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| the study of choices we make among our many wants and desires given our limited resources |
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| inputs used to produce goods and services |
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| exists when human wants (materialand nonmaterial) exceed available resources |
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| scarcity forces us to choose, and choices are costly because we must give up other opportunities that we value |
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| people do the best they can, based on their values and information, under current and anticipated future circumstances |
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| the use of data to test a hypothesis |
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| statement or proposition used to explain and predict behavior in the real world |
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| holding all other things constant |
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| the study of household and firm behavior and how they interact in the marketplace |
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| the study of the whole economy, including the topics of inflation, unemployment, and economic growth |
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| the total amount - such as the aggregate level of output |
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| when two events occur together |
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| when one event brings about another event |
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| the incorrect view that what is true for the individual is always true for the group |
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| an objective, testable statement that describes what happens and why it happens |
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| a subjective, contestable statement that attempts to describe what should be done |
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| when two variables change in opposite directions |
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| when two variables change in the same direction |
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| the physical and human effort used in the production of goods and services |
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| the natural resources used in the production of goods and services |
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| the equiptment and structures used to produce goods and services |
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| the productive knowledge and skill people receive from education, on the job training, health, and other factors that increase productivity |
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| the process of combining labor, land , and capital to produce goods and services |
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| scarce goods created from scarce resources - goods that are desirable but limited in supply |
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| Items that we do not desire or want, where less is preffered to more, like terrorism or smog |
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| the value of the best forgone alternative that was not chosen |
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| focusing on the additional, or marginal choices; marginal choices involve the effects of the current situation, the small or large incremental changes to a plan of action |
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| individuals on the additional, or activity if the expected marginal benefits are greater than the expected marginal costs |
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| the difference between the expected marginal benefits and the expected marginal costs |
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| an incentive that either reduces costs or increases benefits, resulting in an increase in an activity or behavior |
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| an incentive that either increases costs or reduces benefits, resulting in a decrease in the activity or behavior |
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| concentrating in the production of one, or a few goods |
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| occurs when a person or country can produce a good or service at a lower opportunity cost than others |
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| When an economy gets the most out of its scarce resources |
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| government mandated minimum or maximum prices |
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| when the economy fails to allocate resources efficiently on its own |
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| Consumers vote with their dollars in a market economy; this accounts for what is produced |
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| economy in which the government uses central planning to coordinate most economic activities |
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| an economy that allocates goods and services through the private decisions of consumers, input suppliers, and firms |
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| an economy where the government and the private sectors determine the allocation of resources |
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| production that uses a large amount of labor |
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| production that uses a large amount of capital |
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| markets where households are buyers and firms are sellers of goods and services |
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| Factor (or Input) Markets |
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| markets where households sell the use of their inputs (capital, land, labor, and entrepreneurship) to firms |
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| Simple Circular Flow Model |
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| an illustration of the continuous flow of goods, services, inputs, and payments between firms and households |
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| production possibilitiesn curve |
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| the potential total output combination of any two goods for an economy |
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| increasing opportunity cost |
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| the opportunity cost of producing additional units of a good rises as society produces more of that good |
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| the process of buyers and sellers exchanging goods and services |
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| s market where the many buyers and sellers have little market power- each buyers or sellers effect on the economy is negligible |
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| individual demand schedule |
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| a schedule that shows the relationship between price and quantity demanded |
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| a graphical representation that shows the inverse relationship between price and quantity demanded |
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| The horizontal summation of individual demand curves |
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| the quantity of a good or service demanded varies inversely (negatively) with its price |
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| Change in quantity demanded |
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| a change in a good's own price leads to a change in quantity demanded, a move ALONG a given demand curve |
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| the prices of related goods, income, number of buyers, tastes, and expectations (PYNTE) can change the demand for a good; that is, a ching in one of these factors shifts the ENTIRE demand curve |
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| An increase (decrease) in the price of one good causes the demand curve for another good to shift to the right or left |
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| an increase or decrease in the price of one good shifts the demand curve for another good to the right or left |
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| If income increases, the demand for a good increases; if income drops, the demand for the good decreases |
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| if income increases, the demand for a good decreases; if income decreases, the demand for a good increases |
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| the higher (lower) the price of the good, the greater (smaller) the quantity supplied |
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| a graphical representation of the amount of goods and services that suppliers are willing and able to supply at various prices |
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| the point at which the market supply and market demand curves intersect |
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| the price at the intersection of the market supply and demand curves; at this price, the quantity demanded equals the quantity supplied |
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| the quantity at the intersection of the market supply and demand curves; at the equilibrium quantity, the quantity demanded equals the quantity supplied |
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| a situation where quantity supplied exceeds quantity demanded |
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| a situation where quantity demanded exceeds quantity supplied |
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| a legally established maximum price |
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| a legally established minimum price |
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| Price Elasticity of Demand |
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| the measure of the responsiveness of quantity demanded to a change in price |
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| Price Elasticity of Demand |
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Definition
the measure of the responsiveness of quantity demanded to a change in price
Price Elasticity=Percentage change in quantity demenaded/ percentage change in price |
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| when the quantity demanded is greater than the percentage in price |
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| when the quantity demanded is less than the percentage change in price |
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| the monetary difference between the amount a consumer is willing to pay for an additional unit of a good and what the consumer actually pays- the market price. Consumer surplus for the whole market is the sum of all the individual consumer surpluses fo those consumers who have purchased the good |
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| Marginal willingness to pay |
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| the general fact that if the consumer is a buyer of SEVERAL units of a good, the earlier units will have greater marginal value and therefore create more consumer surplus. This falls as greater quantities are consumed in any period |
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| Increase (increase) in supply and a lower (higher) price |
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| increase (decrease) consumer surplus for each unit you were already consumer. |
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| the difference between what a producer is paid for a good and the cost of producing one more unit of that good. Measure of how much sellers gain from trading in the market |
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| the cost of producing one more unit of a good |
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| the sum of consumer and producer surpluses |
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| net loss of total surplus that results from an action that alters a market equiliubrium |
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| when we have maximized the sum of consumer and producer surplus |
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| the gains and losses associated with government intervention in markets |
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| measure by multiplying the amount of the tax times the quantity of the good sold after the tax is imposed T x Q2 |
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| Distort market incentives- price to buyers is higher than before tax, so they consume less. price to sellers is lower than before the tax so they produce less |
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| Supply and/or demand curves more elastic (taxes) |
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Definition
| the deadweight loss becomes larger because a given tax reduces the quantity exchanged by a greater amount |
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| a benefit or cost from consumption or production that spills over onto those who are not consuming or producing the good |
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occurs when benefits spill over to an outside party who is not involved in producing/consuming the good
UNDERPRODUCED |
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occurs when costs spill over to an outside party who is not involved in producing or consuming the good
OVERPRODUCED |
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| a good that is nonrivalrous in consumption and nonexcludable |
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| a good with rivalrous consumption and excludability |
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| when a good is not owned by anyone, individuals feel little incentive to conserve or use the resource efficiently |
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| a rival good that is nonexcludable; that is nonpayers cannot easily be excluded from consuming the good and when one unit is consumed by one person, it means that it cannot be consumed by another |
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occurs when the available information is initially distributed in favor of one party relative to another exchange
-sellers are at an information advantage over potential buyers when selling a car because they have more information about the product than the potential buyer |
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| a situation where an informed party benefits in an exchange by taking advantage of knowing more than another party |
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| Reputation and standardization |
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| example would be a warranty |
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| taking additional risks because you are insured |
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| a situation that arises in certain auctions where teh winner is worse off than the loser because of an overly optimistic value placed on the good |
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