1. At its core, Economics is about.. individuals (consumers, firms) and governments making choices given scarce resources 2. Trade-Offs involve
... [Show More] opportunity cost, the value of the best al- ternative given up 3. Productive efficiency: Productive efficiency: A situation in which a good or service is produced at the lowest possible cost 4. a production possibili- ties frontier (PPF) 5. centrally planned econo- my A production possibilities frontier (PPF) is a curve showing the maximum attainable combinations of two products that may be produced with available resources (e.g. workers, materials, machinery...) and technology. an economy in which the government decides how economic resources will be allocated 6. market economy the decisions of housholds, firms, and individuals interacting in the market allocates resources. 7. mixed economy an economy in which most economic decisions are from the interaction of buyers and sellers in a market but in which the government plays a significant roll in the allocation of resources. 8. microeconomics study of how households and firms make choices in the market, how they interact. and how the gov- ernment attempts to influence their interactions 9. macroeconomics the study of an economy as a whole, inflation, unemployment and economic growth. 10. profit revenue-costs 11. factors of pro- duction/economic re- sources/input labor, capital, natural resources, entrepreneurs. 12. human capital skills and training that workers posses 13. slope rise over run. change in y over change of x. 14. Percentage change fo- rumla ((value in first period - value in second period)/val- ue in the first period) x 100 ((V1-V2)/V1) x 100 -when calculating units don't matter 15. total revenue base x height, B x H (price times quantity demand- ed) using a demand curve. 16. increasing marginal op- portunity costs The more resources already devoted to an eco- nomic activity, the smaller the payoff will be from devoting more resources to that activity 17. market group of buyer and sellers of a good or service and the institution by which they come together to trade 18. what principle underlies nearly all modern eco- nomic analysis? 19. for the market mecha- nism to work 20. economists use models to that individuals usually act in a rational , self inter- ested way to improve their situation. prices must be flexible. study human behavior 21. demand schedule table that shows the relation between price of a product and quantity demanded. 22. quantity demanded the amount of a good or service that a consumer is willing and able to buy at a given price. 23. demand curve a curve that shows the relationship between price and quantity demanded 24. law of demand everything else remaining constant, when the price of a product falls, demand will increase. when price increases, demand will decrease. this is ex- plained by the substitution, and income effect. 25. substitution effect when the price of a good falls, demand will in- crease and the good or product will be substituted in for similar products or services. 26. ceteris paribus "all else equal" the requirement what when ana- lyzing the relationship between two variables such as price and quantity demanded, other variables must be held constant 27. normal good a good for which the demand increases as in- comes rise, and falls with income as well. 28. Inferior Good a good for which demand decreases as incomes rise, and increases when incomes fall. 29. variables that determine Demand incomes price of related goods tastes population and demographics expected future prices 30. substitutes two goods used for the same or similar purposes. when price of one increases, demand for another increases. 31. complements two good typically used in conjunction, when price of a complement rises, demand for its complemen- tary good decreases as well. 32. change in demand, v.s. a change in quantity de- manded change in demand results in a shift of the demand curve, this indicates a change in variables other than price. Change in quantity demanded is move- ment along demand curve as a result of changing price. 33. quantity supplied the amount of a good or service that a firm is willing and able to supply at a given price. 34. supply schedule a table that shows the relationship between the price of a product and quantity of the product supplied. 35. supply curve a curve that shows relationship between the price of a product and the quantity of the product sup- plied. 36. Law of Supply everything constant. an increase in price causes an increase in supply, and a decrease in price causes a decrease in supply. 37. Variables that Shift sup- ply price of inputs, technological change, prices of substitutes in production, expected future prices 38. Market Equilibrium An intersection of supply and demand curves. 39. Shortage when quantity demanded is more than quantity supplied. 40. Price floors and ceilings government imposed maximum and minimum prices 41. consumer surplus the difference between the highest price a con- sumer is willing to pay for a good, and the price they actually pay for it. 42. marginal benefit the additional benefit that a consumer receives by consuming one more unit of a good or service. 43. marginal cost the additional cost to a firm of producing one more unit of a good or service 44. producer surplus the difference between the lowest price a firm will accept for a good or service and the price it actually receives. 45. total surplus consumer surplus plus producer surplus, net ben- efit to society form the production of a good or service 46. deadweight loss the reduction in total economic surplus because of the market not being in equilibrium. 47. Demand is price inelas- tic if.... Demand is price inelastic if its price elasticity of demand is smaller (in absolute value) than 1. 48. demand is price elastic if... 49. price elasticity of de- mand demand is price elastic if its price elasticity of demand is larger (in absolute value) than 1. measures how responsive the quantity demanded is to changes in price. 50. elastic price elasticity is greater than the absolute value of 1, the quantity demanded changes more in proportion to the price 51. inelastic when the price elasticity is less than the absolute value of 1, quantity demanded changes less in proportion to the price. 52. unit elastic demand when quantity demand changes in proportion to the price. 53. total revenue when demand is inelastic a decrease in price reduces total revenue, an increase raises total revenue. when demand is elastic a decrease in price raises total revenue, an increase lowers total revenue. 54. externality is a benefit or cost to parties who are not involved in a transaction 55. social cost includes any external costs (externalities) 56. social benefit includes any external benefits (positive externali- ties) 57. market failure when externalities exist in production or consump- tion, the market will not produce the optimal level of a good or service 58. command and control approach government imposes quantitative limits on the pro- duction of an externality. ` 59. public goods things which people cannot be prevented from consuming (e.g. air) 60. free riding involves benefiting from a good without paying for it. 61. price elasticity of supply. percentage chang in quantity supplied divided by the percentage change in price. supply curves for most goods are inelastic over short periods, but become more elastic over longer periods. 62. budget constraint limited amount of income available to spend 63. Utility: Satisfaction/enjoyment from consumption of good or service 64. Marginal Utility the change in utility from consuming one more unit Typically marginal utility is diminishing as more goods are consumed. How much happier are you after you have consumed one more unit. 65. Law of Diminishing Mar- ginal Utility 66. marginal utility per dol- lar spent Additional items consumed give decreasing utility marginal utility of a good, divided by the price of obtaining that good. 67. sunk cost Once you have paid money and can't get it back, you should ignore that money in any future deci- sions you make. But people often allow past costs to influence future decisions. 68. production possibilities frontier 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 69. scarcity People's wants exceed what is available 70. Capitalism An economic system based on private ownership of capital 71. Socialism A system in which society, usually in the form of the government, owns and controls the means of production. 72. Communism a form of socialism that abolishes private owner- ship, the next stage after socialism 73. 3 economic questions What will be produced? How will it be produced? For whom will it be produced? 74. rent control a price ceiling placed on rent 75. minimum wage a minimum price that an employer can pay a work- er for an hour of labor 76. equilibrium price the price at which the quantity demanded equals the quantity supplied 77. equilibrium quantity the quantity supplied and the quantity demanded at the equilibrium price 78. pollution A type of negative externality 79. Backwards Bending La- bor Supply Curve 80. Cap-and-Trade/Mar- ketable Permits The graph that shows that at low wages, additional pay will increase the quantity of labour.. Additional pay will then have no effect on quantity of labour, and then a negative effect. Market-based system of pollution control whereby individual businesses can buy and sell emission credits even while the total level of industry pollu- tion is capped at some level. 81. pollution charge a tax imposed on the quantity of pollution that a firm emits; also called a pollution tax [Show Less]