ECO 101 Exam 1 Study Guide Flashcards

Vocabulary flashcards covering fundamental economic terms from Chapter One and Chapter Three outline for ECO 101: Exam 1.

Normative Economics

Opinions

Positive Economics

Facts

Macroeconomics

The whole economy

Microeconomics

Individual

Opportunity Cost

Sacrificing something when making a decision

Ceteris Paribus

isolate the relationship between specific variables.

Economics

The social science concerned with how individuals, businesses, and societies allocate scarce resources to satisfy unlimited wants and needs.

Production Possibilities Model

A graphical model illustrating the maximum attainable combinations of two goods or services an economy can produce given available resources and technology.

Law of Increasing Opportunity Cost

The principle stating that as the production of a particular good increases, the opportunity cost of producing additional units rises because economic resources are not equally suited to all types of production.

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than another producer.

Demand

The full relationship showing the quantities of a good or service consumers are willing and able to purchase at various price levels, represented graphically by the entire demand curve.

Quantity Demanded

The specific amount of a good or service that consumers are willing and able to purchase at a specific price, represented by a single point on a demand curve.

Supply

The full relationship showing the quantities of a good or service producers are willing and able to offer for sale at various price levels, represented graphically by the entire supply curve.

Quantity Supplied

The specific amount of a good or service that producers are willing and able to sell at a specific price, represented by a single point on a supply curve.

Market Equilibrium

The market condition where the quantity demanded equals the quantity supplied, establishing a stable equilibrium price and equilibrium quantity.

Consumer Surplus

The economic benefit measured as the difference between the maximum price consumers are willing to pay for a good and the actual price they pay.

Producer Surplus

The economic benefit measured as the difference between the price producers receive for a good and the minimum price they would be willing to accept.

Social Welfare

The total net benefit to society from market transactions, calculated as the sum of consumer surplus and producer surplus.

Tax Revenue

The total monetary amount collected by a government from a tax imposed on a market transaction, computed as the per-unit tax multiplied by the quantity traded.

Deadweight Loss

The net reduction in social welfare that occurs when market distortions or price controls prevent mutually beneficial exchanges from occurring.

Price Ceiling

A legally mandated maximum price that sellers are allowed to charge for a good or service, which creates a market shortage when set below equilibrium.

Price Floor

A legally mandated minimum price that must be paid for a good or service, which creates a market surplus when set above equilibrium.

Price System

An economic mechanism that uses market prices to convey information, align incentives, and allocate scarce resources efficiently across the economy.

Price Controls

Government-enforced legal limits placed on market prices, primarily consisting of price ceilings and price floors.