Introduction to Economics Flashcards

Flashcards on Introduction to Economics

Economics

A social science that studies human behavior and choices in the face of scarcity.

Microeconomics

The study of the behavior of individual people or individual firms.

Macroeconomics

The study of the behavior of the whole economy.

Economic Model

A simplification of reality composed of assumptions and constraints leading to conclusions.

Positive Analysis

Objective, value-free, and testable statements that explain behavior; what is.

Normative Analysis

Subjective statements based on beliefs and value judgments that prescribe behavior; what should be.

Scarcity

Exists when the price of a good is zero and people want more of it than is available.

Opportunity Cost

The value of the next best alternative that is forgone when one alternative is chosen.

Production Possibilities Boundary (PPB)

Illustrates the trade-offs that a society faces in using its scarce resources.

Maximizing Behavior

Behavior aimed to make people as happy as they can be when dealing with scarcity; optimization.

Equilibrium

A situation in which no one wants to change their behavior because everyone is maximizing.

Market System

An economic system where resources are allocated through the decentralized decisions of many firms and households as they interact in markets for goods and services

Consumer Sovereignty

The idea that what consumers 'vote' for with their dollars determines what will be produced.

Absolute Advantage

When an equal quantity of resources can produce more of good X by one person/entity than by another.

Comparative Advantage

When one person has a lower opportunity cost in the production of good X than another person.

Quantity Demanded (QD)

The total amount that consumers are willing and able to purchase at a given price level during a certain period of time.

Law of Demand

Price of a product (P) and quantity demanded (QD) are negatively related.

Substitutes in Consumption

Products that can be used in place of another product to satisfy similar needs or desires.

Complements in Consumption

Products that tend to be used jointly.

Quantity Supplied (QS)

The amount of a product that firms are willing and able to sell during a certain period of time.

Law of Supply

The price of the product and the quantity supplied are positively related.

Market Equilibrium

Occurs when the quantity demanded equals the quantity supplied.

Consumer Surplus

A consumer’s net gain from market activity; the difference between the total value of the product for consumers and the price they pay.

Producer Surplus

A producer’s net gain from market activity; the difference between the price of a product and the cost of producing it.

Social Surplus

The society’s total net gain from trade; the sum of consumer surplus and producer surplus.

Price Elasticity of Demand

How responsive consumers' demands are to price changes.

Elastic Demand

An increase (decrease) in price reduces (boosts) the quantity demanded a lot.

Inelastic Demand

An increase (decrease) in price reduces (boosts) the quantity demanded just a little.

Unit-Elastic Demand

The % change in quantity demanded is equal to the % change in price.

Price Elasticity of Supply

Measures how responsive the quantity sellers are willing to sell is to changes in the price.

Tax Incidence

The question of who bears the burden of a tax.

Deadweight Loss

A loss in efficiency due to market distortion.

Income Elasticity of Demand

The responsiveness of a product’s quantity demanded to changes in consumer income.

Cross-Price Elasticity of Demand

The responsiveness of the quantity demanded of one product (X) to a change in the price of another (Y).