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ECO Test 1

Definitions

QuestionAnswer
Microeconomics The decision making by individuals, businesses, industries, and government
Macroeconomics The broader issues in the economy such as inflation, unemployment, and national output of goods and services.
Ceteris paribus Assumption used in economics where other relevant factors or variables are held constant
Efficiency How well resources are used and allocated. The chief focus of efficiency: Do people get the goods and services they want at the lowest possible resource cost?
Equity The fairness of various issues and policies.
Scarcity Our unlimited wants clash with limited resources. Economics focuses on the allocation of scarce resources to satisfy unlimited wants.
Opportunity Costs The next best alternative; what you give up to do something or purchase something.
Market Failure When markets fail to provide goods and services efficientyly.
Supply The total amount of goods or services available for purchase
Demand The maximum amount of a product that buyers are willing and able to purchase over some time period at various prices, holding all other relavant factors constant
Inflation A general increase in prices economy-wide
Production Efficiency When goods are produced at the lowest possible cost
Allocative Efficiency When individuals who desire a product the most get those goods and services
What are the benefits of using a graph? A lot of information is presented so that we can quickly draw conclusions from a representation
Market Where buyers and sellers come together to exchange products and services
Consumer price index A measure of how consumer prices have changed over time
GDP (Gross Domestic Product) The value of all goods produced each year in the U.S.
Slope Rise/run
Linear Relationship The relationship is constant (straight line)
Diminishing Returns There are big gains instantly, but they get smaller and smaller over time
Thinking at the Margin Thinking about the additional costs and additional benefits of making a change in behavior
Markets Institutions that bring buyers and sellers together so they can transact with one another
Law of Demand Holding all other relevant factors constant, as price increases, quantity demanded falls, and as price decreases, quantity demanded rises
Horizontal summation Market demand and supply curves are found by adding together how many units of the product will be purchased or supplied at each price
Determinants of Demand Other nonprice factors that affect demand including tastes and preferences, income, prices of related goods, number of buyers, and expectations
Normal good A good where an increase in income results in rising demand
Inferior Good A good where an increase in income results in declining demand
Substitute Goods Goods consumers will substitute for one another depending on their relative prices
Complementary goods Goods that are typically consumed together
Change in demand Occurs when one or more of the determinants of demand changes, shown as a shift in the entire demand curve
Change in Quality Demanded Occurs when the price of the product changes and is shown as a movement along an existing demand curve
Law of Supply Holding all other relevant factors constant, as price increases, quantity supplied will rise, and as price declines, quantity supplied will fall
Determinants of Supply Other nonprice factors that affect supply including production technology, costs of resources, prices of other commodities, expectations, number of sellers, and taxes and subsidies
Change in Supply Occurs when one or more of the determinants of supply change, shown as a shift in the entire supply curve
Change in Quantity Supplied Occurs when the price of the product changes, and is shown as a movement along an existing supply curve
Equilibrium Market forces are in balance where the quantities demanded by consumers just equal quantities supplied by producers
Equilibrium Price The price that results when quantity demanded is just equal to quantity supplied
Equilibrium Quantity The output that results when quantity demanded is just equal to quantity supplied
Surplus Occurs when the price is above market equilibrium price, and quantity supplied exceeds quantity demanded
Shortage Occurs when the price is below market equilibrium price, and quantity demanded exceeds quantity supplied
Production The process of converting resources into goods and services that people want
Land Includes natural resources such as minderal depostits, water, and oil. The payment to this is called rents
Resources Land, labor, capital, and entrepreneurial ability
Labor Includes mental and physical talents of of individuals that are used to produce produtcts and services. It is paid wages
Capital Includes manufactured products that are used to produce other goods and services
Entrepreneurs A combination of land, labor, and capital to produce goods and services. They receive profits for their effort
Property Rights The clear deliniation of ownershiop of property backed by government enforcement
Consumer Surplus The difference between market price and what consumers (as individuals or the market) would be willing to pay. It is equal to the area above market price and below the demand curve
Producer Surplus The difference between market price and that price that firms would be willing to supply the product. It is equal to the area below market price and above the supply curve
Asymmetric Information Occurs when one party to a transaction has significantly better information than another party
Adverse Selection Asymmetric information problem that occurs when products of different qualities are sold at the same price
Moral Hazard Asymmetric information problem that occurs when an insurance policy or some other arrangement changes the economic incentives and leads to a change in behavior
Public Goods Goods that, once provided, no one person can be excluded from consuming (nonexclusion), and one person's consumption does not diminish the benefit to others from consuming the good (nonrivalry)
Free Rider When a public good is provided, consumers cannot be excluded from enjoying the product, so some comsume the product without paying
Common Property Resources Resources that are owned by the community at large (parks, ocean fish, and the atmosphere) and therefore tend to be overexploited because individuals have little incentive to use them in a sustainable fashion
External Cost Occurs when a transaction between two parties has an impact on a third party not involved with the transaction.
External Benefit Positive externalities (also called spillovers) such as educadion and vaccinations.
Price Ceiling A government-set mazimum price that can be charged for a product or service. When this is set below equilibrium, it leads to shortages. Rent control is an example.
Price Floor A government-set minimum price that can be charged for a product or service. If it is set above equilibrium price, it leads to surpluses. Minimum wage is an example.
Deadweight Loss The loss in consumer and producer surplus due to inefficiency because some transactions cannot be made and therefore their value to society is lost.
Absolute Advantage One country can produce more of a good than another country.
Comparative Advantage One country has a lower opportunity cost of producing a good than another country.
Model Expresses the relationship between one variable and the other things that make it change.
Theory Something that we propose. It is an explanation that we think might hold true, but we can’t prove it.
Marginal The additional costs and additional benefits of making a decision. It is the change that results.
Capital Market Where money is raised and traded. It includes financial markets, and the markets for stocks and bonds.
Labor Market Where households sell their work and firms buy it.
GDP A measure of the total value of goods and services that are produced by the country.
Production Possibilities Frontier (PPF) Shows the combinations of goods that are possible for a society to produce at full employment. Points on or inside this line are feasible, and those outside of the line are unattainable.
Absolute Advantage One country can produce more of a good than another country.
Comparative Advantage One country has a lower opportunity cost of producing a good than another country.
Opportunity Cost The cost paid for one product in terms of the output (or consumption) of another product that must be foregone.
Created by: howellme
 

 



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