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URI ECN 201 Exam 1
MicroEconomics Exam 1
| Term | Definition |
|---|---|
| Ceteris Paribus | "all else equal" |
| Positive Economics | branch of economics that describes the way the economy actually works |
| Normative Economics | makes prescriptions about the way the economy should work |
| Production Possibility Frontier (PPF) | model of stating how much of a good can be made and the opportunity cost of producing said good |
| Opportunity Cost | The loss of potential gain from other alternatives when one alternative is chosen |
| Major Sources of Growth (PPF) | Technological Change and Abundance of Resources |
| Comparitive Advantage | The ability of an individual or group to carry out a particular economic activity (making a product) more efficiently than another individual/group |
| Autarkey | No government / international trade |
| Quantity Demanded | The actual amount of consumers willing to buy at a specific price (a point on the demand curve) |
| Demand | Shows relationship between the quantity demanded and the price (the D curve) |
| Law of Demand | Ceteris Paribus, a higher price of a good/service leads people to demand a smaller quantity |
| 5 categories of demand shifters | change in price of related goods/services, change in income, changes in taste/preferences of consumers, changes in expectations, changes in number of consumers |
| substitutes | pair of goods for which a rise in the price of one good leads to an increase in the demand for the other good |
| complements | pair of goods for which a rise in the price of one good leads to a decrease in the demand for another good |
| normal/inferior goods demand | due to a rise in income, the demand of a normal good will increase while an inferior goods demand will decrease |
| Supply Curve | slopes upward because prices send the opposite signal to producers than it does to consumers |
| WTA | willing to accept - the price a seller is willing to accept for a good/service |
| WTP | willing to pay - what consumers are willing to pay for a good/service |
| 5 categories of supply shifters | changes in input prices, changes in prices of related goods/services, changes in technology, changes in producer expectations, changes in number of producers |
| substitutes in production | 2 goods: selling price of good x rises and supply of good y responds by falling |
| complements in production | 2 goods: selling price of good x rises and supply of good y responds by rising |
| equilibrium | state in which opposing forces are balanced (supply and demand) |
| surplus | quantity supplied is higher than quantity demanded, above the point of equilibrium |
| shortage | quantity supplied is lower than the quantity demanded, below the point of equilibrium |
| Consumer Surplus | Benefit consumer accrues for participating in the market, area between demand curve and P* |
| Producer Surplus | Benefit a producer accrues for participating in the market, area between supply curve and P* |
| Total Surplus | Sum of Consumer Surplus and Producer Surplus - the area before equilibrium between Supply and Demand curves |
Created by:
luther1194