Econ 200 Key Vocab and Terms

Economics

The study of how people manage resources

Microeconomics

The study of how individuals and firms manage resources

Macroeconomics

The study of how policy-makers manage the growth and behavior of the overall economy.

Scarcity

The condition of wanting more than we can get with available resources

Opportunity Cost

The true cost of a choice is the value you could have gained by choosing the next-best alternative instead

Marginal Decision Making

Rational people compare the additional benefits of a choice against the additional costs, without considering related benefits and costs of past choices

Incentive

Something that causes people to behave in a certain way by changing the trade-offs they face. It can be both positive and negative

Efficiency

Not just about maximizing productivity, but ensuring people get what they most want and need, given the available resources

Sunk Costs

Cost that has been incurred and cannot be recovered

Positive Statement

Factual Claim

Normative Statement

How it should be, cannot be proved true or false

Production Possibilities Frontier Model (PPF)

GIves us a way to represent the constrains on production

Absolute Advantage

A producer can generate more output than others with a given amount of resources

Comparative Advantage

A producer can make a good at a lower opportunity cost than other producers

Specialization

Spending all your resources producing a particular good

Gains from Trades

Improvement in outcomes when specialized producers exchange goods and services

Competitive Market

Fully informed, price-taking buyers and sellers easily trade a standardized good or service

Price Taker

A buyer or seller who cannot affect the market price

Standardized Cost

A good or service for which any two units of it have the same features and are interchangeable.

Transaction Costs

Costs incurred by buyer and seller in agreeing to and executing a sale of goods or services

Four Characteristics of Perfectly Competitive Markets

Participants are Price Takers

Standarized Good

Full Information

No Transaction Costs

Quantity Demanded

The amount of a particular good that buyers in a market will purchase at a given price during a specific period

Law of Demand

Inverse relationship between price and quantity demanded, sometimes known as ceteris paribus

Demand Schedule

Demand as a table

Substitutes

When goods serve similar enough purposes that a consumer might purchase one in place of the other

Complements

Related goods that are consumed together so that purchasing one will make a consumer more likely to consume the other

Normal Goods

Increase in income causes an increase in demand

Inferior Goods

As income increases, demand decreases

What causes Shifts in the Demand Curve?

Changes in the nonprice determinants of demand

What causes a movement along the demand curve?

Result of a change in price

Quantity Supplied

Amount of a particular good of service producers will offer for sale at a given price during a specified period

Supply Schedule

Table that shows the quantities of a particular good or service that producers will supply at various prices

Supply Curves

Graph of info in the supply schedule

Market Equilibrium

Convergence of supply with demand happens at the point where the demand curve intersects the supply curve

Equilibrium Price

Price at the point

Equilibrium Quantity

Quantity at the point

Surplus/ Excess Supply

Quantity supplied is higher than the quantity demanded

Shortage/ Excess Demand

Quantity demanded is higher than quantity supplied.

Law of Supply

Quantity supplied inceases as price increases.

Market Economy

Private individuals, rather than a centralized planning authority, make the decisions

Market

Buyers and sellers who trade a particular good or service, not to a physical location