ECON 222 Microeconomics Exam #1

incentives, trade-offs, opportunity cost, marginal thinking, the principle that trade creates value

the study of how individuals and societies allocate their limited resources to satisfy their nearly unlimited wants

is the study of the individuals units that make up the economy

is the study of the overall aspects and workings of an economy

factors that motivate a person to act or exert effort

encourage action by offering rewards or payments

discourage action by providing undesirable consequences or punishments

gas station lowers prices , it gets business from customers who would not usually stop there

lower gas prices may encourage consumers to use more gas

unintended consequence

people who were supposed to use government assistance as a safety net until they can find a job use it instead as a permanent source of income

innovation

patents and copyright laws (financial reward for creativity)

doing one thing often means that you won't have time, resources, or energy to do something else

the highest-valued alternative that must be sacrificed in order to get something else

requires decision-makers to evaluate whether the benefit of one more unit of something is greater than its cost

the cost of producing one more unit of a good

the additional benefit to a consumer from consuming one more unit of a good or service

Bring buyers and sellers together to exchange goods and services

shows how resources and final goods and services flow through the economy

a market in which households sell and firms buy resources or the services of resources

the market in which households purchase the goods and services that firms produce

involves individuals trading a good they already have or providing a service in exchange for what they want

goods and services move counterclockwise. Firms produce goods and services and send them to the product market. Households buy these goods and services but households provide the inputs necessary to make goods and services. Households sell inputs to resource market where firms buy them and turn them into goods and services.

People use money to make transactions much easier, money acts as medium of exchange to avoid double coincidence of wants problem

the voluntary exchange of goods and services between two or more parties

refers to the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can

can be tested and validated; it describes "what is"

is an opinion that cannot be tested or validated; it describes "what ought to be"

positive

normative

means "other things being equal" or "all else equal" and is used to build economic models. It allows economists to examine a change in one variable while holding everything else constant

are the variables that can be controlled for in a model

the variables that cannot be controlled for in a model

is a model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently

resources are fully utilized and potential output is maximized

states that the opportunity cost of producing a good rises as a society produces more of it

the ability of one producer to make more than another producer with the same quantity of resources

the limiting of one's work to a particular area

as long as terms of trade fall between the trading partners' opportunity costs, the trade benefits both sides

the period in which we make decisions that reflect our immediate or short-term wants, needs, or limitations. In the short run, consumers can partially adjust their behavior.

the period in which we make decisions that reflect our needs, wants, and limitations over a long time horizon. In the long run, consumers have time to fully adjust to market conditions.

produced for present consumption

food, entertainment, clothing

help produce other valuable goods and services in future

the process of using resources to create or buy new capital

exists when there are so many buyers and sellers that each has only a small (negligible) impact on the market price and output

a market structure in which a large number of firms all produce the same product

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

a price taker cannot control the price of the good it sells; it simply takes the market price as given, IMPOSSIBLE for a single firm to affect the market price by changing quantity supplied

a firm that faces a given market price and whose quantity supplied has no effect on that price; a perfectly competitive firm

Consumer willingness and ability to buy products

states that, all other things being equal, quantity demanded falls when prices rise, and rises when prices fall

Two goods that are used in place of each other. When the price of a substitute good rises, the quantity demanded falls and the demand for the related good goes up.

a change in the quantity demanded of a good that is the result of a change in that good's price

change in demand

a factor other than price that can cause a change in demand for a good or service

income, prices of related goods, tastes, expectations

consumers buy more as income rises holding all other factors constant

purchased out of necessity rather than choice

decrease demand

decrease demand

decrease demand

decrease demand

increase demand

decrease demand

increase demand

increase demand

two goods that are used together; when the price of a complementary good rises, the demand for the related good goes down

a factor other than price that can cause a change in the supply of a good or service

prices of inputs, technology, substitutes in production, expectations

decrease supply

increase supply

increase supply

decrease supply

increase supply

workers, equipment, raw materials, buildings, and capital goods

occurs at the point where the demand curve and the supply curve intersect

occurs whenever the quantity supplied is greater than the quantity demanded

occurs whenever the quantity supplied is less than the quantity demanded

demand and supply curves shift right

demand and supply curves shift left

demand curve shifts right and supply curve shifts left

demand curve shifts left and supply curve shifts right

demand shifts to the right (increases) but supply shifts to the left (decreases)

supply shifts right and demand shifts right

increase in consumer income increases demand and shifts curve to the right. Decrease in input prices increases supply and shifts supply curve to the right. equilibrium quantity increases. demand shift is large so price increases.