Term
| What does “efficiency” mean to an economist? |
|
Definition
| getting the most out of scarce resources |
|
|
Term
|
Definition
| distributing prosperity fairly among society’s members |
|
|
Term
| What does it mean to say that there is a tradeoff between equity and efficiency? |
|
Definition
| To increase equity, could redistribute income from wealthy to poor. ex: Going to a party the night before your midterm leaves less time for studying. |
|
|
Term
| Definition of opportunity cost |
|
Definition
| any item is whatever must be given up to obtain it. |
|
|
Term
| What is a “marginal” change? |
|
Definition
| incremental adjustments to an existing plan. |
|
|
Term
| Why are free markets a good way of organizing economic transactions? |
|
Definition
| In a market economy, these decisions result from the interactions of many households and firms. the invisible hand |
|
|
Term
| What two things do market determined prices reflect? |
|
Definition
-the market for goods and services
-the market for “factors of production” |
|
|
Term
| Why do economists make assumptions concerning the models they use? |
|
Definition
|
|
Term
| What is this “invisible hand” thing? |
|
Definition
•The interaction of buyers and sellers determines prices.
•Each price reflects the good’s value to buyers and the cost of producing the good.
•to maximize society’s economic well-being, Prices guide self-interested households and firms to make decisions |
|
|
Term
| the players in the circular flow diagram are? |
|
Definition
|
|
Term
| what the arrows mean in the circular flow diagram? |
|
Definition
| input and output are red arrows, green arrows are flow of dollars |
|
|
Term
| the two markets in the flow circular diagram are? |
|
Definition
| Markets for Goods & Services; Markets for Factors of Production |
|
|
Term
| definition of output in the circular flow diagram |
|
Definition
Households output the labor
Firms output the goods and services |
|
|
Term
| definition of input in the circular flow diagram |
|
Definition
| households provide the inputs that firms use to produce goods and services. |
|
|
Term
| what is factors of production |
|
Definition
| In the markets for the factors of production, households are sellers, and firms are buyers. |
|
|
Term
| What is the definition of “capital?” |
|
Definition
| buildings & machines used in production |
|
|
Term
| the idea behind The production possibilities frontier |
|
Definition
| a graph that shows the various combinations of output |
|
|
Term
| How are trade-offs, opportunity cost, economic growth, technology change, increasing opportunity cost, efficiency, and inefficiency represented. |
|
Definition
| a complex economy to highlight some basic but powerful ideas |
|
|
Term
| What exactly is a demand (supply) curve? |
|
Definition
| The downward-sloping line relating price and quantity demanded is called the demand curve |
|
|
Term
| non-price determinants that move the supply curve |
|
Definition
| input prices, technology, number of sellers, expectations, |
|
|
Term
| non-price determinants that move the demand curve |
|
Definition
| number of buyers, income, prices of related goods, tastes, expectations, |
|
|
Term
|
Definition
a shift in the S curve
•occurs when a non-price determinant of supply changes (like technology or costs) |
|
|
Term
| Change in the quantity supplied |
|
Definition
a movement along a fixed S curve
•occurs when Pchanges |
|
|
Term
|
Definition
a shift in the D curve
•occurs when a non-price determinant of demand changes (like income or # of buyers) |
|
|
Term
| Change in the quantity demanded |
|
Definition
a movement along a fixed D curve
•occurs when P changes |
|
|
Term
| that steep demand and supply curves are ? |
|
Definition
| inelastic meaning the players don’t have much response to price changes. |
|
|
Term
| definition of a “competitive market” |
|
Definition
| many buyers and sellers, each of whom has little or no influence on the market price. |
|
|
Term
| definition of a normal good |
|
Definition
| positively related to income. Increase in income causes increase in quantity demanded at each price, shifts D curve to the right. |
|
|
Term
| definition of a inferior good |
|
Definition
| negatively related to income. An increase in income shifts D curves for inferior goods to the left. |
|
|
Term
| definition of complementary good |
|
Definition
| an increase in the price of one causes a fall in demand for the other. Example: computers and software. If price of computers rises, people buy fewer computers, and therefore less software. Software demand curve shifts left. |
|
|
Term
| definition of substitute good |
|
Definition
| an increase in the price of one causes an increase in demand for the other. Example: pizza and hamburgers. An increase in the price of pizza increases demand for hamburgers, shifting hamburger demand curve to the right. |
|
|
Term
| What is meant by “market” demand? |
|
Definition
| the sum of all the individual demands for a particular good or service. |
|
|
Term
|
Definition
| the claim that the quantity demanded of a good falls when the price of the good rises, other things equal |
|
|
Term
|
Definition
| the claim that the quantity supplied of a good rises when the price of the good rises, other things equal |
|
|
Term
| What is another name for equilibrium price? |
|
Definition
|
|
Term
|
Definition
| If the market price is below equilibrium, a shortage results, causing the price to rise |
|
|
Term
|
Definition
| If the market price is above equilibrium, a surplus results, which causes the price to fall. |
|
|
Term
| what inelasticity and elasticity mean |
|
Definition
| When it’s less than one, demand is “inelastic.” When greater than one, demand is “elastic.” |
|
|
Term
|
Definition
| one where the producers will be willing to sell about the same amount; supply of beachfront property, illegal drugs, seats on an airplane, |
|
|
Term
|
Definition
| the price you offer will have a strong impact on whether the seller will sell; supply of new cars, the price of a commodity (rice) $200 per ton |
|
|
Term
| what is Price elasticity of supply |
|
Definition
| measures how much Qs responds to a change in P. |
|
|
Term
| cross-price elasticity of demand |
|
Definition
measures how much demand for one good responds to changes in the price of another good.
Cross-price elast. = % change in Qd for good 1
of demand % change in price of good 2
|
|
|
Term
| The income elasticity of demand |
|
Definition
measures how much quantity demanded responds to changes in buyers’ incomes.
Income elasticity = Percent change in Qd
of demand Percent change in income
|
|
|
Term
| Why do we even use the mid-point method? |
|
Definition
| because the standard method gives different answers depending on where you start. |
|
|
Term
| Be able to show what happens to revenue when price changes |
|
Definition
|
|
Term
| know what happens to revenue if suppliers that sell to customers with elastic demand raise their price |
|
Definition
| revenue will fall from lower quantity Q |
|
|
Term
| know what happens to revenue if suppliers with customers that have inelastic demand raise their price |
|
Definition
| When Dis inelastic, a price increase causes revenue to rise. |
|
|
Term
| What kind of customer base would you like to have? |
|
Definition
| inelastic, because revenue rises, make more money |
|
|
Term
| how Perfectly inelastic demand graph looks like |
|
Definition
|
|
Term
| know how perfectly elastic demand graph looks like |
|
Definition
| a straight horizontal line on the graph |
|
|
Term
| How does elasticity change over the length of a demand curve? |
|
Definition
| it changes by the percentage on the demand curve, (200%/40%; 67%/67%, as the price falls and quantity rises, the elasticity will fall |
|
|
Term
|
Definition
the amount a buyer is willing to pay minus the amount the buyer actually pays
CS = (value to buyers) –(amount paid by buyers)
=buyers’ benefit from participating in the market |
|
|
Term
|
Definition
the amount a seller
is paid for a good
minus the seller’s cost.
PS = (amount received by sellers) –(cost to sellers)
= sellers’ benefit from participating in the market |
|
|
Term
|
Definition
CS + PS
= total gains from trade in a market |
|
|
