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245 terms

Combo with Microeconomics 2nd set and 4 others

Combined set for Microeconomics
STUDY
PLAY
If good B is complement to good A, then the decrease in the price of B
increases the demand for A.
If demand decreases, then quantity supplied will
increase.
If the supply of a product increases, then
producers are willing to accept a lower price for each unit sold.
An increase in supply will cause equilibrium price to decrease and
equilibrium quantity to increase.
The income effect of an increase in the price of an inferior good is
an increase in the quantity demanded of inferior good.
As the baby boom ended, fewer families had young children and, as a consequence, the
demand curve for preschool services shifted inward.
An increase in the number of producers of a good will
increase the market supply because market supply in the sum of all individual supply curves.
If demand decreases and supply increases, price will
always decrease.
economics
the study of how people you use their scarce resources to satisfy unlimited wants.
resources
the inputs, or factors of production, used to produce the goods and services that people want; resources consist of labor, capital, natural resources, and entrepreneurial ability
labor
the physical and mental effort used to produce goods and services
capital
the buildings, equipment and human skills used to produce goods and services
natural resources
all goods of nature used to produce goods and services; includes renewable and exhaustible resources
entrepreneurial ability
the imagination required to develop a new product or process, the skill needed to organize production, and the willingness to take risk of profit or loss
wages
payment to resource owners for their labor
interest
payment to resource owners for the use of their capital
rent
payment to resource owners for the use of their natural resource
profit
reward for entrepreneurial ability; sales revenue minus resource cost
good
a tangible product used to satisfy human wants
service
an activity, or intangible product, used to satisfy human wants
scarcity
occurs when the amount people desire exceeds the amount available at zero price
market
a set of arrangements by which buyers and sellers carry out exchange at mutually agreeable terms
product market
a market in which a good or service is bought an sold
resource market
a market in which a resource is bought and sold
circular-flow model
a diagram that traces the flow of resources, products, income, and revenue among economic decision makers
rational self-interest
each individual tries to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit
marginal
incremental, additional, or extra; used to describe a change in an economic variable
microeconomics
the study of economic behavior in particular markets, such as that for computers or unskilled labor
macroeconomics
the study of economic behavior of entire economies, as measured, for example, by total production and employment
economic fluctuations
the rise and fall of economic activity relative to the long-term growth trend of the economy; also called business cycles
economic model
also known as economic theory; a simplification of reality used to make predictions about cause and effect of the real world
ceteris paribus
also known as: all things being equal
behavioral assumption
an assumption that describes the expected behavior of economic decision makers, what motivates them
positive economic statement
a statement that can be proved or disproved by reference to facts
normative economic statement
a statement that reflects an opinion, which cannot be proved or disproved by reference to the facts
association is causation fallacy
the incorrect idea that if two variables are associated in time, one must necessarily cause the other
fallacy of composition
the incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or the whole
secondary effects
unintended consequences of economic actions that may develop slowly over time as people react to events
slope
equals change in the vertical distance / increase in the horizontal distance
opportunity cost
the value of the best alternative forgone when an item or activity is chose
sunk cost
a cost that has already been incurred, cannot be recovered, and thus is irrelevant for present and future economic decisions
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
absolute advantage
the ability to make something using fewer resources than other producers use
comparative advantage
the ability to make something at a lower opportunity cost than other producers make
division of labor
breaking down the production of goods into separate tasks
specialization of labor
focusing work effort on a particular product or a single task
production possibilities fronties(PPF)
a curve showing alternative combinations of goods that can be produced when available resources are use efficiently; a boundary line between inefficient and unattainable combinations
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; getting the most from available resources
law of increasing opportunity cost
to produce more of one good, a successively larger amount of the other good must be sacrificed
economic growth
an increase in the economy's ability to produce goods and service; reflected by an outward shift of the economy's production possibilities frontier
economic system
the set of mechanisms and institutions that resolve the what, how, and for whom questions
utility
the satisfaction received from consumption; sense of well-being
transfer payments
cash or in-kind benefits given to individuals as outright grants from the government
sole proprietorship
a firm with a single owner who has the right to all profits but who also bears unlimited liability for the firm's losses and debts
firms
economic units formed by profit-seeking entrepreneurs who employ resources to produce goods and services for sale
partnership
a firm with multiple owners who share the profits and bear unlimited liability for firm's losses and debts
corporation
a legal entity owned by stockholders whose liability is limited to the value of their stock ownership
market failure
a condition that arises when the unregulated operation of markets yields socially undesirable results
monopoly
a sole supplier of a product with no close substitutes
natural monopoly
one firm that can supply the entire market at a lower per-unit cost than could two or more firms
externality
a cost or a benefit that affects neither the buyer nor seller, but instead affects people not involved in the market transaction
fiscal policy
the use of government purchases, transfer payments, taxes, and borrowing to influence economy-wide variable such as inflation, employment and economic growth
