Study Helps for Econ Test 1
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| Definition: economics | the science of how and why people, businesses, and governments make the choices that they do
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| Definition: insatiability | the condition of having unlimited wants and thus never being satisfied
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| Definition: scarcity | the condition of a good or service being finite or limited in quantity
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| Definition: economic cost | the value people place on a good or service
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| Definition: goods | any tangible things that have a measurable life span
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| Definition: services | intangible functions produced by useful labor
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| Definition: economic goods | goods that bear a positive economic cost (be ready to give an example)
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| Definition: economic services | services that bear a positive economic cost
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| Definition: nuisance goods and services | goods and services that bear a negative economic cost (be ready to give an example)
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| Definition: recycling | turning nuisance goods into economic goods
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| Definition: free goods | goods provided freely by God in nature (be ready to give an example)
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| Definition: free services | services provided freely by God in nature
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| Definition: Diamond-Water Paradox | the riddle that asks which is more valuable,a handful of diamonds or a glass of water; solved by Karl Menger in 1871 when he proposed that value is not inherent in an object but rather is determined by the buyer
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| Definition: intrinsic value | value ascribed to a good or service because of its nature
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| Definition: subjective value | the worth of a good or service as determined by its usefulness to the buyer
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| Definition: utility | usefulness
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| Definition: opportunity benefit | the satisfaction a person receives from a choice
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| Definition: opportunity cost | the satisfaction one gives up or the regret one experiences for not choosing a desirable alternative
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| Definition: util | an imaginary unit of satisfaction
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| Definition: microeconomics | the level of economic study that is concerned with choices made by individual units
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| Definition: macroeconomics | the level of economic study that is concerned with large-scale economic choices and issues
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| Definition: positive economics | the approach to economic study involving the observation of economic choices and the prediction of economic events
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| Definition: normative economics | the approach to economic study involving value judgments about existing and proposed economic policies
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| Why must we make choices? | When insatiability and scarcity combine, choices become necessary.
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| What language did the word "economics" come from? | Greek
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| What was the original meaning of the word "economics"? | oikos=house; nomos=administration of
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| Why is economics considered a dismal science to an unsaved man? | Unsaved man considers material wealth as the product of his own labor, to desire and acquire it. If there is scarcity and an insatiable demand for worldly goods, the unsaved man can never be happy.
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| How should the economic choices of Christians differ from those of the unsaved? | our choices should seek to honor Jesus, not fulfill our wants
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| Is it possible for an unsaved person to be truly happy in an economic sense? | No
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| Why does the price of Christmas wrapping paper rise before 12/25 and fall after 12/25? | the subjective value of the wrapping paper is greater before Christmas and people have less use for the paper after 12/25.
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| Definition: principle of diminishing marginal utility | people tending to receive less and less additional satisfaction from any good or service as they obtain more and more of it during a specific amount of time (be prepared to explain it in your own words and give an example)
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| Definition: marginal utility schedule | a tabular model displaying observations of utility received from some good or service
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| Definition: demand | how many units of a product will be bought at a given price
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| Definition: law of demand | everything else being held constant, the lower the price charged for a good or service, the greater the quantity people will demand and vice versa
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| Definition: demand schedule | a tabular model listing various quantities demanded at various prices
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| Definition: demand curve | a graph illustrating the various quantities of an item that are demanded at various prices
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| Definition: change in quantity demanded | when the change in the price of an item causes a change in the number supplied
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| Definition: change in demand | the shifting of a demand curve experienced when demand for an item increases or decreases regardless of price
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| Definition: increase in demand | a rightward shift in the demand curve representing a willingness on the part of buyers to demand more of a good or service at every price
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| Definition: decrease in demand | a leftward shift in the demand curve representing a decrease in the willingness of buyers to demand an item at any price.
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| Definition: normal good | a good for which demand typically increases when the buyers' incomes increase (be prepared to give 5 examples you consider normal)
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| Definition: inferior good | a good which typically experiences a decrease in demand as buyers' incomes increase (be prepared to give 5 examples you consider inferior)
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| Definition: substitute goods | goods that resemble one another and that may be used in place of each other (be prepared to give an example)
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| Definition: complementary goods | goods that are usually purchased or used together (be prepared to give an example)
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| How do prices act to transmit information? | If demand increases, supply must also increase. Therefore, price transmits that production must increase
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| Why is it that when the price of the original good rises we tend to purchase more substitute goods and fewer complementary goods? | Demand goes down for original goods when prices increase. Consumers shift their purchases to substitute goods and decrease complementary goods.
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| What should the Christian's attitude be toward the principle of diminishing marginal utility? | Our satisfaction in life comes from joy in Christ, not amassing more worldly goods.
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| What four conditions may change the demand for a product? | 1) change in people's incomes; 2) change in price of related goods; 3) change in people's tastes and preferences; 4) change in people's expectations
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| Who identified the principle of diminishing marginal utility? | William Stanley Jevons
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| What are the three functions of prices? | 1) transmit information; 2) provide incentives; 3) redistribute income
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| What could cause a business to supply more or less of a good at the same price? | 1) changes in technology; 2) changes in production costs; 3) changes in the price of related goods
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| Which way does a supply curve slope and why? | positively sloped because as the price we are willing to pay rises, suppliers become willing to provide greater quantities. As price falls, quantities fall.
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| What three factors could lead to a change in supply? | 1) changes in technology; 2) changes in production costs; 3) changes in the price of related goods
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| Definition: supply | the amount of goods and services business firms are willing and able to provide at different prices
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| Definition: law of supply | the higher the price buyers are willing to pay, other things being held constant, the greater the quantity of the product a supplier will produce, and vice versa
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| Definition: supply schedule | a tabular model noting the quantities of an item that suppliers are willing to produce at various prices
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| Definition: change in quantity supplied | when the change in the price of an item causes a change in the number supplied
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| Definition: change in supply | the shifting of a supply curve that occurs when suppliers are willing to produce more or less of an item regardless of price
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| Definition: decrease in supply | a leftward shift of the supply curve indicating a decrease in the quantity suppliers are willing to produce at any price
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| Definition: increase in supply | a rightward shift in the supply curve indicating a willingness of business firms to produce more of an item at any given price
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| Definition: market equilibrium point | the point at which the demand curve and the supply curve for an item intersect
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| Definition: market equilibrium price | the price corresponding to the intersection of an item's supply and demand curves and at which consumers are willing to buy the same quantity that suppliers are willing to produce
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| Definition: surplus | an excess of unsold products resulting from a price above the market equilibrium price
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| Definition: price floor | a barrier preventing the price of an item from falling lower than a certain price
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| Definition: shortage | an insufficient supply of an item as a result of its price below the market equilibrium price
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| Definition: price ceiling | a barrier preventing the price of an item from rising above a certain price
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| Why does a price above the equilibrium price result in surplus? | Law of supply causes supplier to push greater quantities into the market; law of demand causes buyers to pull less out of the market.
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| List three possible methods of solving a surplus. | 1) advertising; 2) eliminating substitute goods; 3) decrease supply
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| What causes a shortage? | when the price of a good is held lower than its market equilibrium price.
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| What would be the immediate effects if the government set a price ceiling, which was above the market equilibrium price, on a product? | shortages
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| What occurs when the price of a product is higher than the price at which supply equals demand? | surplus
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| What is the simplest solution to a surplus? | shift demand curve to the right
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