ECON 2020 Exam 1 Vocabulary Flashcards

Vocabulary flashcards defining fundamental terms and concepts from ECON 2020 Exam 1 lectures, including scarcity, cost types, market demand and supply, market equilibrium, and surplus.

Economics

The social science of how individuals, institutions, and society make choices under conditions of scarcity.

Scarcity

The condition whereby the resources we use to produce goods and services are limited relative to our wants for them.

Scarce Good / Economic Good

A good for which you can NOT get all you want at zero cost.

Free Good

A good for which you can get all you want at zero cost.

Price

A signal that tells producers what and how much to produce; in a standard market transaction, it is paid by the consumer.

Cost

The sacrifice associated with making a choice; in a standard market transaction, it is paid by the producer.

Explicit Costs

Out-of-pocket, monetary payments.

Implicit Cost / Opportunity Cost

The most valued option forgone.

Economic Cost

Explicit costs + implicit costs

Resources

The inputs or factors used in the production of outputs, products, goods, and services.

Natural

Resource - land, oil, lumber, and other natural inputs

Labor

Resource - Physical and mental talents used in production.

Capital

Resource - all manufactured goods

Entrepreneurship

Resource - the ability to combine other resources into valuable outputs.

Utility

The satisfaction a consumer obtains from the consumption of a good or service.

Marginal

Additional; the change that results from an additional unit.

Economic Principles

Statements about economic behavior or the economy that enable prediction of the probable effects of certain actions; relationships between variables.

Model

A simplified, graphical representation of relationships between variables.

Market

Any institution that brings together consumers and producers of a particular good or service.

Demand Schedule

A table that shows how much of a good or service consumers will want to buy at various prices.

Law of Demand

The price of a good and the quantity demanded are inversely related. (As price goes up demand goes down)

Demand Curve

a line that shows the maximum that consumers are willing to pay for any quantity.

Demand

The relationship between $P$ (price) and $Qd$ (quantity demanded) for all possible prices.

Quantity Demanded

The number of units consumers are willing to buy at a specific price.

Change in Quantity Demanded ($\Delta Qd$)

A change in the amount purchased caused by a change in the price

Change in Demand ($\Delta D$)

A shift of the entire demand curve to the left or right.

Normal Goods

Goods for which income and demand move together.

Inferior Goods

Goods for which income and demand move opposite. (more money = buying better food)

Substitutes

Goods that take the place of each other in consumption; the price of one good and the demand for the other move together.

Complements

Goods that are used together in consumption; the price of one good and the demand for the other move opposite.

Supply Schedule

A table that shows how much of a good or service producers will offer for sale at various prices.

Law of Supply

The principle that the price of a good and the quantity supplied are directly (positively) related. (price rises quantity rises)

Supply Curve

a line that shows the MINIMUM that producers are willing to accept as payment for any quantity.

Supply

The relationship between $P$ and $Qs$ for all possible prices.

Quantity Supplied

The number of units producers are willing to offer for sale at a specific price.

Change in Quantity Supplied ($\Delta Qs$)

A change in the amount offered for sale caused by a change in the price; represented as a movement along the supply curve.

Change in Supply ($\Delta S$)

A shift of the entire supply curve to the left or right. (increase in cost decrease in supply curve, decrease in cost increase in curve)

Technology

The production process of changing resources into goods and services. (improvement of technology = supply increase)

Equilibrium Price ($P_e$)

The price at which the market clears ($Qs = Qd$).

Equilibrium

No tendency for change. At any other price tendency for change occurs.

Surplus

-Prices above $P_e$, Qs > Qd;

-$Qs-Qd$

-always makes price decrease, setting demand too high

-put downward pressure on prices until surplus is eliminated

Shortage

-Prices below $P_e$, Qd > Qs; -

- $Qd-Qs$ units.

-price always increase, not making enough product

-puts upward pressure on prices until the shortage is eliminated

Price Rationing

The allocation of goods among consumers using prices. Every consumer willing to pay at least the equilibrium price will get to have the good. (consumer willing to pay the most)

What are the 4 types of resources

natural, labor, capital, entrepreneurship

What maximizes social welfare?

utility maximization by producers and consumers

Product Markets

Households demand goods and services which are supplied bu firms in exchange for money

Resource Markets

Firms demand resources which are supplied by households in exchange for money

Factors that Shift the Demand Curve

Income, price of related goods, expectations of future prices, number of buyers, tastes and preferences

Substitutes Example

The price of Pepsi goes up more people will buy coke

Complements Example

The price of jelly decreases so the demand for peanut butter rises

Expectations of Future Prices

Expected future price changes and current demand move together (if there is a sale tomorrow I will buy the product tomorrow decreasing the demand today)

Factors that Shift Supply Curve

Inout/resource prices, technology, taxes, expectations of futures prices, number of sellers

Input/Resource Prices

input prices and supply move opposite (increase for a product = decrease in supply)

Taxes

taxation and supply move opposite (increase in taxes = decrease in supply)

Expectations of Future Prices (supply)

expected future price changes and current supply move opposite; good must be durable/storable

Number of Sellers

market changes as profit changes; firms will enter when profit is high and exit when is low

What happens to the market when the price of a good/resource falls

supply increase, surplus at the old price, price equilibrium falls, quantity equilibrium rises

When a complement good falls what happens to the other

demand for the other good increases, leading to a rise in its equilibrium price and quantity.

What happens to the market for when we expect higher future prices

demand increases, supply decreases, price equilibrium rises, quantity equilibrium may rise or fall (indeterminate)

-effects both consumers and producers

Consumer Surplus

willingness to pay - amount paid

Willingness to pay

maximum price at which a consumer will buy a good; marginal BENEFIT

Product Surplus

amonunt received - willingness to accept

Willingness to Accept

minimum price at which a producer will sell a good; marginal COST