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Economics test 1
Terms in this set (30)
The study of how people use their limited resources to satisfy their nearly unlimited wants
study of how people make decisions
Macro vs. Micro
Macro- broader economy
Micro- individual units that comprise the economy
Limited nature of society's resources
Define Opportunity Cost
Highest value alternative that must be sacrificed to get something else
Example of Opportunity Cost/Foundation #3
Someone gives up going to see a movie to study in order to get a good grade. Opportunity Cost- enjoyment of going to the movie
5 Basic Foundations of Economics
1. Incentive matter
2. Life is about trade-offs
3. Opportunity Cost
4. Marginal Thinking
5. Trade creates value
Example of Foundation #1
*positive- tax refund, raise, employee of the month
*negative- jail, fees, getting grounded
Example of Foundation #2
Life is about trade-offs:
"what do I do after high school? Work or go to college?"
"should we penalize polluting companies?"
"should we spend tax dollars on schools or highways?"
Example of Foundation #4
"how much" is the benefit of one more unit of something greater than the cost
*"one more hour of sleep or studying?"
Example of Foundation #5
Trade creates value:
*go to Starbucks to get coffee
*go to doctors when you're sick
Factors that motivate you to exert effort
Types of Incentives
Direct Incentives- "Get straight A's and I'll give you $500"
Indirect Incentive- the child may now have been given an indirect incentive to cheat or not join in on extracurricular activities
Shows the maximum possible output combinations of two goods an economy can achieve when all resources are fully and efficiently employed
What does a point on the PPF curve mean?
What does a point on the inside of the PPF curve mean?
What does a point outside of the PPF curve mean?
What is ceteris paribus?
all things equal
How are future needs satisfied (through either capital or consumer goods)?
Capital goods out further, help make consumer goods
Created when buyers and sellers are brought together to complete a transaction
What are the characteristics of a market?
-doesn't have to be a physical place
-prices are determined by the forces of supply and demand
-All other things equal
-inverse relationship between price and quantity demanded (moving opposite direction)
Define Law of Demand
A table that shows the relationship between the price and the quantity demanded
Define a Demand Schedule
Differences involving changes in demand (quantity demanded/demand
Quantity Demanded- in response to a PRICE change, movement ALONG the curve
Demand- changes in factors of the NON-PRICE of demand (age, religion, race, occupation), income, price of related goods, substitutes and complements, SHIFT of curve
Examples of substitutes and complements
complement- peanut butter and jelly
substitutes- coke and pepsi
Define law of supply
quantity supplied of the goods rises when the price of the goods rises
Difference involving changes in Supply (quantity supplied/supply)
Quantity supplied- in response to a PRICE change, movement ALONG the curve
supply- response to change in the factors of supply, shift of ENTIRE curve, price of input, technology, expectations of producers, number of sellers
what is equilibrium?
supply and demand are in balance
quantity demanded greater than quantity supplied (p < equilibrium price)
quantity supplied greater than quantity demanded (p > equilibrium price)
normal goods vs. inferior goods
normal- luxery car, steak dinner
inferior- subway ticket, ramen noodles
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