Eco Test #1`

study of choices consumers, business managers, and governmetn officials make to attain their goals, given their scarce resources

our wants exceed our needs

Exctra or additional

to continue any activity up to the point where the marginal benefirt = the marginal cost

• 1. people are rational
• 2. people respond to incentives
• 3. optimal decisions are made at the margin

producing more of one good or service means producing less of another good or service

such as producing a good or service--> highest valued alternative that must be given up to engage in that activity

most economic decisions are made by the government

economic decisions are made by consumers and firms

(United States) economic decisions are made by consumers and firms but in which the government plays a significant role

when a good/service is produced at the lowest possible cost

when production is in accordance with consumer preference

occurs in markets when both the buyers and sellers of a product are made better by the transaction

usually involves a fair distribution of economic benefits

• 1. What goods and services to produce
• 2. How to produce them
• 3. Who receives the goods and services

simplified versions of reality used to analyze real world economic situations

what is

what ought to be

curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

the ability of the economy to increasethe production of goods and services

the act of buying and selling

the ability of an individual, a afirm, or a country ot produce more of a good or service than competitors, using the same amount of resources

the ability of an individual, firm, or a country to produce a good or service at a lower opportunity cost than competitors

a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade

markets for goods -- such as computers-- and services--such as medical treatment

**households are demanders and firms are suppliers

markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability

the inputs used to make goods and services

a market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed

someone who operates a business, bringing together the factors of production--labor, capital and natrual resources-- to produce goods and services

the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

• a market that meets the conditions of
• (1) many buyers and sellers
• (2) all firms selling identical products
• (3) no barriers to new firms entering the market

a table showing the relationship between the price of a product and the quantity of the product demanded

the amount of a good or service that a consumer is willing and able to purchase at a given price

a curve that shows the relationship between the price of a product and the quantity of the product demanded

EX. as the price of energy drinks falls, the quanityt demanded increases

the demand by all the consumers of a given good or service

the rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease

the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes

EX. when the price of energy drinks falls, consumers will substitute buying energy drinks for buying other goods, such as sports drinks or coffee

the change in the quantity demanded of a good that results from the effect of a change in the goods price on consumers purchasing power

EX. when the price of a good falls, the increased purchasing power of consumers incomes will usually lead them to purchase a larger quantity of the good (visa versa)

• "all else equal"
• the requirement that when analyzing the relationship between two variables--such as price and quantity demanded-- other variables must be held constant

• 1. income
• 2. prices of related goods
• 3. tastes
• 4. population and demographics
• 5. expected future prices

a good for which the demand increases as income rises and decreases as income falls

a good for which the demand increases as income falls and decreases as income falls

goods and services that can be used for the same purpose

goods and services that are used together

the characteristics of a population with respect to age, race, and gender

variables, other than the price of the product, affects the willingness of consumers to buy the product

movement along the demand curve as a result of a change in the products price

the amount of a good or service that firm is willing and able to supply at a given price

*when the price of a good rises, the good is more profitable, and the quantity supplied will increase

a table that shows the relationship between the price of a product and the quantity of the product supplied

a curve that shows the relationship between the price of a product and the quantity of the product supplied

the rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied

• 1. Prices of inputs
• 2. tech. change
• 3. prices of substitutes in production
• 4. number of firms in the market
• 5. expected future prices

a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs

a situation in which quantity demanded equals quantity supplied

a market equilibrium with many buyers and many sellers

a situation in which the quantity supplied is greater than the quantity demanded

a situation in which the quantity demanded is greater than the quantity supplied