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ECO101 Exam 1
chapters 1,2,3,4,21
| Term | Definition |
|---|---|
| Scarcity | The limited nature of society's resources |
| Economics | The study of how society manages its scarce resources |
| efficiency | when society gets the most from its scarce resources |
| equality | when prosperity is distributed uniformly among society's members |
| opportunity cost | whatever must be given up in order to obtain any item |
| rational people | make decisions by comparing marginal costs and marginal benefits |
| incentive | something that induces a person to act |
| market | a group of buyers and sellers (need not be in a single location) |
| market economy | allocates resources through the decentralized decisions of many househols and firms as they interact in markets |
| market failure | when the market fails to allocate society's resources efficiently |
| productivity | the amount of goods and services produced per unit of labor |
| scientific method | dispassionate development and testing theories about how the world works |
| model | a higly simplified representation of a more complicated reality |
| circular flow diagram | a visual model of the economy, shows how dollars flow through markets among households and firms |
| production possibilities frontier | a graph that shows the combinations of two goods the economy can possibly produce given the available resources and 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 | attempt to describe the world as it, can be confirmed or refuted |
| normative statements | attempt to prescribe how the world should be, cannot be confirmed or refuted |
| Exports | goods produced domestically and sold abroad |
| Imports | goods produced abroad and sold domestically |
| absolute advantage | the ability to produce a good using fewer inputs than another producer |
| comparative advantage | the ability to produce a good at a lower opportunity cost than another producer |
| market | a group of buyers and sellers of a particular product |
| competitive market | one with many buyers and sellers, each has a negligible effect on price |
| perfectly competitive market | all goods exactly the same, buys and sellers so numerous that no one can affect market price-each is a price taker |
| quantity demanded | the amount of the good that buyers are willing and able to purchase |
| law of demand | the claim that the quantity demanded of a good falls when the price of the good rises, other things being equal |
| demand schedule | a table that shows the realtionship between the price of a good and the quantity demanded |
| normal good | demand increases as income increases |
| inferior good | demand decreases as income increases |
| substitutes | two goods are -- if an increase in the price of one causes an increase in the demand for the other |
| complements | two goods are --- if an increase in the price of one causes a fall in demand for the other |
| quantity supplied | of any good is the amount that sellers are willing and able to sell |
| law of supply | the claim that the quantity supplied of a good rises when the price of the good rises, other things equal |
| supply schedule | a table that shows the relationship between the price of a good and the quantity supplied |
| equilibrium | price has reached the level where quanity supplied equals quantity demanded |
| equilibrium price | the price that equates quantity supplied with quantity demanded |
| equilibrium quantity | the quantity supplied and demanded at the equilibrium price |
| surplus | when the quanity supplied is greater than quantity demanded |
| shortage | when quantity demanded is greater than quantity supplied |
| budget constraint | the limit on the consumption bundles that a consumer can afford |
| Marginal rate of substitution (MRS) | the rate at which a consumer is willing to trade one good for another |
| income effect | a fall in price of one good boosts the purchasing power allows buyer to buy more product |
| substitution effect | a fall in price of one good makes buyer buy fewer of more expensive goods and more of the cheaper ones |
| giffen good | a good for which an increase in price raises the quantity demanded |
| indifference curve | shows consumption bundles that give the consumer the same level of satisfaction |
| perfect substitutes | two goods with straight-line indifference curves, constant MRS |
| perfect complements | two goods with right-angle indifference curves |
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buggabelly
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