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OSU Econ Flash Cards
2001H
104
Economics
Undergraduate 1
10/08/2012

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Cards

Term
Trade-Off
Definition
spending money on one thing leaves less money to be spent on something else
Term
Incentives
Definition
benefits that cause a spender to purchase one thing over another
Term
Exchange
Definition
trade goods, all parties benefit from voluntary exchange
Term
Information
Definition
utilized to make intelligent choices
Term
Distribution
Definition
how wealth is spread out among society
Term
Scarcity
Definition
all resources are limited. unlimited wants, limited resources.
Term
Market Economy
Definition
exchanges take place through markets and are guided by the prices
Term
Product Market
Definition
markets in which firms sell their outputs
Term
Trade-Off
Definition
spending money on one thing leaves less money to be spent on something else
Term
Incentives
Definition
benefits that cause a spender to purchase one thing over another
Term
Exchange
Definition
trade goods, all parties benefit from voluntary exchange
Term
Information
Definition
utilized to make intelligent choices
Term
Distribution
Definition
how wealth is spread out among society
Term
Scarcity
Definition
all resources are limited. unlimited wants, limited resources.
Term
Market Economy
Definition
exchanges take place through markets and are guided by the prices
Term
Product Market
Definition
markets in which firms sell their outputs
Term
Labor Market
Definition
market where services of workers are bought and sold
Term
Capital Market
Definition
markets involved in borrowing and lending funds, banks, insurance, bonds, stock market
Term
Capital Goods
Definition
machines and buildings
Term
Microeconomics
Definition
economic decisions in firms and households
Term
Macroeconomics
Definition
studies the behavior of the economy as a whole
Term
Economic Theory
Definition
a set of assumptions, and conclusions drawn from those assumptions
Term
Correlation
Definition
a change in one variable is consistent with a change in another variable
Term
Causation
Definition
a change in one variable is not only correlated with, but produces the change in, the other variable
Term
Positive Economics
Definition
describes how something might change and makes predictions, uses facts
Term
Normative Economics
Definition
inferences and evaluations, disputable
Term
Competition
Definition
battle between producers for consumers
Term
Basic Competitive Model
Definition
involves self-interested consumers, profit-maximizing businesses, and perfect competition
Term
Rational Choice
Definition
consumer chooses what maximizes his or her benefits
Term
Perfect Competition
Definition
every business is a price taker and cannot influence the market price. it can sell as much as it wants but cannot change the price
Term
Price Taker
Definition
sets their product at the market price of similar products
Term
Price System
Definition
goods go to people and businesses that are most willing and able to pay for them
Term
Private Property
Definition
ownership of property by individuals or corporations
Term
Property Rights
Definition
rights of private property owners; right to use it as they see fit and sell it
Term
Rationing Systems
Definition
a system of allocating scarce resources
Term
Opportunity Set
Definition
the group of available choices
Term
Budget constraints
Definition
the constriction of an opportunity set due to money
Term
Time Constraints
Definition
the constriction of an opportunity set due to time
Term
Production Possibilities
Definition
the amount of goods a firm can produce given its resources
Term
Production Possibilities Curve
Definition
shows the boundary of the opportunity set given the possibilities
Term
Diminishing Returns
Definition
as one input increases, the outputs become smaller and smaller
Term
Relative Price
Definition
the ratio of any two prices
Term
Opportunity Cost
Definition
the next-best thing you gave up in order to get something
Term
Absolute Advantage
Definition
when a country can produce a good more efficiently than another country can
Term
Comparative Advantage
Definition
if one country's relative efficiency in the production of one good is higher than another country's
Term
Marginal Cost
Definition
the cost to purchase one more of something
Term
Marginal Benefits
Definition
the benefits of buying one more of something
Term
Sunk Costs
Definition
costs that have been taken and cannot be recovered
Term
Steps of a Rational Choice
Definition
1. identify opportunity set
2. define trade-off(s)
3. calculate the costs correctly (ignore sunk costs)
Term
Price
Definition
what must be given in exchange for the good
Term
Demand
Definition
the quantity of a good or service that a household/firm chooses to buy at a given price
Term
Demand Curve vs. Market Demand Curve
Definition
shows the quantity demanded at each price, gives the total quantity of a good demanded at that price
Term
Substitutes
Definition
if an increased price for one increases demand for the other (butter and margarine)
Term
Complements
Definition
an increase in the price of one good decreases the demand for another (sugar and coffee)
Term
Demand Shift
Definition
causes the quantity demanded to shift at a given price. caused by a nonprice issue
Term
Change in Quantity Demanded
Definition
movement along the demand curve, caused by a change in price
Term
Supply
Definition
the quantity of something a firm wants to sell at a given price
Term
Supply Curve vs. Market Supply Curve
Definition
the quantity a company is willing to supply at each price, total quantity of a good a company is willing to sell at a price
Term
Change in Quantity Supplied
Definition
price issue, more produced as price increases
Term
Shift in Supply
Definition
nonprice issue, change in tech, environmental change, increased input prices, etc
Term
Equilibrium
Definition
a situation where supply and demand points meet, no reason to change.
Term
Equilibrium Price vs.
Equilibrium Quantity
Definition
price at which demand=supply, quantity at which demand=supply
Term
Market Clearing Price
Definition
price where supply = demand, no excess
Term
Excess Supply vs. Excess Demand
Definition
quantity supplied > quantity demanded; quantity demanded > quantity supplied
Term
Law of Supply and Demand
Definition
in equilibrium demand = supply, changes in prices reflect shifts in the curve
Term
Price Elasticity of Demand
Definition
percent change in quantity demanded divided by percent change in price
Term
Elastic
Definition
more sensitive to price change >1%
Term
Inelastic
Definition
less sensitive to price change <1%
Term
Revenue
Definition
price times quantity sold
R=pQ
Term
Unitary Elastic
Definition
elasticity=1, change in price just offsets change in quantity
Term
Infinite Elastic
Definition
any change in price results in demand dropping to zero
Term
Zero Elastic
Definition
the demand remains the same at any price
Term
Price Elasticity of Supply
Definition
percentage change in quantity supplied divided by percentage change in price
Term
Shortage vs. Surplus
Definition
shortage- too much demand
surplus- too much supply
Term
Price Ceilings vs. Price Floors
Definition
Ceilings- set a maximum price that can be charged for a product
Floor- minimum price
Term
Slope (of a budget constraint)
Definition
shows the trade-off of different budget allocations
Term
Income Elasticity of Demand
Definition
percentage change in consumption divided by percentage change in income
Term
Inferior Goods vs. Normal Goods
Definition
inferior - income increases, consumption decreases (negative income elasticity)

