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ECO 110 Exam 1
Chapters 1-4
| Term | Definition |
|---|---|
| Incentives Matter | rewards and penalties motivate behavior |
| Good Institutions Align Self-Interest with the Social Interest | when markets work well, individuals pursuing their own interests also promote social interest |
| Trade-offs are Everywhere | we live in a world of scarcity and thus constantly facing choices |
| Thinking on the Margin | making choices by thinking in terms of marginal benefits (MB) and marginal costs (MC) |
| The Power of Trade | trade leads to increased production through specialization |
| The Importance of Wealth and Economic Growth | economic growth creates wealth |
| Institutions Matter | institutions are growth promoting and provide incentives to invest |
| Economic Booms and Busts Cannot Be Avoided but Can Be Moderated | government can use fiscal and monetary policy to reduce the swings in output and unemployment |
| Prices Rise When the Government Prints Too Much Money | a country's central bank regulates the supply of money. a sustained increase in the supply of money without an increase in the supply of goods, causes prices to rise |
| Central Banking is a Hard Job | "the fed" is often called to combat recessions |
| People Face Tradeoffs | principle of economic model |
| Trade-offs Involve Choices About A Little More or A Little Less | principle of economic model |
| Thinking on the Margin is Just Making Choices by Thinking In Terms of MB and MC | principle of economic model |
| Opportunity Cost is the Value of Opportunities Lost | principle of economic model |
| Comparative Advantage | can produce a good at a lower opportunity cost |
| Opportunity Cost | value of opportunities lost |
| marginal | one more or one less |
| Law of Comparative Advantage | you should specialize in producing the good for which you have the lowest OC and then trade |
| Production Possibility Frontier (PPF) | shows all the combinations of goods that a country can produce, given its productivity and supply of inputs. graphic representation of the mix of goods a person can produce |
| Benefits of Trade | creates value, allows specialization, increases productivity, allows for division of knowledge |
| Demand Curve | shows quantity demanded at any price and the maximum willingness to pay for any given quantity |
| Slope of Demand Curve | negative |
| Law of Demand | as price increases, the quantity demanded decreases |
| Consumer Surplus | difference between the maximum price a consumer is willing to pay for a certain quantity and the market price OR consumer's gain from exchange |
| Total Consumer Surplus | - area beneath the demand curve and above the price - 1/2(b*h) |
| Income | Demand Shifter |
| Population | Demand Shifter |
| Price of Substitutes | Demand Shifter |
| Prices of Complements | Demand Shifter |
| Expectations | Demand Shifter |
| Tastes | Demand Shifters |
| Demand Shifts to the Right | at every single price, quantity demanded increases |
| Demand Shifts to the Left | at every single price, quantity demanded decreases |
| normal good | demand increases as income increases (cars) |
| inferior good | demand decreases as income decreases (ramen) |
| substitutes | goods that can be replaced for one another in consumption (coke and pepsi) |
| complements | goods that you purchase together (burritos and guacamole) |
| Supply Curve | shows the quantity supplied at different prices and the minimum price that a certain quantity will be supplied at |
| slope of supply curve | positive |
| Law of Supply | as prices rise, the quantity supplied increases |
| Producer Surplus | difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity (producer's gain from exchange) |
| Total Producer Surplus | area above the supply curve |
| Technology | Supply Shifter |
| Input Cost | Supply Shifter |
| Taxes | Supply Shifter |
| Market Supply Curve | Supply Shifter |
| Opportunity Cost | Supply Shifter |
| Equilibrium | when quantity supplied is equal to quantity demanded |
Created by:
claire.klein
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