Short List of Key Terms Midterm 1 ECON 1102 Each Key Term should constitute two components definition and explanation For definitions please refer to Glossary given at the end of the textbook For explanation please read the textbook very carefully Explanation has to be in the form of an example and graph which needs to be elaborated Chapter 1 1 Economic model 2 Factors of Production 3 Human capital 4 Rational choice 5 Tradeoff Chapter 2 1 Allocative efficiency 2 Marginal benefit 3 Marginal Cost 4 Opportunity cost 5 Production efficiency 6 Production possibilities frontier Chapter 3 1 Change in demand 2 Change in supply 3 Change in quantity demanded 4 Change in quantity supplied 5 Complement 6 Demand curve 7 Inferior good 8 Law of demand 9 Law of supply 10 Substitute 11 Supply curve Chapter 4 1 Cross elasticity of demand 2 Elastic demand 3 Elasticity of supply 4 Income elasticity of demand 5 Perfectly elastic demand 6 Perfectly inelastic demand 7 Price elasticity of demand 8 Total revenue Chapter 1 1 Economic Model a A description of some aspect of the economic world that includes only those features of the world that are needed for purposes at hand i The computer generated weather map gives us a good forecast of the weather tomorrow It shows us thunderstorms rain showers and snow storms The weather map does not include buildings roads and airports these features are details that don t influence the weather but the model does include the isobars and other essential features that influence the weather 2 Factors or Production a The productive resources used to produce goods and services i Farmer Brown grows apples and in the process uses many factors of production Farmer Brown s farm land and water well are the factor of production called land the students he hires to pick the apples are the factor of production called labor the equipment he uses for spraying his apple orchard is the factor of production called capital and his ability to run a profit making apple orchard is his entrepreneurship 3 Human Capital a The knowledge and skill that people obtain from education on the job training and work experience i Bob quit his job at a fast food restaurant and returned to school to study computer programming After graduating Bob worked as a programmer and now after 10 years he owns a small software company Bob s human Capital has increased since he left the fast food industry his education and on the job training have increased his skills a A choice that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice i What will you do in the summer If you think about all the choices you have and make your decision based on their costs and their benefits then your decision is a rational choice 4 Rational Choice 5 Tradeoff a A constraint that involves giving up one thing to get something else i On Thursday night Zack can either attend a rock concert with his friends or study for his economics midterm on Friday If Zack goes to the concert he gives up studying for his exam If Zack studies he gives up going to the concert Zack is facing a tradeoff Chapter 2 1 Allocative Efficiency a A situation in which goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit i A bicycle factory produces touring bicycles and racing bicycles The factory produces 10 touring bicycles and 10 racing bicycles each week But to produce an additional touring bicycle a week the factory must produce one less racing bicycle a week When the factory produces 10 touring bicycles and 10 racing bicycles each week the factory cannot produce more of one type of bicycle without producing less of the other type of bicycle 2 Marginal Benefit a The benefit that a person receives from consuming one more unit of a good or service It is measured as the maximum amount that a person is willing to pay for one more unit of the good or service i Suppose that you see 3 movies a week The max amount that you are willing to pay to see the first movie is 10 to see the second movie is 8 and the third movie is 6 3 Marginal Cost 4 Opportunity Cost a The opportunity cost of producing one more unit of a good or service It is the best alternative foregone It is calculated as the increase in total cost divided by the increase in output i When Henry produces his third table in a week he gives up producing 2 book shelves The marginal cost of the third table is 2 book shelves a The highest valued alternative that we must give up to get something i Suppose you have the choice of seeing a movie playing a game of tennis or reading a book If you choose to see a movie then you cant play a game of tennis or read the book The opportunity cost of seeing the movie is the best alternative you forego If the best alternative is reading a book then the opportunity cost of seeing the movie is reading a book 5 Production Efficiency possible cost a A situation in which goods and services are produced at the lowest i Frank can produce 6 scares and 6 hats in a day If Frank produces 7 scarves then he can only produce 5 hats If Frank produces 7 hats then he can only 5 scarves When Frank produces 6 scarves and 6 hats he is at a point of production efficiency 6 Productions Possibilities Frontier a The boundary between the combinations of goods and services that can be produced and the combinations that cannot Chapter 3 1 Change in Demand a A change in buyers plans that occurs when some influence on those plans other than price of the goo changes It is illustrated by a shift of the demand curve 2 Change in Supply a A change in sellers plans that occur when some influence on those plans other than the price of the good changes It is illustrated by a shift of the supply curve 3 Change in Quantity Demanded a A change in buyers plans that occurs when the price of a good changes but all other influences on buyers plan remain unchanged It is illustrated by a movement along the demand curve 4 Change in Quantity Supplied a A change in sellers plans that occurs when the price of a good changes but all other influences on sellers remain unchanged It is illustrated by a movement along the supply curve 5 Complement 6 Demand Curve a A good that is used in conjunction with another good a A curve that shows the relationship between the quantity demanded of a good and its price when all other influences on consumers planned purchases remain the same 7 Inferior Good 8 Law of Demand