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Economics
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The study of choice when dealing with scarcity
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Scarcity
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Not having enough to fill all wants and needs
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Efficiency
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Getting the most benefit for the choice
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Equity
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Each participant gets an equal ammount
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Opportunity Cost
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What you give up to get something else
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Incentives
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something that induces a person to act
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Tradeoffs
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The sacrifice of some or all of one economic goal, good, or service to achieve some other goal, good, or service.
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Marginal Decisions
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a decision made at the "margin" of an activity to do a bit more or a bit less of that activity.
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Marginal Analysis
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analysis that involves comparing marginal benefits and marginal costs
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Production Possibility Frontier
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show combinations of 2 goods or services that can be produced with given inputs
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Factors of Prodction/Input/Resources
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Input that goes into Firms (land labour capital and entreprenuership_
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Circular Flow Diagram
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a model that illustrates how participants in markets are linked
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Household
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demanders of goods and services
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Firms
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suppliers of goods and services
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Government
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the governing body of a nation, state, or community.
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Market for factors of production
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households are sellers and firms are buyers
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Goods and Services Market
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a market in which firms are sellers of what they produce and households are buyers
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Positive Economics
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This IS, those ARE
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Normative
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This should BE
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Casual Relationship
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cause and effect
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Slope
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Rise over run
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Linears/Non Linear Relationship
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Graph of Linear is straight, graph of non linear is curved
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Positive and Negative Relationships
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Positive: Both go up, Negative: One goes up other goes down
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Absolute Advantage
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the ability to produce a good using fewer inputs than another producer
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Comparative Advantage
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the ability to produce a good at a lower opportunity cost than another producer
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Imports
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goods and services purchased from other countries
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Exports
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Goods and Services sold to other countries
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Competitive Market
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A market in which both buyers and sellers are "price takers" meaning they can not influence the price
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Demand Schedule
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a table that shows the relationship between the price of a good and the quantity demanded
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Quantity Demand
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the amount of a good that buyers are willing and able to purchase at each price
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Demand
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The relationship between the quantities buyers demand at each of the price, a line or curve on a graph
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Law of Demand
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All else equal, the quantity demanded by a buyer decreases as the price increases
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Shifts in Demand
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1. Changes in Income, Price of Related Goods, 3. Changes in tastes or preferences 4. Expectations (future prices and income) 5. Number of Buyers
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Movement along demand curve
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the change in quantity demanded brought about by a change in price
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Market Demand Curve
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the demand curve that shows the quantities demanded by everyone who is interested in purchasing the product
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Supply Schedule
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a table that shows the relationship between the price of a good and the quantity supplied
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Quantity Supplied
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the amount of a good that sellers are willing and able to sell at each price
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Supply
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The relationship between the quantities suppliers sell at each of the price, a line or curve on a graph
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Law of Supply
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the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
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Shifts in Supply
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1. Changes in input prices, 2. Changes in Technology 3. Expectations (Future demand changes or Input Prices) 4. Number of Sellers
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Movement along Supply Curve
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the change in quantity supplied brought about by a change in price
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Market Supply Curve
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the demand curve that shows the quantities supplied by sellers at each price
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Equilibrium Quantity
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the quantity supplied and the quantity demanded at the equilibrium price
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Equilibrium Price
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the price at which the quantity demanded equals the quantity supplied
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Surplus
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A situation in which quantity supplied is greater than quantity demanded
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Shortage
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A situation in which quantity demanded is greater than quantity supplied
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Price Elasticity of Demand
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a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
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Cross price elasticity of demand
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a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
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income elasticity of demand
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a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income
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Price Elasticity of Supply
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a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price
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Elastic
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describes demand that is very sensitive to a change in price
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Inelastic
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Describes demand that is not very sensitive to a change in price
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Unit Elastic
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a given change in price causes a proportional change in quantity demanded
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Perfectly Inelastic
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quantity does not respond at all to changes in price (E=0)
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Perfectly Elastic
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flat demand curve; consumers are perfectly price sensitive
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Total Revenue
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the total amount of money a firm receives by selling goods or services, Price x Quantity