normal - income increases, consumption increases (positive income elasticity)
Term
Income Effect
Definition
the reduction in consumption of a good who's price has increased (change in "real income")
Term
Substitution Effect
Definition
the reduction in consumption of a good who's price has increased (change in price)
Term
Utility
Definition
the benefits of consumption consumers get from the combination of goods they consume
Term
Marginal Utility
Diminishing Marginal Utility
Definition
the extra "enjoyment" someone gets from buying one more of something; as a person gets more and more of something the marginal utility becomes less and less
Term
Consumer Surplus
Definition
the difference between what was paid and what you would have been willing to pay
Term
Behavioral Economics
Definition
determining why people make choices using econ and psych
Term
Endowment Effects
Definition
simply possessing something can alter a person's preferences
Term
Loss Aversion
Definition
individuals are particularly sensitive to loss
Term
The Status Quo Bias
Definition
people make decisions based on a usual reference point
Term
Globalization
Definition
increasing relations between the countries
Term
Imports vs. Exports
Definition
produced abroad, bought domestically; produced domestically, bough abroad
Term
Bilateral Trade vs. Multilateral Trade
Definition
trade between two entities, trade among several parties
Term
Five Bases of Comparative Advantage
Definition
1.Natural Endowments
2.Acquired Endowments
3.Superior Knowledge
4.Specialization
5.Interactions
Term
Protectionism
Definition
antitrade, wanting to "protect" the economy from the effects of trade
Term
Free Trade
Definition
no barriers to trade
Term
Commercial Policies
Definition
policies directed at affecting either imports or exports
Term
Tariffs
Definition
taxes on imports nigga
Term
Quotas and Quota Rents
Definition
limits the amount of foreign goods that can be imported; making a profit from buying at an international price and selling at a higher domestic price due to quotas
Term
Dumping
Definition
the sale of products overseas below the home countries prices AND below the price of cost
Term
Countervailing Duties
Definition
taxes that offset advantages provided by subsidies
Term
Beggar-thy-neighbor Policies
Definition
attempts to increase national employment and output (takes away jobs from other countries)
Term
Infant Industry Argument
Definition
firms will never be able to start up successfully unless they are protected from foreign companies
Term
Strategic Trade Theory
Definition
business protection can give a country a strategic advantage over rivals
Term
GATT and WTO
Definition
General Agreement on Tariffs and Trade; World Trade Organization (multilateral trade agreements)
Term
EU and NAFTA
Definition
european union and north american free trade agreement (regional trade agreements)
Term
Trade Creation vs. Trade Diversion
Definition
creation- new trade generated due to lower tariffs
diversion- trade diverted away from outside countries as a result of a regional lowering of tariffs
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