study guide 1

Scarce

The reason choices must be made is that resources (anything that can be used to produce something else) are

Opportunity Costs

Because you must choose among limited alternatives, the true cost of anything is what you must give up to get it. All costs are opportunity costs.

Margin

Many choices involve not whether to do something but how much of it to do. "How much" choices call for making a trade-off. One of the principles is that Rational People Think at the

Markets

Firms sell goods and services that they produce to households in

Normative Economics

Economics prescribes how the economy should work. This is known as

Absolute Advantage

Advantage is an ability to produce a particular good or service better than anyone else (i.e., with less total inputs). This is known as

Production Possibilities Frontier

One important economic model is the Production Possibilities Frontier. It illustrates several important economic concepts.

Normal Good

When a rise in income increases the demand for a good, the good is called a

Substitutes

if a rise in the price of one of the goods leads to an increase in the demand for the other good.

Firms

in the Circular Flow Diagram is an organization that produces goods and services for sale.

Goods and Services Market

in the Circular Flow Diagram is the place where firms sell goods and services that they produce to households.

Simplified

Economic Models are representations of reality and play a crucial role in economics. They are

Division of Labor

What term is used to describe the work required to produce a good or service into tasks performed by different workers?

Opportunity Costs

Comparative Advantage involves the question of who has the lower overall

Comparative Advantage

Explains the source of gains from trade between individuals and countries. Everyone has a in something – some good or service in which that person has a lower opportunity cost than everyone else.

Incentives

Because people usually exploit opportunities to make themselves better off, blank can change people's behavior.

Macroeconomics

is the branch of economics that is concerned with the overall ups and downs in the economy.

Economics

is a science that studies the production, distribution, and consumption of goods and services.

Sunk cost

is to forget about the money that is irretrievably gone and instead to focus on the marginal costs and benefits of future options.

trade offs

A basic lesson in Economics is that people face

trade

(presuming it's fair and honest) almost always makes both countries better off

Economic Growth

According to the video we watched in class, the Production Possibilities Frontier shows that one goal of any economy is the expansion of the economy's production possibilities or, to put it more simply, the goal is

Equilibrium

The point of intersection between supply and demand is called

Down

Demand curves generally slope in what direction?

Rightward

An increase in demand leads to a shift of the demand curve

5 main factors

There are five main factors that shift the demand curve: A change in tastes, expectations about the future, population, income, prices of related substitute or complementary goods or services. 

Surplus

Blank of a good or service when the quantity supplied exceeds the quantity demanded; the price is above its equilibrium level.

Demand

A change in the quantity demanded at any given price, represented by the shift of the original demand curve to a new position, denoted by a new demand curve, is a shift of the blank curve

Demand

The Law of blank says that a higher price for a good or service, other things being equal, leads people to demand a smaller quantity of that good or service

Price

A movement along a supply curve is a change in the quantity supplied of a good arising from a change in the good's

a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

A tariff differs from a quota in that a tariff is.

National Interest Argument

It is sometimes argued that nations should not depend too heavily on other countries for supplies of certain key products. This argument is commonly known as the

Price elasticity of demand

The percentage change in quantity demanded for some percentage change in price.

elasticity of supply

The percentage change in quantity supplied divided by the percentage change in price.

Elastic

Which of the following refers to the elasticity calculated from the appropriate formula has an absolute value greater than 1?

Inferior Good

Which of the following refers to a good for which the quantity demanded declines as income increases?

diminishing marginal utility

The term is used to describe the common pattern whereby each marginal unit of a consumed good provides less of an addition to utility than the previous unit.

Substitution effect

This arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.

Inferior Good

for which demand decreases as income increases.

Marginal Utility

What term is used to describe the additional utility provided by one additional unit of consumption?

Monopolistic Competition

Which of the following is a type of imperfect competition in which many producers sell products that are differentiated from each other?

Oligopoly

Which of the following markets is controlled by a relatively small number of sellers

monopoly market

Which of the following is a market in which there is only one provider?

Monopoly

In economics, a firm that faces no competitors is referred to as

Monolistic Competition

arises where many firms are competing in a market to sell similar but differentiated products.

Variable Costs

include all of the costs of production that increase with the quantity produced

Average Cost

In order to determine the firm's total costs must be divided by the quantity of its output

Marginal Cost

The term is used to describe the additional cost of producing one more unit.

Economies of Scale

The term describes a situation where the quantity of output rises, but the average cost of production falls

total revenue

Is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.

Variable cost

If a paper mill shuts down its operations for three months so that it produces nothing, its will be reduced to zero?

short run cannot alter them

Fixed costs are important because, at least in the blank, the firm

Each firm faces many competitors that sell identical products.

Which of the following characteristics relate to perfect competition?

perfect competition and monopoly

Monopolistic competition and oligopoly fall between the extremes of blank and blank.

Maximize Profit

Economists typically believe a firm's goal is to

Price X Quantity

Total revenue is calculated as

Fixed Costs

Costs that don't change with production are called

An example of a variable cost is

Monthly wage payments to hired labor

total cost / output

Average total cost equals

identical products

A key feature of a competitive market is that

marginal revenue = marginal cost

A key feature of a competitive market is that

Competitive firm

is a price taker, whereas a monopolist is a price maker.

Characteristics of a monopoly

barriers to entry

lower price

To sell more, a monopolist must

Price discrimination

selling the same good at different prices to different customers.

Scarcity

Economics primarily addresses the question of

Oligopoly

A market with few sellers offering similar products is a

Product Differentiation

The most distinguishing feature of monopolistic competition is

Advertising

Firms with highly differentiated products often have significant costs

oligopolies

understanding game theory

fixed and variable costs

total cost can be divided

government created monopoly

Patent and copyright laws are major sources of

profit

total revenue - total cost

perfect competition and monopoly

two extreme types of markets

cookies

What would be monopolistic competition

Local electricity distributor

most likely monopoly

always lies beneath

A monopolist's marginal revenue curve always

Flat

The demand curve for a perfectly competitive firm is