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ECON 101
Test 1 Supply & Demand
| Term | Definition |
|---|---|
| division of labor | the way in which the work required to produce a good or service is divided into tasks performed by different workers |
| economics | the study of how humans make choices under conditions of scarcity |
| scarcity | when human wants for goods and services exceed the available supply |
| specialization | when workers or firms focus on particular tasks for which they are well-suited within the overall production process |
| fiscal policy | economic policies that involve government spending and taxes |
| macroeconomics | the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance. |
| Microeconomics | the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms |
| monetary policy | policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing |
| circular flow diagram | a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market |
| goods and services market | a market in which firms are sellers of what they produce and households are buyers |
| labor market | the market in which households sell their labor as workers to business firms or other employers |
| model | see theory |
| theory | a representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation |
| command economy | an economy where economic decisions are passed down from government authority and where resources are owned by the government |
| exports | products (goods and services) made domestically and sold abroad |
| globalization | the trend in which buying and selling in markets have increasingly crossed national borders |
| gross domestic product (GDP) | measure of the size of total production in an economy |
| imports | products (goods and services) made abroad and then sold domestically |
| market | interaction between potential buyers and sellers; a combination of demand and supply |
| market economy | an economy where economic decisions are decentralized, resources are owned by private individuals, and businesses supply goods and services based on demand |
| private enterprise | system where the means of production (resources and businesses) are owned and operated by private individuals or groups of private individuals |
| traditional economy | typically an agricultural economy where things are done the same as they have always been done |
| underground economy | a market where the buyers and sellers make transactions in violation of one or more government regulations |
| budget constraint | all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set |
| law of diminishing marginal utility | as we consume more of a good or service, the utility we get from additional units of the good or service tend to become smaller than what we received from earlier units |
| marginal analysis | examination of decisions on the margin, meaning a little more or a little less from the status quo |
| opportunity cost | measures cost by what is given up in exchange; opportunity cost measures the value of the forgone alternative |
| opportunity set | all possible combinations of consumption that someone can afford given the prices of goods and the individual’s income |
| sunk costs - | costs that are made in the past and cannot be recovered |
| utility | satisfaction, usefulness, or value one obtains from consuming goods and services |
| allocative efficiency | when the mix of goods being produced represents the mix that society most desires |
| comparative advantage | when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production |
| law of diminishing returns | as additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline |
| production possibilities frontier (PPF) | a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available. |
| productive efficiency | when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service) |
| invisible hand | idea that self-interested behavior by individuals can lead to positive social outcomes |
| normative statement | statement which describes how the world should be |
| positive statement | statement which describes the world as it is |
| demand curve | a graphic representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis |
| demand schedule | a table that shows a range of prices for a certain good or service and the quantity demanded at each price |
| demand | the relationship between price and the quantity demanded of a certain good or service |
| equilibrium price | the price where quantity demanded is equal to quantity supplied |
| equilibrium quantity | the quantity at which quantity demanded and quantity supplied are equal for a certain price level |
| equilibrium | the situation where quantity demanded is equal to the quantity supplied; the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change |
| excess demand | at the existing price, the quantity demanded exceeds the quantity supplied; also called a shortage |
| excess supply | at the existing price, quantity supplied exceeds the quantity demanded; also called a surplus |
| law of demand | the common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constant |
| law of supply | the common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, while all other variables are held constant |
| price | what a buyer pays for a unit of the specific good or service |
| quantity demanded | the total number of units of a good or service consumers are willing to purchase at a given price |
| quantity supplied | the total number of units of a good or service producers are willing to sell at a given price |
| shortage | at the existing price, the quantity demanded exceeds the quantity supplied; also called excess demand |
| supply curve | a line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis |
| supply schedule | a table that shows a range of prices for a good or service and the quantity supplied at each price |
| supply | the relationship between price and the quantity supplied of a certain good or service |
| surplus | at the existing price, quantity supplied exceeds the quantity demanded; also called excess supply |
| ceteris paribus | other things being equal |
| complements | goods that are often used together so that consumption of one good tends to enhance consumption of the other |
| factors of production | the combination of labor, materials, and machinery that is used to produce goods and services; also called inputs |
| inferior good | a good in which the quantity demanded falls as income rises, and in which quantity demanded rises and income falls |
| inputs | the combination of labor, materials, and machinery that is used to produce goods and services; also called factors of production |
| normal good | a good in which the quantity demanded rises as income rises, and in which quantity demanded falls as income falls |
| shift in demand | when a change in some economic factor (other than price) causes a different quantity to be demanded at every price |
| shift in supply | when a change in some economic factor (other than price) causes a different quantity to be supplied at every price |
| substitute | a good that can replace another to some extent, so that greater consumption of one good can mean less of the other |
| price ceiling | a legal maximum price |
| price control | government laws to regulate prices instead of letting market forces determine prices |
| price floor | a legal minimum price |
| total surplus | see social surplus |
| consumer surplus | the extra benefit consumers receive from buying a good or service, measured by what the individuals would have been willing to pay minus the amount that they actually paid |
| deadweight loss | the loss in social surplus that occurs when a market produces an inefficient quantity |
| economic surplus | see social surplus |
| producer surplus | the extra benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept |
| social surplus | the sum of consumer surplus and producer surplus |
Created by:
EdL
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