ECON 2010: EXAM 1
73 Cards in this Set
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Economics
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The study of how society allocates scarce resources
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Scarce
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unlimited wants of limited resources
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resources
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what is used to produce something else
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planned economy
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the government controls/answers all the economic questions
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economic questions
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what goods will be produces/necessary/desired?
how will we produce them?
Where?
when?
distribution?
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Market Economy
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an economy in which all decisions are made by the interactions of buyer and seller
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Mixed economy
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an economy where most of the decision result from the interactions of buyer and seller, bit the government reallocates part of the pie
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Microeconomics
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the study of how small units manage scarce resources
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Macroeconomics
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The study of the aggregate of small units
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Opportunity Cost
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the highest valued alternative you have to give up to get the item
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Marginal analysis
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the comparison between the marginal benefit and the marginal cost
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Marginal benefit
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the benefit of an additional small unit of the good
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Marginal cost
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the cost of an additional small unit of the good
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Incentive
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something that changes you MB or MC
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Efficiency
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when all the opportunities have been taken to make some people better off without making other people worse off
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equity
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the property of distributing wealth fairly
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extranalities
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the impact of an individuals action on the rest of society that is not taken into account by the market
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market power
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a situation where one, or a small group of actors, can influence the market outcomes
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economic models
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a simplified representation of the economic world to understand hoe the world works
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PPF
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the maximum attainable combinations of the 2 goods that a firm.country can produce given its resources and technolgy
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positive analysis
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claims that describe the world as it is
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normative analysis
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clams that describe the world as it should be
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market
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a group of buyers and sellers that interact
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quantity demanded
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the amount of a good that a buyer is willing to buy at a given price
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market demand
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the horizontal sum of individual demand
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change in demand
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change in the initial desire or non-desire to consume the good no matter the price
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demand
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initial desire to buy a good no matter the price
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quantity demanded
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given your initial desire to purchase the good, the amount of good you buy at a specific price
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change in quantity demanded
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the higher the price, the lower the quantity demanded, given your initial desire for the good
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substitute good
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if an increase in the price of 1 good increases the demand for another good
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complement good
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in an increase in the price of one good decreases the demand for the other
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normal good
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as your income increases, so does your demand for the good
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inferior good
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as your income increases, your demand for the good decreases
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Change in supply
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as your income increases, your demand for the good decreases
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quantity supplied
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the amount of a good you are willing to sell at a given price, given your initial desire to sell
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supply
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the initial desire/capacity to sell something no matter what the cost
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substitute in production
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2 goods, produced from the same raw materials and by the same firm
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complements in production
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2 goods, one of the goos is a byproduct of the other
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Sellers PINTE
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price of related goods, input price, number of sellers, technology, expectations
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equilibrium price
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a price that brings in balance the quantity supplied and the quantity demanded
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surplus
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a situation where the qty supplied is larger than the qty demanded
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shortage
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a situation in which the qty demanded is larger than the qty supplied
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Law of supply and demand
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the price of any good adjust to a value such that the qty supplied is equal to the qty demanded
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price elasticity of demand
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measure of how the qty demanded responds to a change in the price of the good
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income elasticity of demand
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measure of how the qty demand responds to a change in income
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cross price elasticity
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measure of how the qty responds to the change in price of another good
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price elasticity of supply
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the measure of how the qty supplied responds to a change in price
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price elasticity of demand
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ED = {% change Q / % change P}
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inelastic
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the percentage change of quantity is less than percentage change in price (below 1)
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elastic
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the percent change of qty is more than price (above 1)
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unit elastic
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the percentage change of qty is the same as the percentage change of price
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Determents of elasticity
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-availability of close substitutes
-definition of the market
-necessary vs, luxury
-time horizon
-share of income
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total revenue
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the amount of money the seller received (P x Q)
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welfare economics
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the study of how economic outcomes affect people's well being
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individual consumer surplus
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the difference between the willingness to pay for the good and the actual price
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total consumer surplus
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the sume of individual surplus
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marginal buyer
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the first buyer to leave the market if the price of the good goes too high
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demand curve
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at any price affects the WTP of the marginal buyer at that price
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total consumer surplus
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the sum of all the individual consumer surplus
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consumer surplus
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the sum of all the individual consumer surplus
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Marginal seller
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the first seller to leave the market if the price was any lower
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producer surplus
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the box formed about the supple curve and below the price
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total surplus
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consumer surplus plus producer surplus
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total surplus
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a situation that maximizes the total suplus
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equity 2
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how the total surplus is shared between consumers and producers
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price ceilings
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the legal maximum on the price at which a good can be sold
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black market
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a market where goods are traded illegally because the good is illegal or the price is illegal
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Price floor
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a legal minimum on the price at which a good can be bought
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Implications of the tax
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Implications of the tax
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burden of the tax
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how much the tax impacts buyer and sellers. for buyers, it's the increase P due to the tax. For sellers, its the decrease of P to the sellers due to the tax
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FICA
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federal insurance contribution act means that 50% comes from your paycheck, %50 is from the firm
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tax rate
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amount of a tax per unit of good
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Dead weight loss
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the amount of money of goods lost between the tax and the equilibrium.
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ECON 2010: EXAM 1