| Term | Definition |
|---|
| Scarcity | The limited nature of society's resources |
| Economics | the study of how society manages its scarce resources |
| Principles of Economics: Individual Decision Making | 1. People Face Trade-Offs 2. The Cost of Something is What you give up to Get it 3. Rational People Think at the Margin 4. People Respond to Incentives |
| Principles of Economics: How People Interact with Each other | 5. Trade Can Make Everyone Better Off 6. Markets are Usually a Good Way to Organize Economic Activity 7. Governments Can Sometimes Improve Market Outcomes |
| Efficiency | Society is getting the maximum benefits from its scarce resources |
| Equity | Those benefits are distributed fairly among society's members |
| Opportunity Cost | The highest valued option sacrificed to do something |
| Marginal changes | small incremental adjustments to a plan of action |
| Incentive | something that induces a person to act |
| 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 |
| Property Rights | The ability of an individual to own and exercise control over scarce resources |
| Market Failure | a situation in which a market left on its own fails to allocate resources efficiently |
| Externality | the impact of one person's actions on the wellbeing of a bystander |
| Market Power | the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices |
| Principles of Economics: The workings of the economy as a whole | 8. A country's Standard of Living Depends on Its Ability to Produce Goods and Services 9. Prices Rise When the Government Prints Too Much Money 10. Society Faces a Short-Run Trade-off between Inflation and Unemployment |
| Productivity | The quantity of goods and services produced from each hour of a worker's time |
| Inflation | An increase in the overall level of prices in the economy |
| Business Cycle | the irregular and largely unpredictable fluctuations in the economic activity, such as employment and production |
| What are the 5 truths about Middlemen? | 1. MM arise when there are barriers to trade 2. High profits for MM cannot be taken as evidence that consumers have been exploited 3. All parties gain from trade, and no one's gains come at the expense of anyone else. 4. Competition among MM will assure that most of the gains from trade ultimately go to consumers 5. If any cutting out of MM is desirable, the market will do it. |
| Circular Flow Diagram | a visual model of the economy that shows how dollars flow through markets among household and firms |
| Production Possibilities Frontier | a graph that shows the combinations of output that the economy can possibly produce |
| Microeconomics | the study of how households and firms make decisions and how they interact in markets |
| Positive statements | claims that attempt to describe the world as it is |
| Normative statements | claims that attempt to prescribe how the world should be |
| Absolute advantage | the ability to produce a good using fewer inputs than another producer |
| Comparative advantage | the ability to produce a good at a lower opportunity cost than another producer |
| Imports | goods produced abroad and sold domestically |
| Exports | goods produced domestically and sold abroad |
| Market | A group of buyers and sellers of a particular good or service |
| Competitive Market | a market in which there are many buyers and many sellers so that each has a negligible impact on the market price |
| Law of Demand | the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises |
| Normal Good | a good for which, other things equal, an increase in income leads to an increase in demand |
| Inferior Good | a good for which, other things equal, an increase in income leads to a decrease in demand |
| Substitutes | two goods for which an increase in the price of one leads to an increase in the demand for the other |
| Complements | two goods for which an increase in the price of one leads to a decrease in the demand for the other |
| Law of Supply | the claim that, other things equal, the quantity supplied of a good rises whrn the price of the good rises |
| Equilibrium | a situation in which the market price has reached the level at which quantity supplied equals quantity demanded |
| 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. |
| Law of Supply and Demand | the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance |
| A shift in the supply curve is called, | " change in supply" |
| A movement along a fixed supply curve is called, | "change in the quantity supplied" |
| Traditional Economy | answer questions based on traditions |
| Command Economy | Everything is centralized decisions based on organizers "central planners" |
| Market Economy | opposite of command economy everybody is concerned about their own part of the world |
| Mixed Economy | Real World |
| Cartel | agreement not to compete |
| Profit= | TR-TC |
| What are the 4 barriers to trade for MM? | 1. Size mismatch 2. Risk "" 3. Maturity "" 4. Liquidity "" |
| Parameter | Something held constant for purposes of analysis |
Combine with other sets
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