Microeconomics Erhardt Test 1

groups that do not pursue profit as a goal; they engage in charitable, educational, humanitarian, cultural, professional, or other activities, often with a social purpose

Technological change spawned by the invention of the microchip and the Internet that enhanced the acquisition, analysis, and transmission of information.
(work mostly from home)

a condition that arises when the unregulated operation of markets yields socially undesirable results.

Prohibitions against price fixing and other anticompetitive practices.

A sole producer of a product for which there are no close substitutes.

one firm can serve the entire market at a lower per-unit cost than can two or more firms (Cincinnati has a exclusive cable service; one group that contains the entire infrastructure of the city)

A good that is both rival in consumption and exclusive, such as pizza.

A good that, once produced, is available for all to consume, regardless of who pays and who doesn't such a good is nonrival and nonexclusive. [such as national defense]

a cost or a benefit that falls on a third party and is therefore ignored by the two parties to the market transaction. [Negative/Positive]

the use of government purchases, transfers payments, taxes, and borrowing to influence economy-wide activity such as inflation, employment, and economic growth. [The Government]

regulation of the money supply to influence economy-wide activity such as inflation, employment, and economic growth [The Fed]

Those with a greater ability to pay such as those with higher income or those who own more property should pay more taxes

Those who receive more benefits from the government program funded by a tax should pay more taxes

The distribution of tax burden among taxpayers; who ultimately pays the tax.

the tax as a percentage of income remains constant as income increases; also called a flat tax.

the tax as a percentage of income increases as income increases

the percentage of each additional dollar of income that goes to the tax

The tax as a percentage of income decreases as income increases.

The value of a country's exported goods minus the value of its imported goods during a given period.

a record of all economic transactions between residents of one country and residents of the rest of the world during a given period.

foreign money needed to carry out international transactions

a tax on imports

a legal limit on the quantity of a particular product that can be imported of exported.

A relationship between the price of a good and the quantity that consumers are willing and able to buy during a given period

the quantity of a good demanded during a given period relates inversely to its price

When the price of a good falls or rise, consumers substitute that good for other goods, which become relatively more expensive.

the number of dollars a person receives period period, such as $400 per week

Income measured in terms of the goods and services it can buy.

A fall in the price of a good increases consumers' real income making consumers more able to purchase goods; for a normal good, the quantity demanded increases.

a curve showing the relation between the price of a good and the quantity demanded during a given period.

the amount demand at a particular price, as reflected by a point on a given demand curve.

sum of the individual demands of all consumers in the market.

a good, such as new clothes, for which demand increases, or shifts rightward, as consumer incomes rise.

a good, such as used clothes, for which demand decreases, or shifts leftward, as consumer incomes rise.

Goods, such as Coke and Pepsi, that are related in such a way that an increase in the price of one shifts the demand for the other leftward.

Goods, such as milk and cookies, that are related in such a way that an increase in the price of one shifts the demand for the other leftward.

consumer preferences; likes and dislikes in consumption; assumed to be constant along a given demand curve.

Change in quantity demanded resulting from a change in the price of the good [static]

Movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good.

a relationship between the price of a good and the quantity that producers are willing and able to sell during a given period.

the quantity of a good supplied during a given period is usually directed related to its price.

a curve showing the relation between the price of a good and the quantity supplied during a given period.

the amount offered for sale at a particular price, as reflected by a point on a given supply curve.

the supply of an individual producer

the sum of individual supplies of all producers in the market.

resources used to produce the good in question.

other goods that use some or all of the same resources as the good in question.

change in quantity supplied resulting from a change in the price of the good.

movement of a supply curve left or right resulting from a change in one of the determinants of supply other than the price of the good.

the costs of time and information required to carry out market exchange. [Chicago board of trade is for farmers]

at a given price, the amount by which quantity supplied exceeds quantity demanded; a surplus usually forces the price down.

at a given price, the amount by which quantity demanded exceeds quantity demanded; a shortage usually forces the price up.

the condition that exists in a market when the plans of buyers match those of sellers, so quantity demanded equals quantity supplied and the market clears.

the condition that exists in a market when the plans of buyers do not match those sellers; a temporary mismatch between quantity supplied and quantity demanded as the market seeks equilibrium.

to produce each additional increment of a good, a successively larger increment of an alternative good must be sacrificed if the economy's resources are already being used efficiently.

An increase in the economy's ability to produce goods and services; an upward shift of the production possibilities frontier.

A set of mechanisms and institutions that resolve the what, how, and for whom questions.

An economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in the unregulated markets. (Private property, market prices)

Laissez-faire: supply and demand; division of labor; invisible hand

An economic system characterized by the private ownership of some resources and the public ownership of the other resources; some markets are unregulated and others are regulated. (USA, England)

An economic system characterized by the public ownership of resources and centralized planning

The satisfaction or sense of well being received from consumption. [Bentham-Utilitarianism Proprietors] Jeremy Bentham** he had an idea of if they serve a useful purpose then keep them if not get rid of them.

Cash or in-kind benefits given to individuals as outright grants from the government. [Food cards, Social Security]

Economic units formed by profit-seeking entrepreneurs who use resources to produce goods and services for sale

A firm with a single owner who has the right to all profits and who bears unlimited liability for the firm's debts (70-80% of all businesses)

A firm with multiple owners who share the firm's profits and bear unlimited for the firms debts. [Problem] there is a risk factor in that the two groups or people may eventually disagree. Embezzlement ****

A legal entity controlled by stockholders whose liability is limited to the value of their stock.

