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Principles of economics: individual choice
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Principles of economics: interaction of individual choices
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ECON 120 - Quiz 1

QuestionAnswer
Principles of economics: individual choice resources are scarce, opportunity cost, decisions are taken at the margin, decision-makers respond to incentives
Principles of economics: interaction of individual choices gains from trade, markets move toward equilibrium, resources should be used as efficiently as possible, markets (usually) lead to efficiency (the invisible hand), government intervention is needed to correct market's shortcomings
Principles of economics: thinking at the margin not yes/no, but extra
Equilibrium: definition a situation in which no individual would be better off doing something different
Equilibrium: cause agents respond to and exploit incentives until no further gain can be made
Efficiency and fairness efficiency may not be in line with fairness
Market economy: definition resources are allocated through individual decisions of firms and buyers
Centrally-planned economy: definition the government determines resource allocation and prices
Problem with government intervention officials do not know every single market
Adam Smith "Wealth of Nations" 1776; the market would do better if its own foces were left to act freely
Roles of government protect private property, improve income distribution, correct market failures, reduce monopoly power
Model: definition a simplified representation of a real situation
Model: representation usually put in equations because equations give more clarity about what the author has to say (words can be misinterpreted)
Model: production possibilities frontier: definition shows the combinations of outputs X and Y that an economy is able to produce given the available factors of production and technology
Model: production possibilities frontier: slope the negative slope indicates that there is a tradeoff (if you want to increase the production of X you have to sacrifice some production of Y)
Free trade: why it is not everywhere just because free trade benefits society as a whole, it does not mean that everyone is strictly better off
Model: circular flow diagram: agents firms and households
Model: circular flow diagram: firms produce goods and services using inputs (factors of production)
Model: circular flow diagram: households consume goods and services; own the inputs
Positive economics: definition offers a description of an economic phenomenon; a positive statement can be confirmed or rejected with facts (empirical evidence)
Normative economics: definition concerned with what should be done; influenced by past experience and facts, ethics and moral beliefs
Normative economics: difference in scientific opinions because economists employ different empirical research methods
Market: definition group of buys and sellers of a particular good or service
Supply and demand: quantity demanded/supplied: definition the amount of a good or service that buyers/producers are willing and able to acquire/sell at a given price
Supply and demand: demand: contributors income, prices of other goods, tastes, expectations, weather
Supply and demand: demand: law of demand everything else being the same, the quantity of a good goes up if the price of the good goes down
Supply and demand: demand: demand curve graphical representation of the relationship between the price of a good and its quantity demanded
Supply and demand: demand: market demand curve: definition the horizontal summation of the quantities individually demanded at any given price
Supply and demand: demand: demand curve: shifts right = demand has increased; left = demand has decreased
Supply and demand: demand: demand curve: normal: definition if its demand increases as the consumer's income goes up
Supply and demand: demand: demand curve: inferior: definition if demand decreases when the consumer's income goes up
Supply and demand: demand: demand curve: substitutes: definition if demand for X decreases as a consequence of a fall of the price of Y
Supply and demand: demand: demand curve: complements: definition if fall in price of X increases the demand for Y
Supply and demand: supply: law of supply as prices to up the quantity supplied of any good or service also rises
Supply and demand: supply: supply curve depicts the quantity supplied of a good or service at different price levels
Supply and demand: supply: supply curve: slope positively inclined
Supply and demand: supply: supply curve: shifts: causes input prices, technological advance, weather, expectations, number of suppliers
Supply and demand: E market equilibrium = intersection of supply and demand curves
Supply and demand: Pe clearing-market price (equilibrium price) = price at equilibrium
Supply and demand: Qe equilibrium quantity = quantity at equilibrium
Supply and demand: simultaneous shifts depends on which shifts more
Created by: mirandafoster
 

 



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