Econ 101 1st EditionExam # 1 Study Guide Lectures: 1 - 10Chapter 1, 3-6 Vocab1. Scarcity: the resources we use to produce goods and services are limited2. Economics: the study of choices when there is scarcity3. Factors of production: the resources used to produce goods and service; also know as production inputs or resources4. Natural Resources: resources provided by nature and used to produce goods and services5. Labor: human effort, including both physical and mental effort, used to produce goods and service6. Physical Capital: the stock of equipment, machines, structures, and infrastructure that is used to produce goods and services7. Human Capital: is the knowledge and skills acquired by a worker through education and experience and used to produce goods and services8. Entrepreneurship: the effort used to coordinate the factors of production – natural resources, labor, physical capital, and human capital – to produce and sell products9. Positive Analysis: answer the question: “What is?” Or “What will be?” – more factual10. Normative Analysis: answer the question “What ought to be?” – is more opinion11. Economic Model: a simplified representation of an economic environment, often employing a graph12. Variable: a measure of something that can take on different values13. Ceteris Paribus: the Latin expression meaning that other variables are held fixed14. Marginal Change: a small, one-unit change in value15. Macroeconomics: the study of the nation’s economy as a whole; focuses on the issues ofinflammation, unemployment, and economic growth16. Microeconomics: the study of the choice made by households, firms, and government and how these choices affect the markets for goods and services17. Principle of Opportunity Cost: the opportunity cost of something is what you sacrifice to get it18. Comparative Advantage: the ability of one person or nation to produce a good at a loweropportunity cost than another person or nation19. Principle of Voluntary Exchange: a voluntary exchange between two people makes both people better off20. Absolute Advantage: the ability of one person or nation to produce a product at a lower resource cost than another person or nation21. Import: a good or service produced in a foreign country and purchased by residents of the home country22. Export: a good or service produced in the home country and sold in another counrt23. Market Economy: an economy in which people specialize and exchange goods and service in markets24. Centrally Planned Economy: an economy in which a government bureaucracy decides how much of each good to produce, how to produce it, and who gets it25. Market Failure: happens when a market doesn’t generate the most efficient outcome26. Pollution: the government ensures that polluters bear the full cost of their production and consumption decisions 27. Public Goods: the government facilitates the collective decision making for public goods (i.e. levees, national defense, parks)28. Imperfect Information: if people don’t have enough information the government spreads information and promotes informed choices29. Imperfect Competition: the government fosters competition, which leads to lower pricesand more choices30. Implicit Contract: the product is safe to use 31. Perfectly Competitive Market: a market with many sellers and buyers of a homogeneous product and no barriers to entry32. Quantity Demanded: the amount of a product that consumers are willing and able to buy33. Demand Schedule: a table that shows the relationship between the price of a product and the quantity demanded, ceteris paribus34. Individual Demand Curve: a curve that shows the relationship between the price of a good and quantity demanded by an individual consumer, ceteris paribus35. Law of Demand: there is a negative relationship between price and quantity demanded, ceteris paribus36. Change in Quantity Demanded: a change in the quantity consumers are willing to buy when the price changes; movement along the demand curve37. Market Demand Curve: a change in the quantity consumers are willing and able to buy when the price changes; movement along the demand curve38. Quantity Supplied: the amount of a product that firms are willing and able to sell39. Supply Schedule: a table that shows the relationship between the price of a product and quantity supplied, ceteris paribus40. Individual Supply Curve: a curve showing the relationship between price and quantity supplied by a single firm, ceteris paribus41. Law of Supply: there is a positive relationship between price and quantity supplied, ceteris paribus42. Change in Quantity Supplied: a change in the quantity firms are willing and able to sell; movement along the supply curve43. Minimum Supply Price: the lowest price at which a product will be supplied (still covers marginal cost)44. Marginal Principle: increase the level of an activity as long as its marginal benefit exceeds its marginal cost; choose the level at which the marginal benefit equals the marginal cost45. Market Supply Curve: a curve showing the relationship between the market price and quantity supplied by all firms, ceteris paribus46. Individual Firm: a higher price encourages a firm to increase its output by purchasing more materials and hiring more workers47. New Firms: have higher production costs that the original firms, which makes it worthwhile to enter the market; and existing firms can expand their production facilities to produce more output48. Market Equilibrium: a situation in which the quantity demanded equals the quantity supplied at the prevailing market price49. Excess Demand: a situation in which at the prevailing price, the quantity demanded exceeds the quantity supplied 50. Excess Supply: a situation in which the quantity supplied exceeds the quantity demanded at the prevailing price51. Change in Demand: a shift of the demand curve caused by a change in a variable other than the price of the product52. Change in Supply: a shift of the supply curve caused by a change in a variable other than the price of the product53. Price Elasticity of Demand: a measure of the responsiveness of the quantity demanded to changes in price; equal to the absolute value of the percentage change in quantity demanded divided by the percentage change in price54. Elastic Demand: the price elasticity of demand is greater that one, so the percentage change in quantity demanded exceeds the percentage change in price55. Inelastic Demand: the price
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