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Econ 102 exam
Econ test
| Term | Definition |
|---|---|
| The study of how people, businesses, and societies make choices to allocate limited resources to satisfy unlimited wants. | |
| Market | A place or system where buyers and sellers interact to exchange goods and services. |
| Competition | The rivalry among sellers to attract customers while lowering costs and improving quality. |
| 4 Perfectly Competitive Market Assumptions | Many buyers and sellers, identical products, free entry and exit, and perfect information. |
| Quantity Demanded | The amount of a good or service that buyers are willing and able to purchase at a specific price. |
| Demand Curve (a.k.a Demand) | A graphical representation showing the relationship between price and quantity demanded. |
| The Law of Demand | As the price of a good increases, the quantity demanded decreases, and vice versa, all else equal. |
| Quantity Supplied | The amount of a good or service that producers are willing and able to sell at a specific price. |
| Supply Curve (a.k.a. Supply) | A graph showing the relationship between the price of a good and the quantity supplied. |
| Law of Supply | As the price of a good increases, the quantity supplied increases, and vice versa, all else equal. |
| Equilibrium | The point where the quantity demanded equals the quantity supplied in a market. |
| Equilibrium Price | The price at which the quantity of a good demanded equals the quantity supplied. |
| Equilibrium Quantity | The quantity of a good bought and sold at the equilibrium price. |
| Shortage | A situation where quantity demanded exceeds quantity supplied at a given price. |
| Surplus | A situation where quantity supplied exceeds quantity demanded at a given price. |
| 5 Factors that Shift the Demand Curve | Changes in income, consumer preferences, prices of related goods, expectations, and number of buyers. |
| Normal Good | A good for which demand increases when income increases. |
| Inferior Good | A good for which demand decreases when income increases. |
| Complement | A good that is used together with another good; demand for one increases demand for the other. |
| Substitute | A good that can replace another good; an increase in the price of one increases demand for the other. |
| 5 Factors that Shift the Supply Curve | Changes in input prices, technology, expectations, number of sellers, and government policies. |
| Elasticity | A measure of how much one variable responds to changes in another variable. |
| Price Elasticity of Demand | A measure of how much the quantity demanded of a good responds to a change in its price. |
| Elastic | A good is elastic if its quantity demanded responds strongly to price changes (elasticity > 1). |
| Inelastic | A good is inelastic if its quantity demanded responds weakly to price changes (elasticity < 1). |
| Unit Elastic | A situation where the percentage change in quantity demanded equals the percentage change in price (elasticity |
| 4 Factors that Affect Price Elasticity of Demand | Availability of substitutes, necessity vs. luxury, time horizon, and proportion of income spent. |
| Percent Change Formula for Price Elasticity of Demand | (Percent change in quantity demanded ÷ Percent change in price). |
| Midpoint Formula for Price Elasticity of Demand | ((Q2 - Q1) / ((Q2 + Q1)/2)) ÷ ((P2 - P1) / ((P2 + P1)/2)). |
| Total Revenue | The total amount of money a firm receives from selling its goods (Price × Quantity sold). |
| Income Elasticity of Demand | A measure of how much quantity demanded changes as consumer income changes. |
| Percent Change Formula for Income Elasticity of Demand | (Percent change in quantity demanded ÷ Percent change in income). |
| Cross-Price Elasticity of Demand | A measure of how the quantity demanded of one good responds to the price change of another good. |
| Percent Change Formula for Cross-Price Elasticity of Demand | (Percent change in quantity demanded of Good A ÷ Percent change in price of Good B). |
| Price Elasticity of Supply | A measure of how much the quantity supplied of a good responds to a change in its price. |
| Percent Change Formula for Price Elasticity of Supply | (Percent change in quantity supplied ÷ Percent change in price). |
| Midpoint Formula for Price Elasticity of Supply | ((Q2 - Q1)/((Q2 + Q1)/2)) ÷ ((P2 - P1)/((P2 + P1)/2)). |
| 1 Factor that Affect Price Elasticity of Supply | Time; supply is more elastic in the long run than in the short run. |
| Price Ceiling | A legally imposed maximum price that can be charged for a good or service. |
| Binding | A price control is binding if it prevents the market from reaching equilibrium (e.g., price ceiling below equilibrium). |
| Shortage (with price ceiling) | Occurs when a binding price ceiling creates excess demand. |
| Price Floor | A legally imposed minimum price for a good or service. |
| Surplus (with price floor) | Occurs when a binding price floor creates excess supply. |
