econ chapter 1 - 4

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1000 Economics Flashcards on econ chapter 1 - 4, created by ccohen24 on 14/10/2015.
ccohen24
Flashcards by ccohen24, updated more than 1 year ago
ccohen24
Created by ccohen24 over 8 years ago
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Question Answer
what is economics? studies the choices that individuals, businesses, governments and entire societies make as they cope with scarcity and the incentives
what is the difference between micro and macro? micro - choices of individuals and businesses macro - national and global
2 big economic questions 1) how do choices end up determining what, how and for whom g&s get produced? 2) when do choice made in the pursuit of self interest also promote the social interest?
what are goods and services? the objects that people value and produce to satisfy human wants
what are the types of goods and services? agriculture or manufactured goods and services
what are the factors of production? -land (rent) -capital (physical & funds), -labor (human capital) -entrepreneurship (controls all the other factors)
what is self interest? you make choices that are best for you?
what is social interest? choices that are best for society. the 2 dimensions - efficiency and equity
when are we efficient? when it is not possible to make someone better off without making someone worse off
what is equity? fairness
what current topics may illustrate tension between self interest and social interest? globalization, info-age monopolies, global warming, economic instability and political instability
a choice is always a _________ tradeoff
________ is what you gain from something benefit
_____ is what you must give up to get something cost
what is considered a rational choice when net benefit = net cost
what is marginal benefit the additional satisfaction or utility that a person receives from consuming additional unit of a good or service
what is marginal cost? opportunity cost of pursuing an incremental increase in an activity
what is a positive statement? checking against a fact (ex: gov't provided health care increase public expenditures)
what is a normative statement? an opinion that cannot be tested; values (ex: gov't should provide basic healthcare to all citizens)
what is an economic model? description of aspects of the economic world only including features for that purpose
what is the production possibilities frontier? (PPF) the boundary between those combinations of goods and services that can be produced and those that cannot
describe where on a PPF you are inefficient, efficient and not attainable?
what is production efficiency? if we cannot produce more or one good without producing less of some other good
why is the PPF curved? because resources are not equally productive in all activities
the more we have of a good the ______ the marginal benefit. smaller
what is the optimum point of production? MB = MC (equal highest potential value for each resource)
what causes economical growth? technological change or capital accumulation
what is the cost of economic growth? ato grow research and development, and produce new capital, we must decrease our production or consumption
what is a comparative advantage? a person has it in an activity if they can perform at a lower opportunity cost
what is the absolute advantage? a person that is more productive
what are markets? any arrangement that enables buyers and sellers to get information and do business
what is a competitive market? many buyers and sellers, no single buyer or seller can influence the price
the money price the amount of money needed to buy a good
the relative price the ratio of its money price to the money price of the next best alternative good - its opportunity cost
what is the difference between demand and quantity demanded? demand = relationship between quantity and money quantity demanded = how much is demanded at a particular point
what is the law of demand? - other things remaining the same, the higher the price of a good, the smaller is the quantity demanded -the lower the price of a good, the larger the quantity demanded
what influences a change in quantity demanded? substitution effect and income effect
what is substitution effect? when the relative price of a good or service rises, people seek substitutes for it, so the quantity demanded decreases
what is income effect? when the price a good and service rises relative to people's incomes, people cannot afford all the things they want therefore quantity demanded decreases
what is willingness to pay? the small the qty, higher the price people are willing to pay --> marginal benefit
when there is change in demand what happens to the curve? it shifts left (D down), shifts right (D up)
what are the 6 main factors that change demand? 1) price of related goods 2) expected future prices 3) income 4) expected future income and credit 5) population 6) preferences
in terms of related goods what causes demand to increase? substitute decreases compliment increases
if the price of a good is expected to rise in the future, current demand will ________? increase
when income increases, a normal good will _______ and an inferior good (cheap stuff) will _______. increase, decrease
when income is expected to increase in the future the demand will _______? increase
the larger the population the ________ the demand? higher
if a preferences increases, the demand will ________? increase
what does an increase in demand look like?
what does an increase in quantity demanded look like?
what is the law of supply? the higher the price of a good, the greater the quantity supplied
producers will only produce a good if they can produce ____ or _______ then the MC. at, higher
what are the 6 main factors that change supply? 1) prices of factors on production 2) prices of related goods produced 3) expected future prices 4) number of suppliers 5) technology 6) state of nature
if the price of oil increases the production will ______? decrease
if the production of a substitute decreases, supply will ______. increase
compliments must be produced ________. together
if the price of a good is expected to rise in the future, supply of the good today _____ and the supply shifts ______. decreases, leftward
the larger the number of suppliers of a good, the ________ is the supply of a good? therefore supply shift rightward greater (supply shift rightward)
an increase in technology causes a ______ in supply. increase
if a natural disaster occurs, the supply will _______? decrease
what is the difference between a change in supply and a change in quantity supplied? change in supply are factors that shift the curve change in quantity supplied is a change in price producers sell at
when does market equilibrium occur? opposing forces balance each other (price and buyer/seller)
when does equilibrium price occur? quantity demanded = quantity supplied
what is equilibrium quantity? the quantity bought and sold at the equilibrium price - price regulates buying and selling plans - price adjusts when plans don't match
this is an example of a _______? surplus - at original price decrease in demand and increase in supply
describe a shortage anything below the equilibrium - at original price an increase in demand and a decrease in supply
a surplus forces the price to go ______, whereas a shortage forces the price to go ______. down, up
an increase in demand and an increase in supply _____ the equilibrium quantity. increase
a decrease in demand and an increase in supply _______ the equilibrium price. lowers
an increase in demand and a decrease in supply _______ the equilibrium price. raises
the 6 main factors that change the supply of a good 1) prices of factors of production 2) prices of related goods produced 3) expected future prices 4) the number of suppliers 5) technology 6) state of nature
what is a movement along a supply curve? when the price changes but all other influences remain constant
a shift of the supply curve is caused by what? price stays the same, other determinants change
what is equilibrium price? price at which the quantity demanded equals the quantity supplied
what is equilibrium quantity? the quantity bought and sold at the equilibrium price
what is another word for elasticity? responsiveness
YESwhat is the general formula of elasticity?
does you use absolute value for price elasticity? YES
Elasticity is a ratio of percentages, so a change in the units of measurement of price or quantity leaves the elasticity value the ______. same
describe perfectly inelastic demand buy the same amount no matter what the price is (inelastic starts with an i and "i"s are straight) NO CLOSE SUBSTITUES
describe perfectly elastic demand no matter quantity, same price --> Quantity demanded increases at a infinite faster rate then price
describe unit elastic demand when %change in Qd = %change in P
what numbers correlate to... -perfectly inelastic -inelastic -unit elastic -elastic -infinitely elastic
what is the main difference between inelastic and elastic? inelastic - price changes quicker then quantity elastic - quantity quicker then price
factors that influence elasticity of demand - closeness of substitutes - proportion of income spent on good - the time elapsed since a price change
where is unit elastic on the demand curve? the midpoint
total revenue and elasticity When the price changes, total revenue also __________. But a rise in price doesn’t always increase ___________. changes, total revenue
what is the total revenue test?
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