Hrtm 260: Economics Test 1
39 Cards in this Set
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economic agent
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an indvidual or an organization that makes choices
(not all economic agents are individuals)
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scarce resources
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are thing people want, where the quantity that people want exceeds resources available.
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scarcity
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exists because people have unlimited wants
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economics
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study of how agents choose to allocate resources and how those choices effect society.
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positive economics
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describing what has happened or predicting what will happen
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normative economics
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2nd type of economic analysis advises individuals and society on their choices
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microeconomics
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study of how individuals, households, firms and governments make choices
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macroeconomics
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study of economy as a whole (ex: country's output)
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optimization
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attempt to make the best feasible option given the available information
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empiricism
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analysis that uses data
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bar chart
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uses different heights or lengths to indicate the properties of different groups
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time series graph
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represents data that occur over a specific period of time
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scatter plot
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explains the difference between two variables as plotted points of data
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optimization in levels
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calculates total net benefit of different alternatives and then chooses best alternative
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optimization in differences
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calculates the change in net benefits when a person switches from one alternative to another and then uses these marginal comparisons to choose the best alternative
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The Principle of Optimization at the Margin
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states that an optimal feasible alternative has the property that moving to it makes you better off and moving away from it makes you worse off
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perfectly competitive market
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Sellers all sell identical good or service. Individual buyer or seller isn't powerful enough to effect the market on their own.
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price taker
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A buyer or seller who accepts the market price. Buyers and sellers can't bargain for a higher or a lower price.
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quantity demanded
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amount of a good buyers are willing to purchase at a given price
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demand schedule
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a table that reports the quantity demanded at different prices, holding all else equal.
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demand curve
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plots the quantity demanded at different prices. Plots the demand schedule
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Negatively related variables
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if the variables move in the opposite direction
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Willingness to pay
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Highest price that a buyer is willing to pay for an extra unit of good.
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Diminishing Marginal Benefit
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The more you have of something, the less the last unit benefits you, and the less you are willing to pay.
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market demand curve
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the sum of individual buyer demand curves of all the potential buyers. Plots relationship between the total quantity demanded and the market price, holding all else equal.
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Demand curve shifts
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only happens when quantity demand changes at a given price.
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movement along the demand curve
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if a good's own price changes and its demand curve hasn't shifted, the own price change produces this
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normal good
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an increase in the income causes the demand curve to shift right (holding the good's price fixed)
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inferior goods
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a rise in income decreases the demand for the good; demand curve shifts to the left
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Substitutes
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two goods are this when the fall in prices leads to a left shift in the demand curve for the other
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Complements
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two goods are this when the fall in price of one leads to a right shift in the demand curve for the other
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Supply Schedule
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Chart showing how much producers are willing to supply at certain prices
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Positively Related Variable
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two variables are this if the variables move in the same direction
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Law of supply
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in almost all cases the quantity supplied rises when the price rises
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willingness to accept
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minimum amount a producer is willing to accept as payment for a product, =marginal cost of production
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competitive equilibrium
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crossing point of the supply curve and the demand curve
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At the equilibrium price in a competitive market
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Any buyer can find a seller, any seller can find a buyer, the q demanded = the q supplied
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competitive equilibrium quantity
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the quantity that corresponds to the competitive equilibrium price
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excess supply
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when the market price is above the competitive equilibrium price the quantity supplied exceeds quantity demanded
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Hrtm 260: Notes