1. Scarce
    We don't have as much as we want
  2. Money
    Stored purchasing power
  3. Decision at the Margin
    You go until the cost of getting that next thing outways the benefit
  4. Resource
    Anything that can be used to produce something else
  5. Opportunity Cost
    The value of the most valuable option you give up when you do something.
  6. Trade-Off
    When you compare the costs with the benefits of doing something
  7. Incentive
    • Anything that offers rewards to people who change their behavior
    • This drives markets to equilibrium because everyone moves to be better off until no one can be better off
  8. Gains From Trade
    • People can get more of what they want through trade than they could if they tried to be self-sufficient
    • Specialization: each person does what he or she is good at
  9. Equilibrium
    When no individual would be better off doing something different.
  10. Efficient
    • Taking all opportunities to make some people better off without making other people worse off
    • Perado efficiency: cannot make anyone better off without making someone else worse off.
    • Perado improvment: making someone better off w/out others worse off.
  11. Equity
    • Everyone gets his or her fair share, but is not always efficient.
    • Example is handicap spaces
  12. Market Failure
    • Marginal social benefit does not equal marginal social cost
    • When parties outside the transaction are affected.
    • Total benefit =/ total cost
    • Ex. Deodorant
  13. Model
    Simplified representation of a real situation that is used to better understand real life situation
  14. Other things equal assumption
    All ofther relevent factors remain unchanged
  15. Production Possibility Frontier
    • Illustrates the trade-offs facing an econmony that produces only two goods.
    • Assume only 2 jobs
    • Example with coconuts and fish
  16. Increasing Opportunity Cost
    • Have to give up more and more to get it.
    • Curve is slopped outwords
  17. Economic Growth
    • The curve expands outword
    • Either more resources or better technology
  18. Comparative Advantage
    The opportunity cost of producing that good is lower for that individual than others, then they have comparative advantage
  19. Absolute advantage
    • He or she can do it better than other people.
    • This has to do with the actual action but does not take into account opportunity cost
  20. Positive economics
    • Statment about what is
    • Means someone has to be wrong
  21. Normative Economics
    • Makes prescriptions about the way the economy should work
    • What should be done
    • Value judgement
    • No one is wrong
  22. Market
    • Place where buyers and sellers meet
    • Buyers(demand) and sellers(supply) do not mix until market
  23. Competitive Market
    • Is most simple
    • Many buyers and sellers with all the same power
    • No one can set price
  24. Demand
    • NOT a number
    • Relationship between quantity demanded and price
    • Quantity Demanded: amount buyer is willing and able to buy. Is a number
    • A change in price alone CAN NOT change demand, only quantity demanded.
  25. Demand Schedule
    • Shows how much willing to buy at different prices.
    • Pairs price and quantity demanded together at certain price
    • Price and Quantity demanded have inverse relationships
  26. Law of Demand
    There is a negative (indirect) relationship between price and quantity demanded
  27. Demand Curve
    • Slope of curve is negative
    • Price changes quantity demanded
    • Change demand: more buyers, more income, tates and preferences. Almost anything besides price changes demand
  28. Increase in Demand
    • Shift to the right
    • At every price, we want just a little bit more
    • Price stays the same, quantity demanded increases
  29. Compliments
    • These are products that are used together
    • "and"
    • Fall in price of one good makes consumers less willing to buy the other good
  30. Substitute
    • Use one or other, but are still related
    • If the fall in price of one good makes consumers more willing to buy the other good
  31. Normal goods
    • The more income, the more of the product you want
    • ex. cars
  32. Inferior Goods
    • When rise in income decrease the demand for the good
    • ex. Ramin
  33. Supply
    • Relationship between price and quantity supplied
    • Behavior of sellers
    • Directly related relationship
  34. Factors of Supply
    • Technology
    • More resorces
    • Number of Producers
    • Expectations
    • Increases in Capital
  35. Equilibrium in competitive market
    Quantity demanded = Quantity supplied of that good.
  36. Surplus
    • Quantity supplied exceeds the quantity demanded.
    • Surpluses occur when the price is above its equilibrium level.
    • Price moves down
    • Got more than want
  37. Shortage
    • Quantity demanded exceeds the quantity supplied.
    • Shortages occur when the price is below its equilibrium level.
    • Want more than we got
  38. Demand and Supple shift same direction
    • Price is ambiguous
    • Quantity goes up or down depending if they increase or decrease
  39. Demand and Supply shift oppositly
    • Quantity is ambiguous
    • Demand decreaes and supply increase, price goes down
    • Demand increases and supply decrease, price goes up
  40. Consumer Surplus
    • How much better off the consumer is for having bought the stuff
    • Area under Demand curve but above Price you pay
    • Increase in consumer surplus means a fall in price of product
  41. Producer surplus
    • How much better of the producers in because bought and sold in market
    • Area above supply curve and below price
    • Rise in price increases producer surplus
  42. Total Surplus
    Sum of consumer and producer surplus
  43. Price Ceiling
    • Max Price seller are allowed to charge
    • Holds price down
    • Must go below equilibrium
  44. Price Floor
    • Min price buyers are required to pay
    • Holds price up
    • Goes above equilibrium price
  45. Deadweight loss
    • Loss in total surplus
    • Low quantity, quality, wated resources, black markets
  46. Quota
    Upper limit on quantity of some good that can be bought or sold
  47. Quta Limit
    • Total amount of good that can be leagally transacted
    • Taxi medalians
  48. License
    Gives it's owner the right to supply a good
  49. Demand Price
    The price at which consumers will demand that quantity
  50. Supply Price
    The price at which suppliers will supply that quantity
  51. Wedge
    Price paid by buyers is larger than price paid by sellers
  52. Quota Rent
    Difference between demad and supply price at the quota limit.
  53. Price of elasticity of demand
    • Ratio of the % change in the quantity demanded to the % change in the price as we move along the demand curve
    • Qfd-Qid/Qid is the top
    • Pf-Pi/Pi is bottom
  54. Midpoint formula
    • Qfd-Qfi/.5(Qfd+Qid) is top
    • Pd-Pi/.5(Pd+Pi) is bottom
  55. Perfectly Inelastic
    • Quantity demanded does not respond at all to changes in the price.
    • When demand is perfectly inelastic, the demand curve is a vertical line.
  56. Perfectly elastic
    • Any price increase will cause the quantity demanded to drop to zero.
    • When demand is perfectly elastic, the demand curve is a horizontal line.
  57. Elastic
    Price elasticity of demand is greater than 1.
  58. Inelastic
    Price elasticity of demand is less than 1.
  59. Unit-elastic
    Price elasticity of demand is exactly 1.
Card Set
Econ Midterm