the most get it.
The rich get it.
I get it
That's why they call me cash |
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Term
What are price ceilings and price floors?
How else might good be rationed if the market is not able to reach an equilibrium? |
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Definition
ceiling: max price; set below equilibrium
floor: min price; set above equilibrium |
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Term
What is consumer surplus?
How can you measure that consumers receive from purchasing a given quantity of a good from the demand curve for that good? |
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Definition
| consumer surplus: the difference between the max amout a person is willing to pay for a good and its current market price. |
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Term
| What happens to the sum of producer and consumer surplus at the equilibrium of a competitive market? |
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Definition
| Total surplus is greatest at equilibrium |
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Term
What is dead weight loss?
How does over production or under production (compared to the competive equilibrium quantity) lead to deadweight loss?
How can you measure the deadweight loss from over production or under production from a supply and demand diagram? |
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Definition
Dead weight loss: total loss of producer and consumer surplus from under production or over production
over production: loss of producer surplus
Under production: loss of consumer surplus
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Term
What is elasticity?
In what terms does it measure the responsiveness of one variable to another? |
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Definition
A general concept used to quantify the respon in one variable when another variable changes
Elasticity of A with respect to B:
%(change in A)/%(change in B) |
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Term
| What does the price elasticity of demand measure? |
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Definition
Price elasticity of demand: The ratio of the precentage 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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Term
| What is ment by inelastic demand? |
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Definition
| When demand is more verticle |
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Term
| What is ment by elastic demand |
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Definition
| when demand is more horrizontal |
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Term
| How does the elasticity of demand vary along a straight line demand curve? |
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Definition
| Demand becomes less elastic as price decreases |
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Term
What is the relationship between the elasticity of demand for a good and the revenue obtained from its sales?
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Definition
| Effect of price increases on product with elastic demand |
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Term
| What factors determin whether the elasticity of demand for a product is large or small? |
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Definition
avaiablity of a substitutes
small/unimportant goods
time |
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Term
| What is the income elasticity of demand and how is it related to whether goods are normal or inferior? |
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Definition
income elasticy of demand
(change in quantity demanded)
/
(chang in income)
+=normal good
-=inferior good |
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Term
| What is the cross-price elasticity of demand and how it it related to whether goods are complements or substitutes? |
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Definition
(change in quantity of good y demanded)
/
(Change in price of x)
+=goods are substitutes
-= goods are complements
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Term
| What does the elasticity of supply measure? |
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Definition
A measure of the response of the quantity of a good supplied to a change in price of that good.
likely positive. |
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