Microeconomics > Midterm 1 > Flashcards

Midterm 1 Flashcards

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1
Q

Economics

A

The study of how people, individually and collectively, manage resources

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2
Q

Microeconomics

A

The study of how individuals and firms manage resources

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3
Q

Macroeconomics

A

The study of the economy on a regional, national, or international scale

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4
Q

Rational Behaviour

A

Making choices to achieve goals in the most effective way possible

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5
Q

Four questions from an economist

A
  1. What are the wants and constraints of those involved?
  2. What are the trade-offs?
  3. How will others respond?
  4. Are resources being allocated in the best way possible?
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6
Q

Scarcity

A

The condition of wanting something more than we can get with available resources

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7
Q

Opportunity Cost

A

The value of what you have to give up in order to get something; the value of your next-best alternative

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8
Q

Marginal Decision Making

A

Comparison of additional benefits of a choice against the additional costs it would bring, without considering related benefits and costs of past choices

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9
Q

Sunk Costs

A

Costs that have already been incurred and cannot be recovered or refunded

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10
Q

Incentives

A

Something that causes people to behave in a certain way by changing the trade-offs they face

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11
Q

Efficiency

A

Use of resources in the most productive way possible to produce the goods and services that have the greatest total economic value to society

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12
Q

Innovation

A

Innovation is the explanation you’re hoping is correct

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13
Q

Market Failure

A

Sometimes people and firms fail to take advantage of opportunities because something prevents them from capturing the benefits of the opportunity or imposes additional costs on them

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14
Q

Intervention

A

If a powerful force - often the government - intervenes in the economy, transactions cannot take place they way they normally would

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15
Q

Unprofitable Idea

A

Individuals and government have goals other than profit, of course - for example, creating great art or promoting social justice

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16
Q

Correlation

A

A consistently observed relationship between two events or variables

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17
Q

Causation

A

A relationship between two events in which one brings about the other

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18
Q

Model

A

A simplified representation of the important parts of a complicated situation

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19
Q

Circular Flow Model

A

A simplified representation of how the economy’s transactions work together

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20
Q

To be useful, a model should do three additional things:

A
  1. A good model predicts cause and effect
  2. A good model makes clear assumptions
  3. A good model describes the real world accurately
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21
Q

A good model predicts cause and effect

A

The circular flow model gives a useful description of the basics of the economy

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22
Q

A good model makes clear assumptions

A

Although models are usually too simple to fit the real world perfectly, it’s important that they be clear about the simplifying expressions

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23
Q

A good model describes the real world accurately

A

If a model does not describe what actually happens in the real world, something about the model is wrong

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24
Q

Two statements from an economist

A
  1. Income taxes reduce the number of hours that people want to work
  2. Income taxes should be reduced or abolished
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25
Positive statement
A factual declaration about how the world actually works
26
Normative statement
A claim about how the world should be
27
Production Possibilities Frontier (PPF)
A line or curve that shows all the possible combinations of two outputs that can be produced using all available resources
28
Efficient Points
Combinations of production possibilities that squeeze the most output possible from all available resources
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Absolute Advantage
The ability to produce more of a good or service than others can with a given amount of resources
30
Comparative Advantage
The ability to produce a good or service at a lower opportunity cost than others
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Specialization
Spending all of your time producing a particular good
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Gains from Trade
The improvement in outcomes that occurs when producers specialize and exchange goods and services
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Slope
The ratio of vertical distance (change in y) to horizontal distance (change in x)
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Rise
Vertical distance; calculated as the change in y
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Run
Horizontal distance; calculated as the change in x
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Market Economy
An economy in which private individuals, rather than a centralized planning authority, make the decisions
37
Market
Buyers and sellers who trade a particular good or service
38
Competitive Market
A market in which fully informed, price-taking buyers and sellers easily trade a standardized good or service
39
Price Taker
Buyers or sellers who cannot affect the market price
40
Standardized Good
A good for which any two units have the same features and are interchangeable
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Transaction Costs
The costs incurred by buyer and seller in agreeing to and executing a sale of goods or services
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Quantity Demanded
The amount of a particular good that buyers will purchase at a given price during a specific period
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Law of Demand
A fundamental characteristic of demand: all else equal, quantity demanded rises as price falls
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Demand Schedule
A table that shows the quantities of a particular good or service that consumers will purchase (demand) at various prices
45
Demand Curve
A graph that shows the quantities of a particular good or service that consumers will demand at various prices
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Substitutes
Goods that serve a similar enough purpose that a consumer might purchase one in place of the other
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Complements
Goods that are consumed together, so that purchasing one will make consumers more likely to purchase the other
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Normal Goods
Goods for which demand increases as income increases
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Inferior Goods
Goods for which demand increases as income increases
50
Quantity Supplied
The amount of a particular good or service that producers will offer for sale at a given price during a specific period
51
Law of Supply
A fundamental characteristic of supply: all else equal, quantity supplied rises as price rises
52
Supply Schedule
A table that shows the quantities of a particular good or service that producers will supply at various prices
53
Supply Curve
A graph that shows the quantities of a particular good or service that producers will supply at various prices
54
Equilibrium
The situation in a market when the quantity supplied equals the quantity demanded; geographically, this convergence happens where the demand curve intersects the supply curve
55
Equilibrium Price
The price at which the quantity supplied equals the quantity demanded
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Equilibrium Quantity
The quantity that is supplied and demanded at the equilibrium price
57
Surplus
A way of measuring who benefits from transactions and by how much
58
Excess Quantity Supplied
A situation in which the quantity of a good that is supplied is higher than the quantity demanded
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Shortage
A situation in which the quantity of a good that is demanded is higher than the quantity supplied
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Excess Quantity Demand
A situation in which the quantity of a good that is demanded is higher than the quantity supplied
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Elasticity
A measure of how much consumer and producers will respond to a change in market conditions
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Price Elasticity of Demand
The size of the change in the quantity demanded of a good or service when its price changes
63
Mid-Point Method
Measures percentage change in demand (or supply) relative to a point midway between two points on a curve; used to estimate elasticity
64
Perfectly Elastic
Demand for which the demand curve is horizontal, such that demand could be any quantity at the given price, but drops to zero if the price increases
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Perfectly Inelastic
Demand for which the demand curve is vertical, in a way such that that the quantity demanded is always the same no matter what the price
66
Elastic
Demand that has an absolute value of elasticity greater than 1
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Inelastic
Demand that has an absolute value of elasticity less than 1
68
Unit-Elastic
Demand that has an absolute value of elasticity exactly equal to 1
69
Total Revenue
The amount that a firm receives from the sale of goods and services; calculated as the quantity sold multiplied by the price paid for each unit
70
Price Elasticity of Supply
The size of the change in the quantity supplied of a good or service when its price changes
71
Cross-Price Elasticity of Demand
A measure of how the quantity demanded of one good changes when the price of a different good changes
72
Income
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