Econ Exam 1

  1. Law of Demand:
    the claim that the quantity demanded of a good falls when the price of the good rises, other things equal 
  2. Law of Supply:
    the claim that the quantity supplied of a good rises when the price of the good rises, other things equal 
  3. Scarcity:
    the limited nature of society's resources
  4. Econonomics:
    the study of how society manages its scarce resources
  5. Efficiency (societal):
    the property of society getting the most it can from its scarce resources
  6. Equality:
    the property of distributing economic prosperity uniformly among the members of society
  7. Opportunity cost:
    whatever must be given up to obtain something
  8. Rational people:
    people who systematically and purposefully do the best they can to achieve their objectives
  9. Marginal change:
    a small incremental adjustment to a plan of action
  10. Incentive:
    something that induces a person to act
  11. Market Economy:
    an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
  12. Property rights:
    the ability of an individual to own and exercise control over scarce resources
  13. Market failure:
    a situation in which a market left on its own fails to allocate resources efficiently
  14. Market power:
    the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
  15. Productivity:
    the quantity of goods and services produced from each unit of labor input
  16. Inflation:
    an increase in the overall level of prices in the economy
  17. Business cycle:
    fluctuations in economic activity, such as employment and production
  18. Externality:
    the uncompensated impact of one person's actions on the well-being of a bystander
  19. 10 principles of economics:
    • -people face trade-offs
    • -the cost of something is what you give up to get it
    • -rational people think at the margin
    • -people respond to incentives
    • -trade can make everyone better off
    • -markets are usually a good way to organize economic activity
    • -governments can sometimes improve market outcomes
    • -a country's standard of living depends on its ability to produce goods and services
    • -prices rise when governement prints too much money
    • -society faces a short-run trade-off between inflation and unemployment
  20. What are the two markets in a circular flow model?  Who are the buyers and sellers in each market?
    • Goods and services
    • -B= household
    • -S= firm
    • Factors of production
    • -B=firm
    • -S=household
  21. In a circular flow model, what does the firm do?
    • -produce and sell goods and services
    • -hire and use factors of production
  22. In a circular flow model, what does the household do?
    • -Buy and consume goods and services
    • -own and sell factors of production
  23. What are the factors of production and who owns it?
    • Owned by the households
    • Labor
    • Land
    • Capital (buildings and machines)
  24. Circular-flow diagram:
    a visual model of the economy that shows how dollars flow through markets among households and firms
  25. Factors of production:
    the resources the economy uses to produce goods & services
  26. Production Possibilites Frontier
    a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology
  27. Why would a PPF be a straight line?
    the opportunity cost stays constant
  28. Why would the PPF be bow shaped?
    the opportunity cost rises as the economy produces more of the good
  29. What if a point is:
    -below the PPF line
    -on the PPF line
    -above the PPF line
    • Below: possibly, but not efficient
    • On: possible and efficient
    • Above: impossible
  30. What causes a PPF to shift?
    improvements in technology or additional resources 
  31. Microeconomics:
    the study of how households and firms make decisions and how they interact in markets
  32. Macroeconomics:
    is the study of economy-wide phenomena, including inflation, unemployment, and economic growth
  33. Positive thinking:
    describe the world as it is
  34. Normative thinking:
    describe how the world should be
  35. What do economists as scientists do?
    attempt to describe the world as it is
  36. What do economists as policy advisors do?
    attempt to drescribe how the world should be
  37. Difference between positive and normative statements?
    Positive statements can be confirmed or refuted, normative statements cannot
  38. Absolute advantage:
    the ability to produce a good using fewer inputs than another producer
  39. Comparative advantage:
    the ability to produce a good at a lower opportunity cost than another producer
  40. Market:
    a group of buyers and sellers of a particular product
  41. Competetive Market:
    is one with many buyers and sellers, each has a negligible effect on price
  42. Perfectly Competetive market:
    all goods are exactly the same and there are too many buyers and sellers to affect the market price
  43. Quantity demanded:
    amount of the good that buyers are willing and able to purchase
  44. Demand schedule:
    a table that shows the relationship between the price of a good and the quantity demanded 
  45. Normal good:
    positively related to income
  46. Inferior good:
    negatively related to income
  47. substitutes:
    between two goods, if an increase in the price of one    causes an increase in demand for the other
  48. Quantity supplied:
    amount that sellers are willing and able to sell
  49. Supply Schedule:
    A table that shows the relationship between the price of a good and the quantity supplied
  50. Equilibrium price:
    the price that equates quantity supplied with quantity demanded
  51. Surplus:
    when quantity supplied is greater than quantity demanded
  52. How to find equilibrium in a graph:
    where the demand and supply lines intersect
  53. Shortage:
    when quantity demanded is greater than quantity supplied
  54. Change in supply:
    a shift in the S curve occurs when a non-price determinant of supply changes (like technology or costs)
  55. Change in quantity supplied:
    a movement along a fixed S curve
  56. Change in demand:
    a shift in the D curve occurs when a non-price determinant of demand changes (like income or # of buyers)
  57. Change in the quantity demanded:
    a movement along a fixed D curve occurs when P changes
  58. What causes a shift in supply curve?
    cost of production is lowered
  59. Equilibrium quantity:
    the quantity supplied and quantity demanded at the equilibrium price
  60. 3 steps to analyzing changes in equilibrium:
    • 1. Decide whether event shifts S curve, D curve, or both. 
    • 2. Decide in which direction curve shifts. 
    • 3. Use supply—demand diagram to see how the shift changes eq’m P and Q. 
Card Set
Econ Exam 1