Econ - Unit 1

Economics

The study of scarcity and choice

Trade-Offs

What you give up to get something else

Resource

Anything that can be used to produce something else

Microeconomics

The study of how individuals, households, and firms make decisions and how those decisions interact

Macroeconomics

Study of the overall ups and downs of the economy

Positive Economics

Analysis of how the economy works and focuses on questions that have definitive answers

Normative Economics

Analyzing how the economy should work

Ceteris Parabus

All things being equal

PPC

Illustrates the necessary trade-offs in an economy that produces only 2 goods; alternative combinations that could be produced using all of your resources and technology; shows the true cost of any good

Efficiency

Any point on your PPC

Economic Growth

An increase in the maximum amount of goods and services an economy can produce; outward shift of the PPC

Trade

Providing goods and services in exchange for other goods and services

Specialization

Specializing in the task you are good at performing

Adam Smith

The Wealth of Nations

Comparative Advantage

Ability to produce a specific good or service at a lower opportunity cost; the basis for international trade

Absolute Advantage

Ability to produce a specific good or service with less resources

Terms of Trade

The rate at which one good can be exchanged for another

Demand

Willingness and ability

Demand Schedule

Table that shows how much of a good or service consumers will be willing to buy at various prices

Law of Demand

Higher price equals less quantity demanded, lower price equals higher quantity demanded

Normal good

Rising income causes a rise in demand for that good

Inferior good

Rise in income decreases the demand for that good

Individual

Relationship between quantity demanded and price for an individual; one business in particular in the market

Market

Combined quantity demanded by all consumers depends on the market price of that good; all producers in the market

The Supply Curve

Shows the relationship between the quantity supplied and price

Quantity supplied

Actual amount that producers are willing to sell at a particular price

Supply schedule

How much would be supplied at various prices

Law of Supply

As prices rises, quantity supplied rises, as price falls, quantity supplied falls

Change in supply

Shift of the supply curve

Change in quantity supplied

Movement along the supply curve in response to price change

Equilibrium Price

Market-clearing price, quantity demanded is equal to quantity supplied

Disequilibrium

Market price is above or below the actual equilibrium price in a market

Surplus

Quantity supplied exceeds quantity demanded

Shortage

Quantity demanded exceeds quantity supplied