| Gentrification | The process of urban renewal where wealthier residents move into previously lower-income neighborhoods, often displacing existing residents. |
| Per unit Tax | A fixed amount of tax placed on each unit of a good sold. |
| Tax Incidence | Refers to who actually bears the burden of a tax—consumers, producers, or both. |
| Economics | The study of how people, businesses, and societies make choices to allocate limited resources to satisfy unlimited wants. |
| Scarcity | The fundamental economic problem of having limited resources to meet unlimited human wants. |
| Opportunity Cost | The value of the next best alternative that is foregone when a choice is made. |
| Explicit Cost | A direct, out-of-pocket payment for something, such as wages, rent, or materials. |
| Implicit Cost | The non-monetary opportunity cost of using resources already owned, such as the income foregone by not working. |
| Rational (people) | Individuals who make decisions by comparing costs and benefits to maximize their self-interest. |
| Marginal Change | A small, incremental adjustment to a plan of action or to an economic variable. |
| Incentive | A factor that motivates individuals or firms to make certain choices or behave in a certain way. |
| Command Economy | An economic system in which the government makes all decisions about production and distribution of goods and services. |
| Market Economy | An economic system in which supply, demand, and prices determine production and distribution with minimal government intervention. |
| Productivity | The amount of goods and services produced per unit of input, such as labor. |
| Microeconomics | The study of individual consumers, firms, and markets within the economy. |
| Macroeconomics | The study of the economy as a whole, including inflation, unemployment, and economic growth. |
| Positive Statements | Claims that describe the world as it is and can be tested or proven true or false. |
| Normative Statements | Opinions or value-based statements about how the world ought to be; cannot be tested or proven. |
| Scientific Method | A systematic process used to develop models, test hypotheses, and analyze real-world data. |
| Mathematical Model | A simplified, abstract representation of reality using mathematical expressions to explain economic behavior. |
| Simplifying Assumption | An assumption that eliminates complex details to focus on the core relationships in a model. |
| Critical Assumption | A key assumption that, if changed, would significantly affect the outcome or conclusions of a model. |
| Econometricians | Economists who use statistical and mathematical methods to analyze economic data and test hypotheses. |
| Experimental Economists | Economists who use controlled experiments to study economic behavior and test theories. |
| Factor of Production | A resource used to produce goods and services, typically classified as land, labor, capital, and entrepreneurship. |
| Labor | Human effort, both physical and mental, used in the production process. |
| Capital | Tools, machines, buildings, and other man-made resources used to produce goods and services. |
| Physical Capital | Tangible assets like machinery and equipment used in production. |
| Human Capital | The knowledge, skills, and education possessed by workers that increase their productivity. |
| Land | Natural resources used in production, including minerals, forests, water, and arable land. |
| Entrepreneurship | The initiative to combine the factors of production, take risks, and innovate to create goods and services. |
| Production Possibilities Frontier (PPF Curve) | A curve showing the maximum attainable combinations of two goods that can be produced with available resources and technology. |
| The 4 Concepts illustrated by the PPF Curve | Scarcity, opportunity cost, efficiency, and economic growth. |
| Productive Efficiency | Producing goods and services using the least amount of resources without waste. |
| Law of Increasing Opportunity Costs | The principle that as production of one good increases, the opportunity cost of producing additional units rises. |
| 4 Factors that Shift the PPF Curve | Changes in technology, resource availability, labor force, and capital stock. |
| The Circular Flow Diagram | A model that shows the flow of goods, services, and money between households and firms in an economy. |
| Specialization | The concentration of production on a limited number of goods or services to increase efficiency and output. |
| 3 Gains from Specialization | Increased productivity, higher quality output, and efficient resource use through trade. |
| Absolute Advantage | The ability of a producer to make more of a good or service using fewer resources than another. |
| Comparative Advantage | The ability of a producer to produce a good or service at a lower opportunity cost than another. |
| Imports | Goods and services purchased from other countries and brought into the domestic economy. |
| Exports | Goods and services produced domestically and sold to other countries. |
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