An organization of people who pull their resources to buy and sell more efficiently than they could individually.

The value of what must be foregone to undertake an activity
- time of trip: film; nap

Pitfalls:
1. you must measure the proportion you save (absolute dollar)
2. ignoring implicit cost—> implicit costs (born by the individual)
3. failure to think at the margin.
- sunk cost: a cost that is beyond recovery at the moment a decision is made.
- free lunch vs. $10

the increase in total cost that results from carrying out one more unit of an activity. (you always stop studying at 11 but you decide to do an extra hour and do it sloppy)

the increase in total benefit that results from carrying out one additional until of an activity. (you add an extra exercise to your workout and it pays off)

the individual, firm, region or country with the lowest opportunity cost of producing a particular good should specialize in that good.

the value of the best alternative foregone when an item or activity is chosen

the ability to make something using fewer resources that other producers use.
- Adam Smith, Wealth of Nations, 1776

he ability to make something at a lower opportunity cost than other producers face.
- David Ricardo, On the Principles of Political Economy and Taxation

A diagram that traces the flow of resources, products, income and revenue among economic decision makers

Each individual tries to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit

Incremental, additional, or extra; used to describe a change in an economic variable(1).

The study of the economic behavior in particular markets, such as that for computers or unskilled labor

The study of the economic behavior of entire economies. as measured, for example, by total production and employment. (GDP)

The rise and fall of economic activity relative to the long-term growth trend of the economy; also called business cycles.

A simplification of reality used to make predictions about cause and effect in the real world.

...begin with a question...

A measure, such as price or quantity, that can take on different values at different times.

The assumption, when focusing on the relation among key economic variables. that other variables remain unchanged, in Latin, ceteris paribus.

An assumption that describes the expected behavior of economic decision makers; what motivates the.

A theory about how key variables relate to each other.

A statement that can be proved or disproved by reference to facts.

A statement that reflects on opinion, which cannot be proved or disproved by reference to the facts.

The incorrect idea that if two variables are associated in time, one must necessarily cause the other

The incorrect belief that what is true for the individual, or part, must necessarily be true for the group or the whole

Unintended consequences of economic actions that may develop slowly over time a people react to events

There is no such thing as a free lunch

Action should only be taken if the benefit exceeds the cost

Benefit of taking an action minus its cost

A cost that is beyond recovery at the moment that decision is made

The direct exchange of one good for another without using money (Relevance today)

Breaking down the production of a good into separate tasks(increases productivity)

workers specialize at a task in the production process at which they are most efficient.

A curve showing alternative combinations of goods that can be produced when available resources are used efficiently. (A boundary between inefficient and unattainable combinations)

The condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another good. (All resources are employed efficiently)

When resources are not employed efficiently (any point inside the PPF) (Production Possibility Frontier)

Cannot be achieved with the existing resources, technology, human capital, and/or rules of the game. (any point outside the PPF)

Developments of large-scale factory production that began in Great Britain around 1750 and spread to the rest of Europe, North America, and Australia

The general theory...

A minimum legal price below which a good or service cannot be sold; to have an impact, a price floor must be set above the equilibrium price

A maximum legal price above which a good or service cannot be sold; to have an impact, a price ceiling must be set below the equilibrium

Measures how responsive quantity demanded is to a price change; the percentage change in quantity demanded divided by the percentage change in price

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Percentage change in quantity demanded divided the percentage change in price; the average quantity and average price are used as bases for computing percentage changes in quantity and in price

A change in price has relatively little effect on quanitty demanded; the percentage change in quantity demanded is less than the percentage change in price; the resulting price elasticity has an absolute value less than 1.0

The percentage change in quantity demanded equals the percentage change in price; the resulting price elasticity has an absolute value of 1.0

A change in price has a relatively large effect on quantity demanded; the percentage change in quantity demanded exceeds the percentage change in price; the resulting price elasticity has an absolute value exceeding 1.0

Price multiplied by the quantity demanded at that price

A straight line curve; such as a demand curve has a constant slope but usually has a varying price elasticity

A horizontal line reflecting a situation in which any price increase reduces quantity demanded to zero; the elasticity has an absolute value of infinity.

A vertical line reflecting a situation in which any price change has no effect on the quantity demanded; the elasticity value equals zero

Everywhere along the demand curve, the percentage change in price causes an equal but offsetting percentage change in quantity demanded, so total revenue remains the same; the elasticity has an absolute value of 1.0

The type of demand that exists when price elasticity is the same everywhere along the curve; the elasticity value is constant.

A measure of the responsiveness of quantity supplied to a price change; the percentage change in quantity supplied divided by the percentage change in price.

Change in price has relatively little effect on quantity supplied; the percentage change in quantity supplied is less than the percentage change in rice; the price elasticity of supply has a value less than 1.0

The percentage change in quantity supplied equals the percentage change in price; the resulting price elasticity of supply equals 1.0

A change in price has a relative large effect on quality supplied; the percentage change in quality supply exceeds percentage change in price; the resulting price elasticity of supply exceeds 1.0

A horizontal line reflecting a situation in which any price decrease drops the quantity supplied to zero; the elasticity value is infinity

A vertical line reflecting a situation in which a price change has no effect on the quantity supplied; the elasticity value is zero

A percentage change in price causes an identical percentage change in quantity supplied; depicted by a supply curve that is a straight line from the origin; the elastic value equals 1.0

The percentage change in demand divided by the percentage change in consumer income; the value is positive for normal goods and negative for inferior goods.

The percentage of change in the demand of one good divided by the percentage of change in the price of another good

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