Economics Test 1

Economics

The study of how society chooses to use its scarce resources for the production of goods and services to satisfy unlimited wants

Scarcity

The condition in which human wants are forever greater than the available supply of time, goods, and resources

incentives

a reward or penalty that influences choices and changes human behavior

opportunity costs

the best option sacrificed for the chosen option; the opportunity cost increases as production of an output expands

demand/demand curve

the relationship between the price and the quantity demanded for a good or service, when other variables are held constant. (An inverse relationship between the price of a good or a service the quantity buyers purchase)

Change in Demand

an increase (rightward shift) or a decrease (leftward shift) in the demand curve. The shift is caused by number of buyers, tastes/preferences, income, expectations of buyers and prices of related goods

Quantity Demanded

the amount of goods and services purchased at a given price

Change in quantity demanded

A movement between points along a stationary demand curve because of a change in price

Elasticity of Demand

the responsiveness in demand to a change in price

Supply

the relationship between the price and quantity supplied for a good or service, when other variables are constant

Change in Supply

An increase (rightward shift) or a decrease (leftward shift) the quantity supplied at each possible price, The shift is caused by change in a supply shift factor (number of sellers, technology, resource prices, prices of other goods that the firm could produce)

Quantity supplied

the amount of goods or services sellers offer for sale at a given price

change in quantity supplied

a movement between points along a stationary supply curve because of a change in price

Equilibrium

a market price at which the quantity demanded equals the quantity supplied, at equilibrium there is no shortage or surplus

Shortage

a market condition where the quantity demanded of a product or service exceeds the quantity supplied at the current market price

Surplus

an amount of a resource, good, or money that is greater than what is needed or used

Marginal Analysis

the decision about how much more or less to do

Marginal Benefit

the extra gain from additional unit of charge

Cost Benefit Analysis

compares the additional rewards and costs of an action to determine if the benefits outway the costs

Marginal cost

the extra cost from an additional unit of change

Substitute good

two or more products that can be used for the same purpose because they satisfy the same consumer need or want

Complementary good

products or services that people typically use together, so that the appeal or demand for one goes up when the popularity or availability of the other increases

Capitalism/Free Market

an economy system private ownership of resources and markets

Communism

a classless economic system in which all resources are owned by workers

market

any place or method used by buyers and sellers to exchange goods and services

free market

exists when consumers and businesses buy and sell products with minimum of government restrictions

C.E.L.L

Capital, Economics, Land, Labor

Capital

human-made goods that are used to produce other goods and service

Land

any natural resource provided by nature and used in production process

Labor

the mental and physical capacity of workers to produce goods and services

macroeconomics

the branch of economics that studies decision making rather than individual parts

microeconomics

the branch of economics that studies decision making by individuals, families, or businesses

private property rights

the rights of individuals and groups to own businesses and resources

consumer sovereignty

the freedom of consumers to cast their dollar votes to buy, or not to buy at prices set in competitive markets

self-interest

the focus of buyers and sellers on their own personal benefit

economic efficiency

producing the most goods and services from limited resources

economic security

the protection against economic hardships

economic equity

difficult to define and deals w/ what people perceive to be “fair” or “unfair”

economic system

the methods used to answer the what, how, and for whom questions

traditional economy

answers the what, who, and for whom questions the way they have been answered for generations

market economy

does not use customs or central planners to answer the 3 basic economic questions

command economy

the 3 questions are answered by a dictation of central authority

socialism

an economic system based on government owns and controls major industries

mixed economy

a system that answers the 3 questions through a mixture of all economics systems

nationalization

the act of transforming private enterprise into government enterprise

production possibilities curve

shows the maximum possible output for economy

fixed resources

all resources remain unchanged

efficiency

producing the maximum output w/ given resources and tech

underutilization

occurs when an economy falls to fully use its resources

economic growth

the ability of an economy to produce greater levels of output

demand schedule

a table that lists the quantity of a good or service consumers purchase at various possible prices

individual demand

demand for a single consumer

market demand

sum of all individual demand curves in a market

the law of demand

states that there is an inverse relationship between the price of a good or service and the quantity buyers purchase

demand curve

formed by the line connecting points that represent possible combinations of price and quantity purchased by consumers