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Macro Ch1
Fundamentals of Economic Analysis
| Term | Definition |
|---|---|
| Scarcity | Limited nature of society's resources. Example: OIL |
| Choice | Human behavior to choose how to spend/use the world's scarce resources. |
| Trade Offs | 1st Principle of Economics-the fact that people's choice results in losing one quality or aspect of something in exchange for a quality or aspect of another |
| Opportunity Cost | Whatever must be given up to obtain a good or service |
| There's no such thing as a free lunch! | Milton Friedman famous quote explaining that even in a free lunch, you are still paying opportunity cost (gas to get somewhere, time it takes, etc) |
| Efficiency | Society getting the most out of its scarce resources |
| Equality | The property of distributing economic prosperity uniformly among the members of society |
| Marginal Change | Small incremental changes to a plan of action (why buying in bulk is sometimes a better deal) |
| Circular Flow Model | The illustration representing the flow of goods and services between firms and households |
| Production Possibilities Frontier/ Production Possibility Curve | a graph that shows the combinations of output that an economy can possibly produce given the available factors of production and the available production technology |
| Absolute Advantage | One nation produces a good at a lower resource cost than another nation |
| Comparative Advantage | One nation produces a good a lower opportunity cost than another nation |
| Quantity Demanded | The amount of a good that buyers are willing and able to purchase (change results in a movement along demand curve) |
| Factors that affect demand | Income, Preferences, Price of Related Goods, Number of Buyers, Expectations |
| Factors that affect supply | Resource Prices, Technology, Taxes, Subsidies, Quotas, Number of sellers in market, Weather, Government Regulations |
| Substitute Goods | Two goods for which an increase in the price of one leads to an increase in the demand for the other |
| Complementary Goods | Two goods for which an increase in the price of one leads to a decrease in the demand for the other |
| Income effect | The change in consumption that results when a price change moves the consumer to a higher or lower indifference curve. More simply: when someone makes less, they will spend less. |
| Demand Schedule | A table that shows the relationship between the price of a good and the quantity demanded |
| Supply Schedule | A table that shows the relationship between the price of a good and the quantity supplied |
| Economics | How society manages its resources |
| Law of Demand | As the price of goods increases, the quantity demanded decreases. Price and Quantity demanded have an inverse relationship |
| Law of Supply | Price and Quantity supplied have a direct relationship. As price rises, so does quantity supplied |
| Ceteris Paribus | All other things are the same. When you compare two things, you keep in mind that all other things stay the same. |
| Total Revenue Test | An decrease in price and decrease in total revenue means inelastic. A decrease in price and an increase in total revenue means elastic. |
| Elasticity of Demand | A measure of how much the quantity demanded changes with a change in price |
| Elasticity of Supply | A measure of how much the quantity supplied changes with change in price |
| Law of Diminishing Marginal Utility | Maximum amount of money he or she is willing to pay for one more unit of the good or service |
| Normal Good | A good in which an increase in income will result in an increase in demand (ex. TVs) |
| Inferior Good | A good in which an increase in income will result in a decrease in demand (ex. McDonalds) |
| Neutral Good | A good in which an increase in income will not result in a change in demand (ex. Toilet Paper) |
Created by:
prasadpari21
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