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scarcity
human wants exceed what is available
shortage
the quantity people want to buy is greater than the quantity that firms want to sell at a given price
marginal benefit
the extra benefit from one more unit
marginal cost
the extra cost from one more unit
opportunity cost
what one must give up to instan what they desire
lost opportunity
the cost of one item to do/consume something else
sunk costs
costs that were incurred in the past and can’t be recovered
specialization
workers/firms focus on particular tasks for which they are well-suited within the overall production lrocess
✔comparative advantage
the ability to do a task at a lower opportunity cost
❌absolute advantage
the ability to do more given inputs
straight choice model
constant opportunity cost
concave choice model
increasing opportunity cost
complements
goods/services that are often used together so that consumption of one food tends to enhance consumption of the other
shift in supply
when a change in some economic factor (besides price) causes a different quantity to be supplied at every price
market supply
plots the total quantity supplied across sellers at each price (increases when firms enter the market)
individual supply
firm’s marginal (each additional) cost
opportunity cost of a task (hours)
hours the task takes/hours the alternate task takes
opportunity cost of a task (units of output)
units of alternate task/units of the task
law of demand
if price goes up, demand goes down. if price goes down, demand goes up
ceteris paribus
all else equal
demand curve
downward slope illustrates law of demand
law of supply
if price goes up, quantity supplied goes up. if price goes down, quantity supplied goes down
supply curve
upward slow illustrates law of supply
supply curve movement vs shift
a change in quantity supplied means we move along the supply curve. a change in supply means the curve shifts
demand equation
Qd=a-(b)P
ex: 4-1/2P
(4=x int. -2=slope)
supply equation
Qs=c+(d)P
ex: 1+10P
(1=x int. 1/10=slope)
things that cause shift in demand
-income
-changing tastes or preferences
-changes in population
-price of substitute or compliment changes
-changes in expectation about future
normal good
a product for which demand increases when income rises and vice versa
inferior good
a product for which demand decreases when income increases and vice versa
substitute
good/service that we can use in place of another good/service
equilibrium price/quantity
quantity demanded=quantity supplied/equilibrium quantity
gains from trade
difference between the value a good creates and its cost
four-step process
determines how an economic event affects equilibrium price and quantity
perfect competition
a perfectly competitive market is the special case where the following is true
all firms in the market are selling an identical good
there are many buyers and sellers in the market, each of whom has a relatively small share of the market in which there are no barriers to entry and exit
all goods are sold at the single market price
Note
Flashcard