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Econ 1116 Exam 1
principles of microeconomics exam 1 study set
| Term | Definition |
|---|---|
| scarcity | the limited nature of society's resources |
| economics | the study of how society manages its scarce resources |
| efficiency | the property of a resource allocation of maximizing the total surplus received by all members of society |
| equality | the property of distributing economic prosperity uniformly among the members of society |
| opportunity cost | whatever must be given up to obtain some item (the highest value thing being given up) |
| rational people | people who systematically and purposefully do the best they can to achieve their objectives; rational people think at the margin |
| marginal change | a small incremental adjustment to a plan of action |
| incentive | something that induces a person to act |
| market economy | an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services |
| property rights | the ability of an individual to own and exercise control over scarce resources |
| market failure | a situation in which a market left on its own fails to allocate resources efficiently |
| externality | the uncompensated impact of one persons action not he well-being of a bystander |
| market power | the ability of a single economic actor (or a small group of actors) to have substantial influence on market prices |
| productivity | the quantity of goods and services produced from each unit of labor input |
| inflation | an increase in the overall level of prices in the economy |
| business cycle | fluctuations in economic activity such as employment and production |
| circular-flow diagram | a visual model of the economy that shows hoe dollars flow through markets among households and firms |
| production possibilities frontier | a graph that shows the combinations of output that the economy can possible produce given the available factors of production and the available production technology |
| microeconomics | the study of how households and firms make decisions and how they interact in markets |
| macroeconomics | the study of economy-wide phenomena, including inflation, unemployment, and economic growth |
| positive statements | claims that attempt to describe the world as it is |
| normative statements | claims that attempt to prescribe how the world should be |
| absolute advantage | the ability to produce a good using fewer inputs than another producer |
| comparative advantage | the ability to produce a good act a lower opportunity cost that another producer |
| imports | goods and services that are produced abroad and sold domestically |
| exports | goods and services that are produced domestically and sold abroad |
| market | a group of buyers and sellers of a particular good or service |
| quantity demanded | the amount of a good that buyers are willing and able to purchase |
| competitive market | a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker |
| law of demand | the claim that, other things being held constant, the quantity demanded of a good falls when the price of the good raises |
| demand schedule | a table that shows the relationship between the price of a good and the quantity demanded |
| demand curve | a graph of the relationship between the price of a good and the quantity demanded |
| normal good | a good for which an increase in income rises the quantity demanded ex: steak |
| inferior good | a good for which and increase in income reduces the quantity demanded ex: ramen |
| substitutes | two goods for which and increase in the price of one leads to an increase in the demand for the other |
| complements | two goods for which and increase in the price of one leads to a decrease in the demand for the other |
| quantity supplied | the amount of a good that sellers are willing and able to sell |
| law of supply | the claim that, other things being equal, the quantity supplied of a good raises when the price of the good rises |
| supply schedule | a table that shows the relation |
| supply curve | a graph of the relationship between the price of a good and the quantity. supplied |
| equilibrium | a situation in which the market price has reached the level at which quantity supplied equals quantity demanded |
| equilibrium price | the price that balances quantity supplied and quantity demanded |
| equilibrium quantity | the quantity supplied and the quantity demanded at the equilibrium price |
| surplus | a situation in which quantity supplied is greater than quantity demanded |
| shortage | a situation in which quantity demanded is greater than quantity supplied |
| the law of supply and demand | the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance |
| elasticity | a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants |
| price elasticity of demand | a measure of how much the quantity demanded of a good responds to a change in the price of that good. % change in Q demanded / % change in price |
| total revenue | the abound a firm receives for the sale of its output |
| income elasticity of demand | a measure of how much the quantity demanded of a good responds to a change in consumers income. % change in Q demanded / % change in income |
| cross-price elasticity of demand | a measure of how much the quantity demanded of one good responds to a change in the price of another good. % change in Q demanded of A / % change in price of B |
| price elasticity of supply | a measure of how much the quantity supplied of a good responds to a change in the price of that good. % change in Q supplied / % change in price |
| Principle 1: People face trade-offs | to get something that we like, we usually have to give up something else that we also like. making decisions requires trading off one good against another. |
| Principle 2: The cost of something is what you give up to get it | the opportunity cost is the highest value thing you give up for something else |
| Principle 3: Rational people think at the margin | Rational people systematically and purposefully do the best they can to achieve their objectives, given the available opportunities. They compare marginal benefits to marginal costs. |
| Principle 4: People respond to incentives | Because rational people make decisions by ciphering costs and benefits, they respond to incentives |
| Principle 5: Trade can make everyone better off | Trade allows countries to specialize in what they of best and to enjoy a greater variety of goods and services. Trade outside of PPF |
| Principle 6: Markets are usually a good way to organize economic activity | Even though no-one is looking out for the well-being of society as a whole, market prices reflect both the value of a good to society, and the cost to society of making it. |
| Principle 7: Governments can sometimes improve market outcomes | government enforces the rules and maintains the institutions that are key to a market economy. |
| Principle 8: A country's standard of living depends on its ability to produce goods | a nations productivity (amount of goods and services produced by each unit of labor input) determines its standard of living |
| Principle 9: Prices rise when the government prints too much money | When a nations government prints large quantities of their currency, the value of the currency falls, and prices increase. High inflation imposes various costs on society. |
| Principle 10: Society faces a short-run trade-off between inflation and unemployment | over a period of time, many economic policies push inflation and unemployment in opposite directions in the short run |
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cthunen
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