ECON 1020

centralized economy

functions like a large firm with a strong hierarchy

decentralized economy

market-based, individuals are free to choose as long as they play by commonly understood rules

rules of the game

for markets to work well, we need ______

sunk costs fallacy

What economic principles does the “don’t finish that plate” analogy apply to?

water-diamond paradox

the gallon of water is more valuable than a small diamond in the desert describes what?

win-win

what kind of relationship is trade?

allocating resources

what are markets very good for?

scarcity

the limited nature of society’s resources

$65

Suppose you are currently employed as a social media coordinator for a college football team, earning $49 per hour. One evening, you decide to miss an optional hour of work and go to a food truck festival instead, which costs $16. What is your opportunity cost?

efficiency

the property of society getting the most it can from its scarce resources

equality

the property of distributing economic prosperity uniformly among the members of society

opportunity cost

whatever must be given up to obtain some item

rational people

people who systematically and purposefully do the best they can to achieve their objectives

marginal change

an incremental adjustment to a plan of action

incentive

something that induces a person to act

slowdown in productivity growth

what is a reason behind the slow growth in U.S. incomes during the 1970s and 1980s?

market economy

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

property rights

the ability of an individual to own and exercise control over scarce resources

market failure

a situation in which a market left on its own does not allocate resources efficiently

externality

the impact of one person’s actions on the well-being of a bystander

market power

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

productivity

the quantity of goods and services produced from each unit of labor input

inflation

an increase in the overall level of prices in the economy

market

a group of buyers and sellers of a particular good or service

competitive market

a market in which there are many buyers and many sellers so each has a negligible impact on the market price

every seller takes the price of its product as set by market conditions

In a perfectly competitive market, _______

quantity demanded

the amount of a good that buyers are willing and able to purchase

law of demand

the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

quantity demanded falls

according to the law of demand, when the price of a good rises, _____

quantity demanded rises

according to the law of demand, when the price of a good falls, _____

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

demand curve

a graph of the relationship between the price of a good and the quantity demanded

normal good

a good for which, other things being equal, an increase in income leads to an increase in demand

inferior good

a good for which, other things being equal, an increase in income leads to a decrease in demand

substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

complements

two goods for which an increase in the price of one leads to a decrease in the demand for the other

quantity supplied

the amount of a good that sellers are willing and able to sell

quantity supplied

the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises

supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

supply curve

a graph of the relationship between the price of a good and the quantity supplied

equilibrium

a situation in which the market price has reached the level at which the quantity supplied equals the quantity demanded

equilibrium price

the price that balances the quantity supplied and the quantity demanded

equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price

surplus

a situation in which the quantity supplied is greater than the quantity demanded

shortage

a situation in which the quantity demanded is greater than the quantity supplied

law of supply and demand

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded of that good into balance

demand, quantity supplied

An increase in ________ will cause a movement along a given supply curve, which is called a change in ________

supply will increase

If sellers expect lower prices in the near future, the current _______

perfect competition

The highest form of competition is called _______

supply of autos will shift left

Workers in a union at an automobile assembly plant negotiate a higher wage. It is likely that _______

all producers sell identical goods

what do producers do in a perfectly competitive market?

elasticity

a measure of the responsiveness of the quantity demanded or quantity supplied to a change in one of its determinants

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in its price, calculated as the percentage change in quantity demanded divided by the percentage change in price

elastic

if the quantity demanded responds substantially to price changes, what is it considered?

inelastic

if the quantity demanded responds only slightly to price changes, what is it considered?

goods with close substitutes

what type of goods tend to have more elastic demand because it is easier for consumers to switch from those goods to others?

narrowly defined markets

what type of markets tend to have more elastic demand than broadly defined ones?

over longer periods of time

when does demand tend to be more elastic?

demand is elastic

what does it mean when elasticity is greater than one?

demand is inelastic

what does it mean when elasticity is less than one?

demand has unit elasticity

what does it mean when elasticity equals one?

total revenue

the amount paid by buyers and received by the sellers of a good, calculated as the price of the good times the quantity sold

income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers’ income, calculated as the percentage change in quantity demanded divided by the percentage change in income

cross-price elasticity of demand

a measure of how much the quantity demanded of one good responds to a change in the price of another good, calculated as the percentage change in the quantity demanded of the first good divided by the percentage change in the price of the second good

cross-price elasticity is positive

the price of hot dogs and the quantity of hamburgers demanded move in the same direction, how is the cross-price elasticity best described?

cross-price elasticity is negative

computers and software are typically bought together, how is the cross-price elasticity best described?

the good is a necessity

A good tends to have a small price elasticity of demand if _______

price elasticity of supply

a measure of how much the quantity supplied of a good responds to a change in its price, calculated as the percentage change in quantity supplied divided by the percentage change in price

lower the admission price

if demand is elastic with price elasticity greater than 1, what can be done to the admission price to increase total revenue?

raise the admission price

if demand is elastic with price elasticity less than 1, what can be done to the admission price to increase total revenue?

price ceiling

a legal maximum on the price at which a good can be sold

price floor

a legal minimum on the price at which a good can be sold

binding constraint

when the forces of supply and demand tend to move the price toward equilibrium, but the ceiling prevents the market price from reaching it

tax incidence

the manner in which the burden of a tax is shared among participants in a market

less elastic

a tax burden falls more heavily on the side of the market that is ___ ____