1. Assume the government imposes a price control on butter, i.e., the price control is below equilibrium price. The most likely outcome of this policy is
    The butter market will exhibit excess demand.
  2. “As the price of personal computers continue to fall, demand increases.” This headline is inaccurate because
    Falling prices of personal computers increase quantity supplied
  3. If the price of computers increase and the demand decrease, then
    Computers and monitors are compliments
  4. Suppose one observes that when the price of peanut butter increases, the demand for jelly increase. One must conclude
    Peanut butter and jelly are substitutes
  5. what is economics?
    the study of how people make choices under conditions of scarcity and of the results of those choices for society.
  6. The Scarcity Principle
    -boundless needs and wants, but the resources available are liimited.

    -Also called the "No-Free Lunch Principle"
  7. Cost-Benefit Principles
    individual should take actions IF the extra benefits from taking the actions are at least as great as extra cost
  8. Rational Person
    someone with well-defined personal goals who tries to fulfill those goals as best as he or she can
  9. Economic surplus
    the economic surplus from taking theat action minus its cost
  10. Opportunity cost
    the value of what must be lost in order to do the activity
  11. sunk cost
    cost that is beyond recovery at the moment a decision must be made
  12. Marginal COST
    the increase in total cost that results from carrying out one additional unit of an activity
  13. Marginal BENEFIT
    increase in total benefits from carrying out one additional unit of an activity
  14. Average cost
    total cost of taking n units of an activity divided by n.
  15. Average benefit
    total benefit of taking n units of an activity divided by n
  16. Normative Economic Priniciple
    one that says how people should behave.
  17. Positive Economic Principle
    one that predicts how people will behave.
  18. Microeconomics
    study of individual choices under scarcity and its implications for the behavior of prices and the quantities in individual markets.
  19. Macroeconomics
    study of the performace of national economics and the policies that governments use to try to improve the performances.
  20. dependent variable
    variable in equation tha tis determined byt the value taken by another variable in same equation
  21. Independent variable
    variable whose value determines the value taken by another
  22. constant
    a quantity that is fixed in value
  23. Absolute advantage
    one person has an absolute advantage over another is he/she takes fewer hours to perform task
  24. Comparitive advantage
    one person has a comparative advantage over another if his/her opportunity cost of performing a task is lower than other person's opportunity cost
  25. Principle of comparative advantage
    when 2 people have different opportunity costs for tasks, they can always increase total value of available goods & services by trading w/ one another
  26. Production possibilities curve
    a graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good
  27. attainable point
    any combination of goods that can be produced using currently available resources
  28. outsourcing
    a term increasingly used to connote having services performed by low-wage workers overseas
  29. Demand curve
    a schedule or graph showing the quantity of a good that buyers wish to buy at each price
  30. Substitution effect
    the change in quantity demanded that results bcs. buyers switch to/from substitutes when the price of good changes
  31. Income effect
    change in the quantity demanded of a good because a change in the price of a good changes the buyer's purchasing power
  32. buyer's reservation price
    largest dollar amount buyer would be willing to pay for a good
  33. Supply curve
    graph or schedule showing the quantity of a good that sellers wish to sell at each price
  34. Seller's reservation price
    smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost
  35. equilibrium
    when there is no tendency for it to change
  36. equilibrium price/quantity
    values of price/quantity for which quantity supplied & demanded are equal
  37. market equilibrium
    when all buyer's & seller's are satisfied with their respective quantities at market price
  38. excess supply
    amount by which supplied exceeds demanded; when price exceeds equilibrium price
  39. excess demand
    amount by which demanded exceeds supplied whin price is below equilibrium price
  40. price ceiling
    max. allowable price specified by law
  41. change in quantity demanded
    movement along demand curve that occurs in response to change in price
  42. change in demand/supply
    shift of demand/supply curve
  43. complements
    if increased price for one cause less demand for the other
  44. substitutes
    if increase in price for one causes more demand for another
  45. normal good
    demand curve shifts rightward(more) when income of buyer increases
  46. inferior good
    one whose demand curve shifts leftward(less) when income of buyer increases
  47. buyer's surplus
    difference between buyer's reservation price and what actually paid
  48. seller's surplus
    difference of price recieved by seller and reservation price
  49. total surplus
    difference between buyer's reservation price and seller's reservation price
  50. "cash on the table"
    metaphor for unexploited gains from exchange
  51. efficiency
    when all goods & services are produced & consumed at their respective socially optimal levels
  52. socially optimal quantity
    results in max. possible economic surplus from producing & consuming the good
Card Set
Chapters 1-3