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ECON 101: EXAM 1
Economics |
study of choices under conditions of scarcity |
Microeconomics |
studies individual behavior |
Macroeconomics |
studies large group behavior |
Factors of Production |
things that produce other things |
Land |
Resources supplied by land |
Labor |
all attributes of humanity. Including skills, strength, and education |
Capital |
plant and equipment used to produce goods and services |
Theory |
An attempt to explain something we observe (a regularity) |
Exogenous variable/Independent Variable |
variables used to explain other variables |
Endogenous variable/Dependent variable |
things a model is attempting to explain |
hypothesis |
an explanation of a relatoin between variables |
Positive analysis |
doing an analysis based on facts |
Normative Analysis |
doing an analysis based on value judgments (norms) |
Production Possibilities Frontier |
something that shows the maximum combo of 2 goods that can be produced with a given set of resources and given technology |
Opportunity cost |
highest valued alternative that must be given up in order to get one additional unit of something |
Increasing Opportunity Cost |
Having to give up an ever increasing amount of one good to get addition units of another |
Decreasing Opportunity Cost |
giving up an ever decreasing amount of one good to get additional units of another |
Constant Opportunity Costs |
Having to give up the same amount of one good to get additional units of another |
Adam Smith |
Discussed the benefits of Markets, wrote "The wealth of Nations"; Laissez Faire |
Specialization of Labor |
Individuals doing a small number of tasks well |
Laissez Faire |
"Leave it alone" - limited role in economic activation |
Autarky |
The absence of trade |
Gains from Specialization |
idea that when individuals specialize and exchange with other, both parties benefit |
Absolute Advantage |
able to produce a good using fewer resources than someone else |
Comparative Advantage |
Producing a good at a lower opportunity cost than someone else |
Relative price |
price of one good compared to all others |
Arbitrage |
take advantage of price differences in different markets to make a risk-free profit |
Traditional Economic System |
answers the what, how, and for whom questions based on the manner in which it has always been done in the past |
Autocratic/Command and Control Economics System |
answers the what, how and for whom questions based on the whims of the bureaucracy/gov/dictator in charge |
Market System |
answers the what, how, and for whom questions through a system of mutually beneficial and voluntary exchange |
Barter |
Exchange of a good for a good |
Perfect Competition |
a market structure where there are many buyers and sellers competing for a good |
Demand |
various quantities of a specific good consumers are willing and able to purchase at various prices |
Law of Demand |
as the price of a good increases, the quantity demanded decreases |
Supply |
the various quantities of a specific good consumers are willing able to purchase at various prices |
Ceteris Paribus |
everything else held constant |
Equilibrium |
a situation from which there is no tendency for change |
Shortage/Excess Demand |
The quantity demanded exceeds the quantity demanded at the given price |
Surplus/Excess Supply |
The quantity supplied exceeds the quantity demanded at the given price |
Substitute |
goods used as alternatives |
Complement |
Goods that are used together as a package |
Normal Good |
a good for which an increase in income leads to an increase in demand |
Inferior Good |
a good for which an increase in income leads to a decrease in demand |
Expectations |
anticipation of what the future holds |
Consumer Surplus |
The difference between a consumers willingness to pay for a good and the amount actually payed |
producer Surplus |
the difference between what a producer receives from selling a good and the cost of producing it |