47 Cards in this Set
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Microeconomics
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How households and firms make decisions and how they interact in markets.
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Scarcity
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The limited nature of society's resources
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Efficiency
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The size of the "economic pie"
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Equality
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How the pie is divided into individual slices
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10 Principles of Economics
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1. People face trade-offs.
2. The cost of something is what you give up to get it.
3. Rational people think at the margin.
4. People respond to incentives.
5. Trade can make everyone better off.
6. Markets are usually a good way to organize economic activity.
7. Government can some…
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Opportunity cost
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The best alternative that we give up when we make a choice.
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Marginal change
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Adding 1 small incremental adjustment plan of action
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Rational people
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Will only make a choice if marginal costs exceed marginal benefit.
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Comparative advantage
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Can produce a good at a lower opportunity cost
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Market economy
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An economy that allocates resources through decentralized decisions of many firms and households as they interact in market for goods and services.
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Market failure
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A situation in which a market left on its own fails to allocate resources efficiently.
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Externality
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The impact of a person's actions on the well-being of a bystander. Can be negative or positive.
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Market power
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The ability to influence pricing
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Productivity
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Quantity of goods and services from each unit of labor
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Inflation
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An increase in the overall level of prices in the economy
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Market
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Group of buyers and sellers of a particular good or service
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Competitive market
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A market in which there are many buyers and many sellers so that each has an insignificant impact on the price.
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Perfect competition
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1. Goods offered for sale are exactly the same.
2. Buyers and sellers are price takers.
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Quantity demanded
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The amount of a good that buyers are willing and able to purchase.
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Law of Demand
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As the price goes up, the quantity demanded goes down.
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Utility
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A measure of happiness and satisfaction.
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Demand schedule
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A table that shows the relationship between price and quantity demanded.
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Demand curve
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A graph with the same information as a demand schedule.
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Marginal benefit
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The increase in benefit that arises from an extra unit.
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Market demand
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The sum of all individual demands for a good or service.
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5 Determinants of Changes in Demand
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1. Income
2. Price of related goods
3. Tastes/preferences
4. Expectations
5. Numbers of buyers
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Normal good
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A good for each an increase in income leads to an increase in demand.
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Inferior good
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A good for each an increase in income leads to decrease in demand.
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Substitutes
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Two goods for which an increase in the price of one, leads to an increase in the demand of the other.
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Complements
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Two goods for which an increase in the price of one, leads to a decrease in the demand for the other.
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Quantity supplied
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The amount of a good sellers are willing and able to sell.
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Law of Supply
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As price increases, quantity supplied increases.
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Supply schedule
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A table that shows the relationship between the price of a good and the quantity supplied.
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Supply curve
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A graph that shows the relationship between the price of a good and the quantity supplied.
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Marginal cost
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The increase in cost that rises from an extra unit.
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Market supply
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The sum of all individual supplies for a good or service.
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4 Determinants of Change in Supply
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1. Input prices (cost of materials, etc.)
2. Technology
3. Expectations
4. Number of producers
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Equilibrium
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Point at which quantity supplied equals quantity demanded
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Equilibrium price
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The price that balances quantity supplied and quantity demanded.
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Equilibrium quantity
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The quantity supplied and demanded at the equilibrium price.
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Surplus
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Quantity supplied exceeds quantity demanded
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Shortage
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Quantity demanded exceeds quantity supplied
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Law of Supply and Demand
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The price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance.
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Approximately what percentage of the world's economies experience scarcity?
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100%
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Economics deals primarily with the concept of _____.
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Scarcity
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An example of a firm with market power is a -
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Cable TV provider in Tulsa
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Low rates of inflation are generally associated with ___.
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Low rates of growth of the quantity of money
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ECON 2000: Exam 3