ECON 1103 EXAM 1 GUIDE

Economics

The study of satisfying our unlimited wants with limited resources.

Microeconomics

Making decisions for themselves; small picture activities; balancing trade-offs between resources to use.

Macroeconomics

Making decisions for others as a group.

Factors of production

The resources required to produce goods and services, which include land, labor, capital, and entrepreneurship.

Opportunity cost

The cost of the next best option that was not chosen.

Production possibilities frontier (PPF)

A curve that illustrates the possibilities of production using given, limited resources.

Allocative efficiency

Resources are allocated in a way that maximizes the happiness of consumers.

Law of demand

The principle that price and quantity demanded have an inverse relationship.

Substitution effect

As price rises, consumers may choose to buy from a different market.

Determinants of demand

Factors that cause the demand curve to shift, including price of related goods, expected future prices, income, population, and buyer preferences.

Change in demand

Movement of the demand curve caused by changes in its determinants.

Law of supply

Ceteris paribus, as the price of a good increases, the quantity supplied of the good will increase.

Determinants of supply

Factors that cause the supply curve to shift, including price of factors of production, price of related goods, expected future price, number of suppliers, and technology.

Elasticity of demand

A measure of how much quantity demanded changes with a change in price.

Perfectly inelastic

Refers to a situation where quantity demanded does not change with changes in price (elasticity = 0).

Comparative advantage

The ability to produce a good at a lower opportunity cost compared to another producer.

Absolute advantage

The ability to produce more of a good or service than another producer using the same amount of resources.