Test 1 Terms

Economics 1000 with Murray at University of Colorado Boulder

About this deck

By: Jessica Hatz
Textbook:

Essentials of Economics (2nd Edition)
Created: 2011-02-09
Size: 78 flashcards
Views: 41

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scarcity

situation in which unlimited desires exceed resources available to fill them

resources

inputs into production process (land, labor, capital, human capital)

economic models

simplification of reality to help us understand/model choices

market system

buyers and sellers of a good or service and arrangements and institutions by which they interact

marginal analysis

analysis that measures marginal cost and marginal benefit of a decision

marginal benefit

additional benefit created by engaging in one additional unit of an activity

marginal cost

additional cost created by engaging in 1 additional unit of activity

market economy

economy where allocation of g/s is determined by interaction of suppliers and demanders in a market--> play the game

centrally planned economy

gov. determines allocation of g/s

mixed economy

most decisions result from interaction of buyers and sellers in a market but where the gov. plays a role in allocation of g/s

equity

"fair" distribution of resources

efficiency

when society cannot produce more of one good without producing less of another (no resources wasted)

productive efficiency

when a g/s is produced at lowest possible cost

allocative efficiency

when production is in accordance with consumer preferences (all goods made are desired by consumers)

positive analysis

concerned with WHAT IS

normative analysis

concerned with WHAT OUGHT TO BE

opportunity cost

real cost of an activity is what must be given up to engage in it (NEXT BEST ALTERNATIVE)

production possibility frontier (PPF)

a graph showing max. attainable output (for a firm, person, gov.) in a combination of 2 products, given resources and technology

resources (inputs)

capital, labor, land, human capital

technology

process by which inputs are turned into outputs

economic growth

an increase in PPF by changing resources and/or technology

slope of PPF

opportunity cost (tradeoff b/w the goods)

absolute advantage

ability of individual, firm, or country to produce more of a g/s than competitors with same amount of resources

comparative advantage

ability to produce g/s at lower opportunity cost than competitors (lowest opportunity cost)

terms of trade

dictate that the price of a traded good must be between the 2 countries opportunity costs for both to be willing to trade

demand schedule

table that shows how much consumers are willing and able to buy at various prices

demand curve

graphical representation of demand schedule--> quantity (x-axis) and price (y-axis)

quantity demanded

amount of a good that buyers are willing and able to buy at a given price (the ONLY factor that changes quantity demanded is PRICE)

law of demand

all else equal, the quantity demanded of a good falls when price rises (P and Qd are inversely related)

market demand

found by summing up all individual consumer demands in a given market

substitution effect (law of demand)

the change in Qd of a good that results from a change in P, making the good more of less expensive relative to other comparable goods (goods which are substitutes)

income effect (law of demand)

the change in Qd of a good that results from the effect of a change in the price on a consumer's purchasing power

Factors that shift demand

P price of related goods

I income of consumers

N number of consumers

T tastes and preferences

E expectations of consumers

price of related goods

how P affected demand for another good depends on how the 2 goods are related

substitutes

2 goods for which an increase in the price of 1 good leads to an increase in D for another

complements

2 goods for which an increase in the P of one good leads to a decrease in D for another

normal good

a good for which an increase in I (income) leads to an increase in D

inferior good

a good for which an an increase in I leads to a decrease in D

supply schedule

table that shows how much suppliers are willing and able to sell at various prices

supply curve

graphical representation of a supply schedule

quantity supplied

amount of a good that sellers are willing and able to produce at a given price (ONLY factor that changes Qs is PRICE)

law of supply

all else equal, the Qs (quantity supplied) of a good rises when price increases (P and Qs are positively related)

factors that shift supply

P price of substitutes in production

I input prices

N number of firms

T technology

E expectations (future prices)

prices of substitutes in production

if P of a substitute increases, supply of current market decreases (sells to whoever will pay the highest P for a good)

equilibrium

situation in which market price has reached a level at which Qs=Qd (P* + Q* = Eq. P + Q)

surplus

situation in which Qs exceeds Qd (P>P* and Qs>Qd)--> buyers and sellers bargain for lower price

shortage

situation in which Qd exceeds Qs (P<P* and Qd>Qs)--> buyers and sellers have incentive to bid up price

law of supply and demand

claim that price of any good adjusts to bring the Qs and Qd for a good into balance

consumer surplus

measures the difference b/w highest price consumer is willing to pay and actual price consumers pay--> net gain to the buyer from purchasing the good

(CS= WTP (willingness to pay) - P)

area below demand curve and below market price

producer surplus

net gain to seller from selling the good

(PS= market price - costs)

seller's cost

lowest price for which the would sell their good

economic efficiency

market outcome in which MB to consumers of the last unit produced is equal to MC of production and in which sum of PS + CS is max.

price controls

legal restrictions on max. or min. price of a particular good in a market

price ceiling

max. price sellers are allowed to charge for a good

binding price ceiling

if price ceiling is below the equilibrium P (Pceiling<P* --> Qceiling<Q*)

generates shortages by lowering price below market eq.

dead weight loss

reduction in economic surplus resulting from a market where trade is less than equilibrium

Price floor

min. price sellers are allowed to charge for a good (ex. minimum wage)

binding price floor

if price floor is above equilibrium P (Pfloor>P* --> Qfloor>Q*)

inefficient allocation

some sellers with MC < MB of buyers and cannot trade

Wasted resources

ex. unemployed, able-bodied workers when dealing with minimum wage

results of price controls

winners, losers, net loss (inefficiency)

externality

uncompensated impact of one person's actions on the well being of another

positive externality

when impact of bystandard is positive (ex. lawn care, technology, education, vaccines)

negative externality

when impact of bystandard is negative (ex. pollution, second-hand smoke, industrial accidents)

social costs

private costs +negative externalities

social benefit

private benefit + positive externality

internalizing externality

gov. altering incentives so that people take account of external effects on their actions

gov. policy regarding negative externalities

tax to the trade to decrease amount traded

gov. policy regarding positive externalities

subsidize trade to increase amount traded

economic surplus

CS + PS

maximized when MB of consumption = MC of production

marginal utility

change in utility from consuming addition unit of g/s

MU = change in total utility/change in quantity

law of diminishing marginal utility

consumers experience diminishing additional satisfaction (MU) as they consumer more of a g/s

utility

enjoyment/satisfaction people receive from consuming g/s

assume consumer goal is to max. utility

optimal quantity

MB=MC

budget constraint (BC)

limited amount of income available to consumers to spend on g/s

consumer consumption possibilities

all the consumption bundles that one can afford given their BC + P

marginal utility per dollar spent

additional utility from spending another dollar on a g/s

MU/P

optimal bundles

provides max. utility and occurs when all dollars spent and all goods in a bundle have equal MU/P

(MU1/P1 = MU2/P2 = MU3/P3)--> all goods in a bundle must have equal MU/P

About this deck

By: Jessica Hatz
Textbook:

Essentials of Economics (2nd Edition)
Created: 2011-02-09
Size: 78 flashcards
Views: 41

About StudyBlue

“Simply amazing. The flash cards are smooth, there are many different types of studying tools, and there is a great search engine. I praise you on the awesomeness.”
Dennis