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| Fundamental Concept of economics that indicates that there is less of a good freely available from nature than people would like. |
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| Choosing the option that offers the greatest benefit at the least possible cost. |
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| The scientific study of "what is" amount economic relationships. |
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| The highest valued alternative that must be sacrificed as a result of choosing an option. |
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The study of how society manages its scarce resources.
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The social science that studies the choice that individuals, businesses, governments and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices. |
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| Based on what ought to be. |
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| A motivator for an individual to perform an action. |
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| All other conditions renaming the same. |
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| What people are willing to give up in order to obtain one more unit of a good |
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| The value of what is given up in order to produce an additional unit. |
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-The use of scarce resources is costly and we must make tradeoffs
Opportunity Costs
-Individuals choose purposefully - they try to get most from their scarce resources
Economizing Behavior and utility
- Individuals make decisions on the margin
Incentives matter - change in incentives influence human choice in a predictable way.
Although information can help us make bettter choices, its acquisition is costly.
- Beware the secondary effects: economics actions often generate indirect as well as direct effects.
- The value of a good/service is subjective
- The test of theory is the ability predict. |
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| Pitfalls in Economic Thinking |
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Definition
1. Try not to confuse fact and opinion.
2. Forgetting to apply ceteris paribus can lead to the wrong conclusion.
3. Well meaning policies do not always guarantee good outcomes for those they are meant to help.
4. Do not confuse Association with CAUSATION.
5. Do not become a victim of fallacy of composition what is true for one may not be true for all. |
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| Production Possibilities Frontier (PPF) |
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| a graph that shows the combinations of output that economy can possibly produce given the available factors of production and technology. |
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| The amount of product people are willing to buy at a certain price. |
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| A microeconomics law that states, all other factors being equal, as the price of a good or service increase, consumer demand for the good or service will decrease, and vice versa. |
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| Elastic vs Inelastic Demand |
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Definition
| Elastic is where the quantity changes a lot based on price. Inelastic is the opposite. Example: Candy Bars are elastic (as more price increases, quantity goes down) gas in inelastic (even as price increases, people still need to buy it so the quantity is not affected as much). |
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| Monetary gain obtained by consumers because they are able to purchase a product for a price that is less than the highest price that they would be willing to pay. |
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| Quantity of a commodity that producers are will to sell at a particular price at a particular point of time. |
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| an increase in price results in an increase in quantity supplied. |
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Right >> Increase in Demand
Left << Decrease in Demand |
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| Change in Demand vs Change in Quantity Demand |
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| Change in Demand is a shift, change in quantity demand is a movement along curve. |
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| Difference between the price that suppliers receive for the product and the minimum price a seller would be willing to accept to sell a product. |
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Right >> Increase in supply
Left << Decrease in supply |
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The price of inputs effect the per unit cost of a good
If an input price increase, supply decreases. |
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| Better technology helps reduce the cost of production. Therefore supply will increase. |
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| Situation when given the current market price, quantity demand is greater than quantity supplied. |
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| A situation when, given the price is the market, quantity supplied is greater demand. |
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| This is the claim that, assuming no market failure or other impediment, the price of any good will adjust to bring quantity supplied of a good and the quantity demand of a good into equilibrium. |
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| Legal minimum market price. |
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| When supply is more elastic than the demand, the tax burden on the buyer is ___ than the seller. |
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| When the demand is more elastic than supply, the tax burden on the buyer is __ than the seller. |
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| A tax levied on the manufactures, sale, or consumption of a good or service. |
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