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Micro Exam 1
| Term | Definition |
|---|---|
| scarcity | refers to the inherently limited nature of society's resources, given society's unlimited wants and needs |
| Economics | is the study of how individuals and societies allocate their limited resources to satisfy their practically unlimited wants |
| Microeconomics | is the study of the individual units that make up an economy |
| Macroeconomics | is the study of the overall aspects and workings of an economy |
| incentives | are factors that motivate a person to act or exert effort |
| opportunity cost | is the highest - valued alternative that must be sacrificed to get something else |
| economic thinking | requires a purposeful evaluation of the available opportunities to make the best decision possible |
| Marginal thinking | requires decision- makers to evaluate whether the benefit of one more unit of something is greater than its cost |
| Markets | bring buyers and sellers together to exchange goods and services |
| Trade | is the voluntary exchange of goods and services between two or more parties |
| comparative advantage | refers to the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can |
| What are the five foundation of economics | Incentives, trade offs, opportunity cost, marginal thinking, trade creates value |
| Trade offs | the act of of giving up one thing for another |
| Draw the circular flow diagram | ...... |
| trade creates value | voluntary exchange between two parties makes both parties better off |
| Circular flow diagram | shows how goods, services, and resources flow through the economy |
| What is an example of incentives | my parents telling me I would get money to do chores |
| What is an example of trade-offs | using money to buy food from Walmart |
| What is an example of opportunity cost | missing a movie to eat dinner with my friends |
| What is an example of marginal thinking | weighing the trade-off and opportunity cost of doing my economics homework |
| What is an example of trade creates value | when I buy food, I value the food than the money |
| Positive statment | can be tested and validated; it describes "what is" |
| Normative statment | is an opinion that cannot be tested or validated; it describes "what ought to be" |
| Ceteris Paribus | means "other things being equal" or "all else equal" and is used to build economic models. It allows economist to examine a change in one variable while holding constant. |
| Endogenous factors | are the variables that are inside a model |
| Exogenous factors | are the variables that are outside a model |
| Production possibilites frontier (PPF) | is a model that illustrates the combinations of outputs a society can produce if all of its resources are bing used efficiently |
| Law of increasing opportunity cost | states that the opportunity cost of producing a good rises as a society produces more of it. |
| Specialization | is the limiting of one's work to a particular area |
| Absolute advantage | refers to one producer's ability to make more than another producer with the same quantity of resources |
| short run | is the period in which we make decisions that reflect our immediate or short-term wants, needs, or limitations. In the short run, consumers can partially adjust their behavior |
| long run | is the period in which we make decisions that reflect our needs, wants, and limitations over a long time horizon. in the long run consumers have time to fully adjust to market conditions |
| consumer goods | are produced for present consumption |
| capital goods | help produce other valuable goods and services in the future |
| investment | is the process of using resources to create or buy new capital |
| Postive correlation | occurs when two variables move in the same direction |
| Negative correlation | occurs when two variables move in opposite directions |
| market economy | resources are allocated among house holds and firms with little or no government interference |
| Invisible hand | is a phrase coined by Adam Smith to refer to the unobservable market forces that guide resources to their highest- valued use. |
| competitive market | exists when there are so many buyers and sellers that tech has only a small (negligible) impact on the market price and output |
| imperfect market | is one in which either the buyer or the seller can influence the market price |
| Market power | is a firm's ability to influence the price of a good or service by exercising control over its demand, supply, or both |
| monopoly | exists when a single company supplies the entire market for a particular good or service |
| quantity demanded | is the amount of a good or service that buyers are willing and able to purchase at the current price |
| imperfect market | is one in which either the buyer or the seller can influence the market price |
| market power | is a firm's ability to influence the price of a good or service by exercising control over its demand, supply, both |
| monopoly | exists when a single company supplies the entire market for a particular good or service |
| quantity demanded | is the amount of a good or service that buyers are willing and able to purchase at the current price |
| Law of demand | states that, all other things being equal, quantity demanded falls when the prices rises, and rise when the price falls |
| demand schedule | is a table that shows the relationship between the price of a good and the quantity demanded |
| Market demand | is the sum of all the individual quantities demanded by each buyer in the market at each price |
| Demand curve | is a graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices |
| Purchasing Power | is the value of your income expressed in terms of how much you can afford |
| normal good | as income rises, holding all other factors constant |
| inferior good | is one where demand declines as income rises |
| complements | are two goods that are used together. When the price of a complementary good rises, the quantity demanded of that good falls and the demand for the related good goes down |
| Substitutes | are two goods that are used in place of each other, When the price of a substitute good rises the quantity demanded of that good falls and the demand for the related good goes up |
| subsidy | a payment made by the government to encourage the consumption or production of a good or service |
| quantity supplied | is the amount of a good or service producers are willing and Able to sell at the current price |
| law of supply | states that, all other things equal, the quantity supplied of a good rises when price of the good rises, and falls when the price of the good falls |
| supply schedule | is a table that shows the relationship between the price of a good and the quantity supplied |
| supply curve | is a graph of the relationship between the prices in the supply schedule and the quantity supplied at those prices |
| market supply | is the sum of the quantities supplied by each seller in the Market at each price |
| inputs | are resources used in the production process |
| equilibrium | occurs at the point where the demand curve and the supply curve interact |
| Equilibrium price | is the price at which the quantity supplied is equal to the quantity supplied is equal to the quantity demanded. It is also known as the market- clearing price |
| equilibrium quantity | is the amount of which the quantity at which the quantity supplied is equal to the quantity demanded |
| law of supply and demand | states that the market price of any good will adjust to bring the quantity supplied and the quantity demanded into balance |
| surplus | occurs whenever the quantity supplied is greater than the quantity demanded. a surplus is also called excess supply |
| shortage | occurs whenever the quantity is less than the quantity demanded. A shortage is also called excess demand |
| Comparative advantage | low cost producer |
| Autokarky | situation where I produce everything myself |
Created by:
Orrin_Douglas