Studied by 4 peoplescarcity
the basic economic problem; it is a lack of needed or wanted resources relative to the demand for the resources.
opportunity cost
what you give up when you make a choice
microeconomics
looks at specific economic units such as businesses and consumer behavior
macroeconomics
study of the economy as a whole, such as total output, total employment, total income, etc.
factors of production
resources; includes land, labor, capital, and entrepreneurship.
specialization
a process in which an individual or business completes one task repetitively and develops expertise in that task; increases productive efficiency
demand
the desire, ability and willingness to BUY a product at a given price
Law of Demand
As price increases, quantity demanded decreases; as price decreases, quantity demanded increases.
marginal utility
extra usefulness a person gets from consuming one more unit of a product.
diminishing marginal utility
the more you consume of a product, the less satisfaction you receive from it.
movement along the demand curve
change in quantity demanded, caused only by a change in price
change in demand or change in supply
a shift of the curve
substitutes
goods used in place of each other
complements
goods commonly used together
Law of supply
as price increases, quantity supplied increases (and vice versa)
upward
supply curve slopes this way, from left to right
determinants
shifters or ceteris paribus conditions for demand and supply
supply shifters
resources, other goods, taxes, technology, expectations of sellers, number of sellers, subsidies
demand shifters
taste, income, number of buyers, expectations of buyers, related goods
equilibrium
balance ; point where QD = QS
equilibrium price
price that "clears the market"
surplus
QS > QD because price is ABOVE equilibrium
shortage
QD> QS because price is BELOW equilibrium
price
serves a link between producers and consumers
capital goods
goods made for indirect consumption; they are tools used to make other products (automobiles used for a delivery company).
consumer goods
goods made for direct consumption (ex. electricity being used by individual households)
trade-offs
all possible options
PPC shifters
change in resource availability, change in technology or productivity, change in trade
production possibilities curve
a model showing the trade-offs between two economic choices; illustrates the concept of opportunity cost
price ceiling
a cap on a price/maximum price allowed for a product
price floor
minimum price allowed for a product
absolute advantage
the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
resource
the inputs that society uses to produce output, called goods
normal good
product/service that sees a rise in demand when incomes rise
inferior good
product/service that sees a decrease in demand when incomes rise.
PRICE DOES NOT SHIFT THE CURVE
Does Price Shift the curve?
allows for countries to consume more beyond their production possibilities due to specialization. graph shifts out based on consumption.
how trade shifts the ppc
how to find absolute advantage
take whichever producer can produce the most things (bigger number).
how to find comparative advantage
determine which producer has the lowest opportunidy cost.
how to find per unit opportunity cost
for output other goes over, for input other goes under.
how to find terms of trade
look at each producer's opportunity cost and choose a number in the middle
what makes a price celing binding (where does the price have to be set)?
if set below equilibrium price, will cause a shortage.
what makes a price floor binding (where does the price have to be set)?
if set above equilibrium, will result in a surplus.
how shifting supply and demand affects price and quantity
Supply and demand curves shift price and quantity but price never shifts the curve.
what changing the price of a good does
If lowering the price, the demand will increase. If price is raised, demand will decrease.
change in demand
a change in the amount of products consumers are willing to buy. - shifts the entire curve (because demand is one of the shifters).
change in quantity demanded
movement along the curve due to a change in price.
change in supply
the amount of products producers are willing to make. shifts the entire curve.
change in quantity supplied
causes movement along the curve because it's a change in price.
Note
Flashcard