Econ Exam 1
Terms
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- absolute advantage
- the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
- circular-flow diagram
- a model that illustrates how participants in markets are linked
- comparative advantage
- the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
- economic growth
- the ability of the economy to produce increasing quantities of goods and services
- entrepreneur
- someone who operates a business, bringing together the factors of production- labor, capital, and natural resources- to produce goods and services
- factor markets
- markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability
- factors of production
- the inputs used to make goods and services
- free market
- a market with few government restrictions on how a good or service can be produced or sold or o how a factor of production can be employed
- market
- a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
- opportunity cost
- highest values alternative that must be given to engage in an activity
- produce markets
- markets for goods- such as computers- and services- such as medical treatment
- production possibilities frontier (PPF)
- a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
- scarcity
- the situation in which unlimited wants exceed the limited resources available to fulfill those wants
- trade
- the act of buying or selling
- tariff
- a tax imposed by a government on imports
- imports
- goods and services bought domestically but produced in other countries
- exports
- goods and services produced domestically but sold to other countries
- autarky
- a situation in which a country goes not trade with other countries
- terms of trade
- the ratio at which a country can trade its exports for imports from other countries
- quota
- a numeric limit imposed by a government on the quantity of a good that can be imported into the country
- voluntary export restraint (VER)
- an agreement negotiated between two countries that places a numeric limit on the quantity of a good that can be imported by one country from the other country
- word trade organization (WTO)
- an international organization that oversees international trade agreements
- Globalization
- the process of countries become more open to foreign trade and investment
- Protectionism
- the use of trade barriers to shield domestic firms from foreign competition
- dumping
- selling a product for a price below its cost of production
- perfectly competitive market
- a market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market
- demand schedule
- a table showing the relationship between the price of a product and the quantity of the product demanded
- demand curve
- a curve that shows the relationship between the price of a product an the quantity of the product demanded
- market demand
- the demand by all the consumers of a given good or service
- law of demand
- 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 demand will decrease
- Substitution effect
- the change in the quantity demanded of a good that results from a change in price, making the god more or less expensive relative to other goods that are substitutes
- income effect
- the change in the quantity demanded of a good that results from the effect of a change i the good's price on consumer's purchasing power
- ceteris paribus (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
- normal good
- a good for which the demand increases as income rises and decreases as income falls
- inferior good
- a good for which the demand increases as income falls and decreases as income rises (ex. ramen)
- substitutes
- goods and services that can be used for the same purpose
- complements
- goods and services that are used together
- demographics
- the characteristics of a population with respect to age, race, and gender
- quantity supplied
- the amount of a good or service that a firm is willing and able to supply at a given price
- supply schedule
- a table that shows the relationship between the price of a product and the quantity of the product supplied
- supply curve
- a curve that shows the relationship between the price of a product and the quantity of the product supplied
- law of supply
- the rule that, holding everything else constant, increases in price cause increases in the quantity supplied and vice versa
- technological change
- a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
- market equilibrium
- a situations in which quantity demanded equals quantity supplied
- competitive market equilibrium
- a market equilibrium with many buyers and many sellers
- surplus
- a situation in which the quantity supplied is greater than the quantity demanded
- shortage
- a situation in which the quantity demanded is greater than the quantity supplied
- elasticity
- a measure of how much one economic variable responds to changes in another economic variable
- price elasticity of demand
- the responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price
- elastic demand
- demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price, so the price elasticity is greater than 1 in absolute value
- inelastic demand
- demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price, so the price elasticity is less than 1 in absolute value
- unit-elastic demand
- demand is unit-elastic when the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value
- perfectly inelastic demand
- the case where the quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero
- perfectly elastic demand
- the case where the quantity demanded is infinitely responsive to price, and the price elasticity of demand equals infinity
- total revenue
- the total amount of funds received by a seller of a good or serice, calculated by multiplying price per unit by the number of units sold
- cross-price elasticity of demand
- the percentage change in quantity demanded of one good divided by the percentage change in the price of another good
- income elasticity of demand
- a measure of the responsiveness of quantity demanded to changes in income, measured by the percentage change in quantity demanded divided by the percentage change in income
- price elasticity of supply
- the responsiveness of the quantity supplied to a change in prie, measured by dividing the percentage change in the quantity supplied of a product by the percentage change in the product's price
- price ceiling
- a legally determined maximum price that sellers may charge
- price floor
- a legally determined minimum price that sellers may receive
- consumer surplus
- the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
- marginal benefit
- the additional benefit to a consumer from consuming one more unit of a good or service
- marginal cost
- the additional cost to a firm of producing one more unit of a good or service
- producer surplus
- the difference between the lowest price a firm would be willing to accept and the price it actually receives
- economic surplus
- the sum of consumer surplus and producer surplus
- deadweight loss
- the reduction in economic surplus resulting from a market not being in competitive equilibrium
- economic efficiency
- a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum
- black market
- a market in which buying and selling take place at prices that violate government price regulations
- tax incidence
- the actual division of the burden of a tax between buyers and sellers in a market