monetary policy
regulation of the money supply to influence economy-wide variables such as inflation, employment, and economic growth
proportional taxation
also known as flat tax; the tax as a percentage of income remains constant as income increases
progressive taxation
the tax as a percentage of income increases as income increases
marginal tax rate
the percentage of each additional dollar of income that foes to the tax
regressive taxation
the tax as a percentage of income decreases as income increases
merchandise trade balance
the value during a given period of a country's exported goods minus the value of its imported goods
balance of payments
a record of all economic transactions during a given period between residents of one country and residents of the rest of the world
foreign exchange
foreign money needed to carry out international transactions
demand
relation between the price of good and the quantity that consumers are willing and able to buy per period other things being constant
law of demand
the quantity of a good that consumers are willing and able to buy per period relates inversely, or negatively, to the price, other things being constant
substitution effect of a price change
when the price of a good falls, that good becomes cheaper compared to other goods so consumers tend to substitute that good for other goods
real income
income measured in terms of the goods and services it can buy; real income changes when the price changes
demand curve
a curve showing the relation between the price of a good and the quantity consumers are willing and able to buy per period, other things being constant
quantity demand
the amount of a good consumers are willing and able to buy per period at a particular price, as reflected by a point on a demand curve
movement along a demand curve
change in quantity demanded resulting from a change in the price of the good, other things being constant
shift of a demand curve
movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good
supply
a relation between the price of a good and the quantity that producers are willing and able to sell per period, other things being constant
law of supply
the amount of a good that producers are willing and able to sell per period is usually directly related to its price, other things constant
supply curve
a curve showing the relation between price of a good and quantity producers are willing and able to sell per period, other things being constant
quantity supplied
the amount offered for sale per period at a particular price, as reflected by a point on a given supply curve
market supply
the relation between the price of a good and the quantity all producers are willing and able to sell per period
movement along a supply curve
change in quantity supplied resulting from a change in the price of the good
shift of a supply curve
movement of a supply curve left or right resulting from a change in one of the determinants of supply other than the price of the good
transaction cost
the cost of time and information required to carry market exchange
surplus
at a given price, the amount by which quantity supplied exceeds the quantity demanded;
shortage
at a given price, the amount by which quantity demanded exceeds quantity supplied
equilibrium
the condition that exists in a market when the plan of buyers match those of sellers, so quantity demanded equals quantity supplied and the market clears
scarcity
a situation in which unlimited wants exceed the limited resources available to fulfill those wants
economics
the study of the choices people make to attain their goals, given the scarce resources
3 fundamental question that any economist must answer:
1) what goods and services will be produced?
2) how will those goods and services be produced?
3) who will receive the goods and services produced?
economic model
a simplified version of reality used to analyze real-world economic situations
market
a group of buyers, and sellers of a good or service and the institution or arrangement by which they come together to trade
economists assume that people in firms:
are rational, respond to economic incentives and optimal decisions are made at the margin
marginal analysis
analysis that involves comparing marginal benefits and marginal costs
marginal benefit
the additional or extra benefit associated with an action (the word marginal means additional) Marginal benefits should equal marginal costs
marginal cost
the increase or decrease in costs as a result of one more or one less unit of output (ex: you watch an extra hour of TV then the marginal cost is the lower grade you relieve on your test from studying less)
trade-offs
all the alternatives that we give up whenever we choose one course of action over another
centrally planned economy
economic system in which the central government makes all decisions on the production and consumption of goods and services
market economy
an economy that relies chiefly on market forces to allocate goods and resources and to determine prices
mixed economy
market-based economic system with limited government involvement
productive efficiency
a good or service is produced at the lowest possible cost
allocative efficiency
when the last unit produced costs the same as the benefit received by consumers (marginal benefit = marginal cost)
voluntary exchange
both the buyer and the seller of a product are made better of by the transaction
positive analysis
analysis concerned with what is
normative analysis
analysis concerned with what ought to be
microeconomics
the branch of economics that studies the economy of consumers or households or individual firms
macroeconomics
the study of the economy as a whole, including topics such as inflation, unemployment and economic growth
difference between macroeconomics and microeconomics
macroeconomics examine the economy as a whole and microeconomics examines individual markets
production possibility frontier (PPF)
illustrates the trade-offs facing an economy that produces only two goods; shows the maximum quantity of one good that can be produced for any given quantity produced of the other
opportunity cost
the most desirable alternative given up as the result of a decision
trade
the act of buying and selling
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
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
product markets
markets where producers offer goods and services for sale
factor markets
Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability
factors of production
resources necessary to produce goods and services
free market
an economic system in which prices and wages are determined by unrestricted competition between businesses, without government regulation or fear of monopolies.
