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Economics 1

Chapters 1-4 vocab

QuestionAnswer
scarcity the limited nature of society’s resources, cannot produce all the goods and services people want
economics the study of how society manages its scarce resources
efficiency the property of society getting the most it can from its scarce resources
equity the property of distributing economic prosperity fairly among the members of society
opportunity cost whatever you give up to obtain some item
rational people people who systematically and purposefully do the best they can to achieve their objectives
marginal changes small incremental adjustments 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 impact of one person's actions on the wellbeing of a bystander
market power the ability of a single economic action to have a substantial influence on market prices
productivity the quantity of goods and services produced from each hour of a worker's time
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 design a visual model of the economy that shows how dollars flow through markets among households and firms
production possibility frontiers a graph that shows the combinations of output that the economy can possibly 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 attemplt to describe the world as it is
nominative statements claims that attempt to prescribe how the world should be
comparative advantage the ability to produce a good at a lower opportunity ost than another producer
absolute advantage the ability to roduce a good using fewer inputs than another producer
export goods produced domestically and sold abroad
import goods produced abroad and sold domestically
market a group of buyers and sellers of a particular good or service
competitive market a market in which there are many buyers and many sellers so that each has negligible impact on the market price
quantity demanded the amount of a 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
demand schedule a table that shows the relationship between the price of a good and the quantity demanded
normal good a good for which, other thing equal, an increase in income leads to an increase in demand
inferior good a good for which, other things equal, an increase in income leads to a decrease in deman
substitutes two goods for which an increase in the price of one leads to an increase in the demand for the other
complements two goods for which an increase in the price of one leads to the decrease in the demand for the other
quantity supplied the amount of a good thatsellers are willing and able to sell
law of supply the claim that, the quantity supplied of a good rises when the price of a good rises
supply schedule a table that shows the relationship between the price of a good and the quantity supplied
supply curve a graph of the relationship between the pric 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 demanded at the equilibrium price
surplus a situation in which quantity supplied i greater than quantity demande
shortage a situation in which quantity demanded is greater than quantity supplied
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
Created by: lilqtcoll22