Test 1 Vocab

(normative; aka ”Pareto Improving” Reallocation or Pareto Improvement) any re-allocation of resources that makes at least one person better off, and makes no person worse off, should be pursued

·    Can be inefficient

If Producer A has a lower opportunity cost ofproducing a good that Producer B, we say that A has a comparative advantage in production of that good

·    Output of any particular good is produced mostefficiently by that producer who has the comparative advantage

If Producer A can produce more of a product thatProducer B, we say that Producer A has the absolute advantage in production of that good

·    This will not enable us to identity the efficient pattern of production or trade

that thing we using think of when we talk aboutprice

·    ex: $5/fish and $1/fruit

exchange rate between two goods

·    ex: fish/fruit = $5/$1 = 5

o  value of one fish measured in pieces of fruit

quantity supplied exceeds quantity demanded at given market price

·    “Surplus”

quantity demanded exceeds quantity supplied at given market price

·    “Shortage”

method for measuring the net benefits ofallocating resources in any given way

·    Is the difference between:

o  The value of other goods consumers were prepared to give up in order to obtain thegoods produced

o  The value of other goods the economy had to give up in order to produce those goods

o  Areaup until MV = MC

a situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction

markets for goods (ex. computers) and services (ex. medical treatment)

the rights individuals or firm have to the exclusive use of their property, including the right to buy or sell it

a market that meets the conditions of:

i.    many buyers and sellers

ii.  all firms selling identical products, and

iii.  no barriers to new firms entering the market

a table showing the relationship between the price of a product and the quantity of the product demanded

a good for which the demand increases as income falls and decreases as income rises

a market in which buying and selling take place at prices that violate government price regulations

division of the burden of a tax betweenbuyers and sellers in a market