Econ Exam one
Terms
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- Inefficient Market
- exists when there are "missed opportunities"- ways in which productions or consumption could be rearranged that would make some people better off without other people worse off.
- Service
- An activity used to satisfy human wants.
- Elastic Demand
- Exists when the price elasticity of demand is greater than 1 (Inelastic if the price elasticity of demand is less than 1, and Unit-Elastic if the price elasticity of demand is exactly 1).
- Profit
- The reward for entrepreneurial ability; through revenue from sales minus the cost of resources used by the entrepreneur.
- Macroeconomics
- The study of the economic behavior of entire economics.
- Midpoint Method
- A technique for calculating the percent change. In this approach, we calculate changes in a variable compared with the average of the starting and final values.
- Movement along the Demand Curve
- the change in the quantity demanded of a good that is a result of a change in goods price
- Barter
- direct exchange of one good for another without using money.
- Mixed System
- An economic system characterized by the private ownership of some resources and the public ownership of other resources; some markets are unregulated and others are regulated.
- Quantity Supply
- The actual amount of a good or service people are willing to sell at some specific price.
- Equilibrium
- The price at which the quantity supplied equals the quantity demanded.
- The Scientific Method
- 1. 1. Variable- A measure, such as a price or quantity, that can take on different values. 2. 2. Other-things-constant assumption- The assumption when focusing on the relation among key economic variables, that other variables remain underchanged. 3. 3. Behavior Assumption- An assumption that describes the expected behavior of economic decision makers; what motivates them. 4. 4. Hypothesis- A theory about relationships among key variables (Form and Test)
- Comparative Advantage
- The ability to produce something at a lower opportunity cost than other producers face.
- Product Market
- A market in which a good or service is bought and sold. (consumers)
- Equilibrium Quantity
- The quantity of the given good bought and sold at the equilibrium price.
- Perfectly Elastic Supply
- Exists when a small increase or reduction in the price leads to a very large change in the quantity supplied, so that the price elasticity of supply is infinite. It's supply curve is a horizontal line.
- Normative economic statement
- A statement that represents an opinion, which can not be proved or disproved.
- Black Market
- is a market in which goods or services are bought and sold illegally- either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling.
- Inefficiency high quality
- sellers offer high quality goods at a high price, even though buyers would prefer a lower quality at a lower price.
- Inefficient allocation of sales among sellers
- (caused by price floors), those who would be willing to sell the good at the lowest price are not always those who actually manage to sell it.
- Price Controls
- Legal restrictions of how high or low a market price may go. There are two forms:
- Law of Demand
- The higher the price for the good, given all other things equal, the less people will demand for that good.
- Market
- A set of arrangements through which buyers and sellers carry out exchange at mutually agreeable terms.
- Surplus
- The quantity supplied of a good that exceeds the quantity demanded. This occurs when price is above the equilibrium level.
- Secondary effects
- Unintended consequences of economic actions that many develop slowly over time as people react to events.
- Opportunity Cost
- The value of the best alternative forgone when an item or activity is chosen. (going to college)
- Inferior good
- A good whose demand decrease with an increase in income.
- Marginal
- Incremental, additional or extra; used to describe a change in an economic variable
- Shortage
- The quantity demanded of a good exceeds the quantity supplied. This occurs when the price is below the equilibrium level.
- Economic Growth
- An increase in the economy's ability to produce goods and services; an upward shift of the productions possibilities frontier [technology].
- Price Elasticity of Demand
- The ratio of the percent change in quantity demanded to the percent change in the price on a demand curve.
- Law of Increasing Opportunity Cost
- To produce each additional increment of a good, a successively larger increment of an alternative good must be sacrificed if the economy's resources are already being used efficiently.
- Competitive market
- a market in which there are many buyers and sellers of the same good or service.
- Efficiency
- The condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another good.
- Tax Incidence
- measure of who really pays taxes.
- Supply Schedule
- How much of a good or service producers are willing to supply at different prices.
- Division of Labor
- production of a good into its separate tasks.
- Absolute Advantage
- The ability to produce something using fewer resources than other producers are.
- Inefficiently low quality
- caused by price ceilings); sellers offer low quality goods at a low price even though buyers would prefer a higher quality at a higher price.
- Perfectly Inelastic Supply
- Exists when the price elasticity of supply I's is zero, so that changes in the price of the good have no effect on the quantity supplied. It's supply curve is a vertical line.