property rights
the rights individuals or firms have to the exclusive use of their property including the right to buy or sell it
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
the relationship between the price of a good and the quantity of it the consumers are willing to buy at that price
demand curve
a graphical representation of the law of demand. It slopes downward (for most goods) because , all else constant, the quantity demand rises (falls) as the price falls (rises)
market demand
the demand by all the consumers of a given good or service
law of demand
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
income effect
a change in price affects overall purchase power
substitution effect
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
ceteris paribus condition
The requirement that when analyzing the relationship between two variables—such as price and quantity demanded—other variables must be held constant (ceteris paribus is latin for "all else equal")
top 5 variables that influence the market demand:
1) income
2) price of goods
3) tastes
4) population and demographics
5) expected future prices
normal goods
when income rises, demand increases. Most goods are normal
inferior goods
when income rises, demand decreases, because better goods can be afforded (ex: Generic-labeled food)
complements
goods and services that are used together such as hot dog and hot dog buns
demographics
the characteristics of a population with respect to age, race, and gender.
supply
the relationship between the price of a good and the quantity of it that firms are willing to produce at that price
law of supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
top 5 variables that shift the market supply:
1) prices of inputs
2) technological change
3) prices of substitutes in production
4) number of firms in the market
5) expected future prices
supply curve
a graphical representation of the law of supply. It slopes upward because quantity supplied rises as price rises, with other things constant
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 situation in which the quantity demanded equals quantity supplied
competitive market equilibrium
a market equilibrium with many buyers and many sellers
surplus
a quantity much larger than is needed
shortage
a quantity much less than is needed
price ceiling
a maximum price that can be legally charged for a good or service
price floor
floor below which prices are not allowed to fall
consumer surplus
the difference between the highest price a consumer is willing to pay for a good or service 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 loss
the sum of consumer surplus and producer surplus
dead-weight loss
the reduction in economic surplus resulting from a market not being in competitive equilibrium
economic efficiency
a market outcome in which marginal benefit to consumers of the last unit produced is equal to it's marginal cost of production and in which the sum of consumer surplus and producer surplus is at maximum
Scarcity
the limited nature of society's resources
economics
the study of how society manages its scarce resources
efficiency
the property of society getting the most it can from its scarce resources
equality
the property of distributing economic prosperity uniformly among the members of society
opportunity cost
whatever must be given up to obtain some item
rational people
people who systematically and purposefully do the best they can to achieve their objectives
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 excercise 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 well-being 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
productivity
the quantity of goods and servies produced from each unit of labor input
inflation
an increase in the overall level of prices in the economy
business cycle
flucuations in economic activity, such as employment and production
circular flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
production possibilities frontie (PPF)
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
microeconomics
the study of how households and firms, make decisions and how they interact in markets
macroeconomics
the study of economywide phenomena, including inflation, unemployment, and economic growth
positive statements
clams that attempt to describe the world as it "IS"
normative statements
claims that attempt to prescribe how the world should be or "OUGHT TO BE "
absolute advantage
the ability to produce a good using fewer inputs than another producer
opportunity cost
whatever must be given up to obtain some item
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 neglible impact on the market price
quantity demanded (buyers)
the amount of a good that buyers are willing and able to purchase
law of demand
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded demanded
demand curve
a graph of the relationship between the price of a good and he quantity demanded
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
expectatations
these have an affect on the variables involved in business or in the market. Ex. if you expect to earn a higher income next month...you may choose to save less now and spend more of your current income on a certain product
quantity supplied
the amount of a good that sellers are willing and able to sell
law of supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
supply curve
a graph of the relationship between the price of a good and the quantity supplied
equilibrium
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
equilibrium price
the price that balances quantity supplied and quantity demanded
equilibrium quantity
the quantity supplied and the quantity demanded at the equilibrium price
surplus
a situation in which quantity supplied is greater than quantity demanded
shortage
a situation in which quantity demanded is greater than 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
scarcity
the limited nature of society's resources
economics
the study of how society manages it's scarce resources
4 ways people make decisions
1)people face tradeoffs
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
3 ways people interact
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
when society gets most from scarce resources
equality
when prosperity is distributed uniformly among society's members
opportunity cost
whatever must be given up to obtain some item
rational people
people who systematically and purposefully do the best they can do to achieve their objectives
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 well-being 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
productivity
the quanitity of goods and services produced from each unit of labor input
inflation
an increase in the overall level of prices in the economy
business cycle
fluctuations in economic activity, such as employment and production
circular-flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
production possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
microeconomics
the study of how households and firms make decisions and how they interact in markets
macroeconomics
the study of economy-wide phenomena, including inflations, unemployment, and economic growth
positive statements
claims the 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
opportunity cost
whatever must be given up to obtain some item
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
quantity demanded
the amount of a good that buyers are willing and able to purchase
law of demand
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
demand schedule
a table that shows the relationship between the price of a good and the quanitity demanded
demand curve
a graph of the relationship between the price of a good and the quantity demanded
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
quantity supplied
the amount of a good that sellers are willing and able to sell
law of supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
supply schedule
a table that shows the relationship between the price of a good and the quanitity supplied
supply curve
a graph of the relationship betweenthe price of a good and the quantity supplied
equilibrium
a situation in which the market price has reached the level at which quanitity supplied equals the quantity demanded
surplus
a situation in which quantity supplied is greater than quantity demanded
shortage
a situation in which quantity demanded is greater than quantity supplied
law of supply and demand
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demaded for that good into balance