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ECO 2013 Exam 1 Vocabulary UCF Nora Underwood Fall 2017
Terms in this set (57)
What is economics?
The study of how society manages its scarce resources
What is scarcity?
Society has limited resources and therefore cannot produce all the goods and services people wish to have
What are resources?
What society uses to make goods and services.
What is opportunity cost?
What you give up to get that item.
What are explicit costs?
What are implicit costs?
Something you give up but do not explicitly pay for.
What is marginal change?
A small incremental adjustment to an existing plan of action.
What is marginal analysis?
Deciding if the marginal benefit is greater than the marginal cost.
What is marginal benefit?
What the consumer gains from a small incremental adjustment to an existing plan of action.
What is marginal cost?
What it costs the consumer to make a small incremental adjustment to an existing plan of action.
What is an incentive?
Something that induces people to act.
What is efficiency?
Society is getting the maximum benefits from its scarce resources.
What is equality?
Maximum benefits from its scarce resources are distributed uniformly among society's members.
What is the difference between efficiency and equality?
Efficiency refers to the size of the economic pie, and equality refers to how the pie is divided into individual slices.
How do we measure productivity?
Comparing the amount of goods and services produced with the inputs which were used in production.
What is a positive statement?
They make a claim about how the world is.
What is a normative statement?
They make a claim about how the world ought to be.
Explain how dollars and goods/services flow in the circular flow diagram.
The two loops of the circular-flow diagram are distinct but related. The inner loop represents the flows of inputs and outputs. The households sell the use of their labor, land, and capital to the firms in the markets for the factors of production. The firms then use these factors to produce goods and services, which in turn are sold to households in the markets for goods and services. The outer loop of the diagram represents the corresponding flow of dollars. The households spend money to buy goods and services from the firms. The firms use some of the revenue from these sales to pay for the factors of production, such as the wages of their workers. What's left is the profit of the firm owners, who are themselves members of households.
What is a production possibilities frontier (PPF)?
A graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the available production technology that firms use to turn these factors into output.
Which points on the production possibilities frontier are feasible?
Points on OR inside of the PPF
Which points on the production possibilities frontier are efficient?
Points ON the PPF
How can we use the PPF to measure opportunity cost?
The production possibilities frontier shows the trade-off between the outputs of different goods at a given time, but the trade-off can change over time.
Why is the PPF sometimes a straight line and sometimes bowed out?
Straight line: Opportunity cost of producing each additional unit of the good is constant.
Bowed: Opportunity cost of producing each additional unit of the good changes.
What is comparative advantage?
Who has the lower opportunity cost of producing Good X in terms of Good Y
What is absolute advantage?
Who can produce more of a good in the same amount of time.
What is specialization?
Using all of one's resources to produce a single good.
Why do people, firms, and countries specialize?
It allows firms to reach points outside of their individual PPF through trade, making everyone better off.
What is a market economy?
An economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's individual citizens and businesses. There is little government intervention or central planning.
What is a market?
A group of buyers and sellers of a particular good or service.
What is a competitive market?
-The goods offered for sale are all exactly the same, and...
-The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.
What is a standardized good?
A good that has no noticeable difference between any other similar good and therefore the cheapest of brand is the best option.
What is a price taker?
Buyers and sellers in perfectly competitive markets are price takers because buyers can buy all they want, and sellers can sell all they want.
What is quantity demanded?
The amount of the good that buyers are willing and able to purchase.
What is quantity supplied?
The amount of a good that sellers are willing and able to sell
Who demands goods/services?
Who demands labor?
Who supplies goods/services?
Who supplies labor?
What is a demand curve?
A graph of the relationship between the price of a good and the quantity demanded.
What is the law of demand?
Other things being equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.
What are substitute goods?
Two goods for which an increase in the price of one leads to an increase in the demand for the other.
What are complements?
Two goods for which an increase in the price of one leads to a decrease in the demand for the other.
What are normal goods?
A good for which, other things being equal, an increase in income leads to an increase in demand.
What are inferior goods?
A good for which, other things being equal, an increase in income leads to a decrease in demand.
What factors increase demand (cause a shift to the right)?
-Prices of related goods
-Number of buyers
A change in what variable causes a movement along the demand curve?
Price of the good
What is a supply curve?
A graph of the relationship between the price of a good and the quantity supplied.
What is the law of supply?
The claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises.
What factors increase supply (cause a shift to the right)?
-Number of sellers
A change in what variable causes a movement along the supply curve?
Price of the good
What is equilibrium?
A situation in which the market price has reached the level at which quantity supplied equals quantity demanded.
How do we find equilibrium price and quantity?
1) Decide whether the event shifts the supply curve, the demand curve, or, in some cases, both.
2) Decide whether the curve shifts to the right or to the left.
3) Use the supply-and-demand diagram to compare the initial equilibrium with the new one, which shows how the shift affects the equilibrium price and quantity.
What happens to equilibrium price and quantity if demand increases? If it
When demand increases: Equilibrium price increases, equilibrium quantity increases
When demand decreases: Equilibrium price decreases, equilibrium quantity decreases
What happens to equilibrium price and quantity if supply increases? If it
When supply increases: Equilibrium price decreases, equilibrium quantity increases.
When supply decreases: Equilibrium price increases, equilibrium quantity decreases.
What happens to equilibrium price and quantity if supply and demand both shift?
Can you unambiguously determine what happens if two curves shift at once?
Illustrate a situation where we have excess supply? Explain why this situation
will not persist.
(Surplus) A situation in which quantity supplied is greater than quantity demanded.
In order to sell all of the units the firm produces, they must lower the price.
Illustrate a situation where we have excess demand? Explain why this situation
will not persist.
(Shortage) A situation in which quantity demanded is greater than quantity supplied.
The firm will increase the price of the good because the demand of the consumers causes the value of the product to grow.
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