midterm- micro mankiw 1-9

scarcity

the limited nature of society’s resources

economics

the study of how society manages its scarce resources

efficiency

the property of society getting the most it can from its scarce resources

equality

the property of distributing economic prosperity uniformly among the members of society

opportunity cost

whatever must be given up to obtain some item

rational people

people who systematically and purposefully do the best they can to achieve their objectives

marginal change

a small incremental adjustment to a plan of action

incentive

something that induces a person to act

market economy

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

property rights

the ability of an individual to own and exercise control over scarce resources

market failure

a situation in which a market left on its own fails to allocate resources efficiently

externality

the impact of one person’s actions on the well-being of a bystander

market power

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

productivity

the quantity of goods and services produced from each unit of labor input

inflation

an increase in the overall level of prices in the economy

business cycle

fluctuations in economic activity, such as employment and production

ch.2 circular-flow diagram

a visual model of the economy that shows how dollars flow through markets among households and firms

production possibilities frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

microeconomics

the study of how households and firms make decisions and how they interact in markets

macroeconomics

the study of economywide phenomena, including inflation, unemployment, and economic growth

positive statements

claims that attempt to describe the world as it is

normative statements

claims that attempt to prescribe how the world should be

absolute advantage

the ability to produce a good using fewer inputs than another producer

opportunity cost

whatever must be given up to obtain some item

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

imports

goods produced abroad and sold domestically

exports

goods produced domestically and sold abroad

market

a group of buyers and sellers of a particular good or service

competitive market

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

quantity demanded

the amount of a good that buyers are willing and able to purchase

law of demand

the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

demand curve

a graph of the relationship between the price of a good and the quantity demanded

normal good

a good for which, other things equal, an increase in income leads to an increase in demand

inferior good

a good for which, other things equal, an increase in income leads to a decrease in demand

substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

complements

two goods for which an increase in the price of one leads to a decrease in the demand for the other

quantity supplied

the amount of a good that sellers are willing and able to sell

law of supply

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

supply curve

a graph of the relationship between the price of a good and the quantity supplied

equilibrium

a situation in which the market price has reached the level at which quantity supplied equals quantity demanded

equilibrium price

the price that balances quantity supplied and quantity demanded

equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price

surplus

a situation in which quantity supplied is greater than quantity demanded

shortage

a situation in which quantity demanded is greater than quantity supplied

law of supply and demand

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

elasticity

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

total revenue

the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold

income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change in quantity demanded divided by the percentage change in income

cross-price elasticity of demand

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

price elasticity of supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

price ceiling

a legal maximum on the price at which a good can be sold

price floor

a legal minimum on the price at which a good can be sold

tax incidence

the manner in which the burden of a tax is shared among participants in a market

welfare economics

the study of how the allocation of resources affects economic well-being

willingness to pay

the maximum amount that a buyer will pay for a good

consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

cost

the value of everything a seller must give up to produce a good

producer surplus

the amount a seller is paid for a good minus the seller’s cost of providing it

efficiency

the property of a resource allocation of maximizing the total surplus received by all members of society

equality

the property of distributing economic prosperity uniformly among the members of society

deadweight loss

the fall in total surplus that results from a market distortion, such as a tax

world price

the price of a good that prevails in the world market for that good

tariff

a tax on goods produced abroad and sold domestically

Autarky

a state where a country produces everything it consumes, avoiding international trade to achive economic independence and minimize reliance on foreign markets.

command economy

a system where the government, not market forces, controls all major economic decisions—what to produce, how much, and at what price—with the goal of social welfare, contrasting with market economies driven by supply/demand and profit

traditional economy

an economic system where decisions on what, how, and for whom to produce are based on customs, beliefs, and historical precedent, relying on subsistence farming, hunting, and bartering, with roles passed down generations, preserving cultural heritage but often resisting change and growth

market economy

economy that allocates its resources through the decentralized decisions by many households that interact in the market for goods and services.