- Wages
- Payment to resource owners for their labor.
- Price Ceiling
- price sellers are allowed to charge for a good.
- Interest
- Payment to resource owners for the use of their capital
- Total Revenue
- is the total value of sales of a good or service. It is equal to the price multiplied by the quantity sold.
- Resource Market
- A market in which a resource is bought or sold. (business/industry)
- Pure Command System
- an economic system characterized by the public ownership of resources and centralized planning.
- Quantity control (quota)
- An upper limit on the quantity of some good that can be bought or sold. The total amount of the good that can be legally transacted in the quota limit.
- Wasted Resources
- caused by price ceilings); people spend money and expend effort in order to deal with the shortages caused by the price ceiling.
- Supply & Demand Model
- A model of how a competitive market works.
- Minimum Wage
- A legal floor on the wage rate, which is the market price of labor.
- Natural Resources
- "Gifts of Nature" used to produce goods and services; includes renewable and exhaustible resources.
- Shift in the Supply Curve
- a change in the quantity supplied of the good or service at any given price. It is represented by the change of the original supply curve to a new position, denoted by a new supply curve.
- Pure Capitalism
- an economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets.
- Supply Curve
- a graphical representation of a supply schedule.
- Specialization of Labor
- Focusing work effort on a particular product or a single task.
- Income Elasticity of Demand
- The percent change in the quantity of a good demanded when a consumer's income changes divided by the percent change in the consumer's income.
- Sunk Cost
- A cost that has already been incurred in the past, can not be recovered, and thus is irrelevant for the present and future economic decisions.
- Shift in the Demand Curve
- The change in the quantity demanded at any given price, represented by the change of the original demand curve to a new position, denoted by a new demand curve.
- Resources
- The inputs, or factors of production, used to produce the goods and services that people want; consist of land, labor, capital, and entrepreneurial ability.
- Price Floor
- buyers are required to pay for a good.
- Substitutes
- Two goods whose consumption is directly related in terms of price
- Law of Comparative Advantage
- The individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize in that good.
- Scarcity
- Occurs when the amount of people desire exceeds the amount available at a zero price.
- Alcohol Tobacco Fire-Arms
- A branch under the U.S. treasury
- Labor
- The physical and mental effort used to produce goods and services.
- Microeconomics
- The study of the economic behavior in particular markets, such as that for computers or unskilled labor.
- Good
- A tangible item used to satisfy human wants.
- Rent
- to resource owners for the use of their natural resources.
- Market Clearing Price
- Another name for the equilibrium price.
- Price Elasticity of Supply
- A measure of the responsiveness of the quantity of a good supplied to the price of that good It is the ratio of the percent change in the quantity supplied to the percent change in the price as we move along.
- Input
- A good that is used to produce another good.
- Demand Prices
- price at which consumers will demand that quantity.
- Economic Theory/ Economic Model
- A simplification of reality used to make predictions about cause and effect in the real world.
- Cross-Price Elasticity of Demand
- Between two goods measures the effect of the change in one good's price on the quantity demanded of other good. It is equal to the percent change in the quantity demanded of one good divided by the percent change in other good's prices.
- Circular-flow model
- A diagram that outlines the flow of resources, products, income, and revenue among economic decision makers
- Normal good
- A good whose demand increases with an increase in income.
- Fallacy of Composition
- The incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or whole.
- Movements along the Supply Curve
- a change in the quantity supplied of a good that is that result of a change in goods price.
- Capital
- building, equipment, and human skill used to produce goods and services.
- Production Possibilities Frontier
- A curve showing the alternative combinations of goods that can be produced when available resources are used fully and efficiently; [a boundary between inefficient and unattainable combinations].
- Positive Economic Statement
- A statement that can be proved or disproved by reference to facts.
- Compliments
- Two goods whose consumption is inversely related in terms of price.
- Association-is-Causation-Fallacy
- The incorrect idea that if two variables are associated in time, one must necessarily cause the other.
- Perfectly Inelastic Demand
- Exists when the quantity demanded does not respond at all to the changes in the price. It's demand curve is a vertical line.
- Economics
- The study of how people use their scarce resources to satisfy their unlimited wants.
- Supply Price
- The price at which producers will supply that quantity.
- Entrepreneurial Ability
- Managerial and organizational skills needed to start a firm, combined with the willingness to take risks.