question
incentives
answer
rewards and penalties that motivate behavior
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scarcity
answer
when there isn't enough of a specific resource to satisfy all of our wants
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great economic problem
answer
how to arrange our scarce resources to satisfy as many of our wants as possible
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opportunity cost
answer
the value of possibilities lost when a choice is made
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inflation
answer
an increase in the general or average level of prices.
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absolute advantage
answer
the ability to produce the same good using fewer inputs than another producer
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production possibilities frontier
answer
all the combinations of goods that a country can produce given its productivity and supply of inputs
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comparative advantage
answer
the ability to produce a good or service at a lower opportunity cost than another producer
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demand curve
answer
a function that shows the quantity demanded at different prices
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quantity demanded
answer
the quantity that buyers are willing and able to buy at a particular price
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consumer surplus
answer
the consumer's gain from exchange, or the difference between the maximum price a consumer is willing to pay for a certain quantity and the market price
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total consumer surplus
answer
quantity measured by the area beneath the demand curve and above the price
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normal good
answer
a good for which demand increases when income increases
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inferior good
answer
a good for which demand decreases when income increases
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substitute
answer
two goods for which a decrease in the price of one leads to a decrease in demand for the other
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complements
answer
two goods for which a decrease in the price of one leads to an increase in the demand for the other, for example hamburgers and hamburger buns
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supply curve
answer
a function that shows the quantity supplied at different prices
question
quantity supplied
answer
the quantity that sellers are willing and able to sell at a particular price
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producer surplus
answer
the producer's gain from exchange, or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity
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total producer surplus
answer
an amount measured by the area above the supply curve and below the price up to the quantity traded
question
surplus
answer
a situation in which the quantity supplied is greater than the quantity demanded
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shortage
answer
a situation in which the quantity demanded is greater than the quantity supplied
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equilibrium price
answer
the price at which the quantity demanded is equal to the quantity supplied
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equilibrium quantity
answer
the quantity at which the quantity demanded is equal to the quantity supplied
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elasticity of demand
answer
a measure of how responsive the quantity demanded is to a change in price
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Inelastic
answer
when the absolute value of the elasticity is less than 1
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elastic
answer
when the absolute value of the elasticity is greater than 1
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unit elastic
answer
when the absolute value of the elasticity is exactly equal to 1
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elasticity of supply
answer
a measure of how responsive the quantity supplied is to a change in price
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deadweight loss
answer
the reduction in total surplus caused by a market distortion or inefficiency
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