ECON162 Midterm #1

Normal and inferior goods

normal goods are products and services that see a rise in demand when incomes rise. Inferior goods are products and services that see a decrease in demand as incomes rise.

Economics

studies the production, distribution, and consumption of goods and services

Complements

products which are bought and used together

Scarcity

the demand for a good or service is greater than the availability of the good or service

Substitutes

a product or service that consumers see as essentially the same or similar

Choice

people's decisions about sharing and using those resources

determinants of demand

income, price, tastes and preferences, prices of related goods and services, and expectations

Technology

anything that helps us produce things faster, better or cheaper

Determinants of supply

factors that influence the supply of certain goods and services

Land, labor, capital, entrepreneurship

Land refers to natural resources, while labor is the work that goes into production. Capital is the tools and buildings used to produce things, and entrepreneurship is the know-how of putting it all together

Equilibrium price

the consumer cost assigned to some product or service such that supply and demand are equal, or close to equal

Wage

compensation for work done

Rent

the compensation for letting a premises or article

Interest

the compensation for the money lent

profit

the excess of income over expenses in a venture

Microeconomics

a branch of mainstream economics that studies the behavior of individuals and firms in making decisions

Shortage

a condition where the quantity demanded is greater than the quantity supplied at the market price

Macroeconomics

a branch of economics that studies how an overall economy—the markets, businesses, consumers, and governments—behave

Surplus

the amount of an asset or resource that exceeds the portion that is utilized

Positive economics

a stream of economics that focuses on the description, quantification, and explanation of economic developments, expectations, and associated phenomena

Price floor

the lowest legal price that can be paid in a market for goods and services, labor, or financial capital

Normative economics

a perspective on economics that reflects normative, or ideologically prescriptive judgments toward economic development, investment projects, statements, and scenarios.

Price ceiling

the highest point at which goods and services can be sold

Economic good

a good or service that has a benefit (utility) to society

Transaction costs

expenses incurred when buying or selling a good or service

Free good

a good that is not scarce, and therefore is available without limit

Private and public sectors

“Businesses that make a profit commonly represent the private sector, while government agencies tend to represent the public sector.”

Models

a simplified description of reality, designed to yield hypotheses about economic behavior that can be tested

Socialism

a social and economic doctrine that calls for public rather than private ownership or control of property and natural resources

Ceteris paribus

all other things being equal

Capitalism

an economic system in which private individuals or businesses own capital goods

Scientific method

the technique used by economists to determine economic laws or principles

Communism

an economic ideology that advocates for a classless society in which all property and wealth are communally owned, instead of being owned by individuals

Opportunity cost

what you have to give up to buy what you want in terms of other goods or services

Command and control

a type of environmental regulation that allows policy makers to specifically regulate both the amount and the process by which a firm should maintain the quality of the environment

Type I and Type II errors

A type I error (false-positive) occurs if an investigator rejects a null hypothesis that is actually true in the population; a type II error (false-negative) occurs if the investigator fails to reject a null hypothesis that is actually false in the population.

Traditional economies

a system that relies on customs, history, and time

Production possibilities curve

a model used to show the tradeoffs associated with allocating resources between the production of two goods. The PPC can be used to illustrate the concepts of scarcity, opportunity cost, efficiency, inefficiency, economic growth, and contractions.

Market economies

a type of economic system where supply and demand regulate the economy, rather than government intervention

Specialization

the process of an organization concentrating its labor and resources on a certain type of production to be more efficient and create a comparative advantage for an economy

Consumer sovereignty

the principle that consumers, through their purchasing decisions, determine the demand for goods and services, and therefore have a powerful influence on what is produced and how it is produced.

comparative advantage

a particular good or service at a lower opportunity cost than its trading partners.

Four basic economic questions

What to produce? How to produce? For whom to produce? What provisions (if any) are to be made for economic growth?

Absolute advantage

The ability of an actor to produce more of a good or service than a competitor

mercantilism

an economic practice by which governments used their economies to augment state power at the expense of other countries.

Terms of trade

the ratio between the index of export prices and the index of import prices

Laissez-faire

no taxes, regulations, or tariffs

Consumption possibilities curve

represents the total purchasing capacity of the population at a given income level and at a price level of the goods and services

Resource allocation

the assignment of available resources to various uses. In the context of an entire economy, resources can be allocated by various means, such as markets, or planning.

Market

any place where two or more parties can meet to engage in an economic transaction

Adam Smith

“Economics is the science of wealth” According to this definition, economics is a science of the study of wealth only. It deals with production, distribution, and consumption.

Supply

a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers

Public goods

refers to a commodity or service that is made available to all members of society

Demand

an economic concept that relates to a consumer's desire to purchase goods and services and willingness to pay a specific price for them

Externalities

occur in an economy when the production or consumption of a specific good or service impacts a third party that is not directly related to the production or consumption of that good or service

Change in demand

represents a shift in consumer desire to purchase a particular good or service, irrespective of a variation in its price

Voting paradox

occurs when the result of a vote is contradictory, or opposite of the expected outcome.

Change in quantity demanded

refers to a change in the specific quantity of a product that buyers are willing and able to buy

Free trade

a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports)

Change in supply

when the suppliers of a given good or service alter production or output

Fair trade

a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade

Change in quantity supplied

Globalization

refers to the increasing interdependence of world economies as a result of the growing scale of cross

Rational self

interest

WTO

the international organization whose primary purpose is to open trade for the benefit of all.

GATT

a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas.

NAFTA

enacted in 1994 and created a free trade zone for Mexico, Canada, and the United States, is the most important feature in the U.S.

Minimum wage

“the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract”

Jerome Powell

American attorney and investment banker who has served as the 16th chair of the Federal Reserve since 2018