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econ test 1
Terms in this set (25)
the primary concern of economics
allocate scarce resources
what would lead to an increase (shift outward) in the production possibilities curve.
the total amount of available production factors or by advancements in technology
difference between a market economy and a command (centrally planned) economy
Market economy: an economy in which supply and demand drive economic decisions, such as the production of goods and services, investments, pricing, and distribution
Command economy: where a central government makes all economic decisions
What does market failure mean
Where consumer demand does not equal the amount of a good or service supplied
difference between Micro and Macro economics. (
Mircro: study of individual and business decisions regarding the allocation of resources and prices of goods and services.
Macro: study of the decisions of countries and governments
how do we measure economic growth.
Real gross domestic product, or real GDP
definition and how to calculate GDP.
Measure of the market value of all the final goods and services produced in a specific time period.
GDP = Consumption + Investment + Government Spending + Net Exports
the difference between Nominal and Real GDP.
Real GDP: tracks the total value of goods and services calculating the quantities but using constant prices that are adjusted for inflation.
Nominal GDP: that does not account for inflation - money value
Know why we also look at Per Capita GDP
measures standard of living
what a progressive income tax means
A progressive tax is based on the taxpayer's ability to pay.
why economic interactions with others are important
Resources are limited! And participating in markets facilitates specialization, increased production, and increased consumption.
Know the definitions of Demand and Supply
Demand: to consumers' desire to purchase goods and services at given prices.
Supply: describes the total amount of a specific good or service that is available to consumers.
Law of Demand: an inverse relationship between price and quantity demanded. (P increase, Q decrease)
Law of Supply: a direct relationship between price and quantity (quantities respond in the same direction as price)
the difference between a change in Quantity Demanded and a change in Demand.
A change in demand means that the entire demand curve shifts either left or right.
A change in quantity demanded: refers to a movement along the demand curve, which is caused only by a change in price.
the factors that change Demand - shift the whole curve.
Average income, preferences, prices of other goods
Change in price affects Quantity - does not affect demand
the factors that change Supply - shift the whole curve.
COST OF PRODUCTION -
input prices, number of sellers, technology, natural and social factors, and expectations
what determines the equilibrium price
Interaction of Demand and Supply.
how the Law of Demand and the Law of Diminishing Marginal Utility are related.
as price decreases, consumption increases and that as price increases, consumption decreases
what Price Elasticity of Demand represents, know the formula for Price Elasticity of Demand and how it impacts Total Revenue.
How much does a price change affect quantity demanded
% change in Q / % change in P
what the Production Function describes.
functional relationship between the quantity of a good produced (output) and factors of production (inputs).
know that producers should continue increasing production for a good as long as the price at which they sell their good is higher than the marginal cost of producing the good.
Explain opportunity cost and give an example
The benefit you lose when you make a choice
Going to Maryville instead of another college where I could play volleyball led me to miss out or have the opportunity cost of playing volleyball
What are the factors of production?
Land, Labor, Capital, Entrepreneurship.
Land refers to natural resources, labor refers to work effort, and capital is anything made that is used to make something else.
Entrepreneurship differs because it organizes land, labor, and capital
1. Explain Diminishing Marginal Productivity when given a real example, and describe a solution that would increase marginal productivity.
Diminishing marginal productivity is the increasing of one factor of production that eventually results in lower additional returns
Explain why Price Elasticity of Demand matters.
Price Elasticity matter because it affects total revenue. Price Elasticity of Demand allows you to know whether if you should raise or lower your prices.
1. Know the difference between Explicit and Implicit costs and how it makes a difference when calculating Accounting vs. Economic profit.
Explicit costs are any costs that involve cash payments. Implicit costs are pportunitytity costs.
Ex. When starting a business explicit costs would be the workers, tables, chairs, rent while implicit costs would be the salary opportunity cost that you would miss out on when working somewhere else and not opening a business.
Accounting profit is revenue minus explicit costs, whilst economic profit is revenue minus explicit AND implicit costs
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