Econ 2010 Exam 1

scarcity

the limited nature of society's resources

principle one of economics

people face tradeoffs

principle two of economics

the cost of something is what you give up to get it

principle three of economics

rational people think at the margin

principle four of economics

people respond to incentives

principle five of economics

trade can make everyone better off

principle six of economics

markets are usually a good way to organize economic

principle seven of economics

governments can sometimes improve market outcomes

principle eight of economics

a country's standard of living depends on its ability to produce goods and services

principle nine of economics

prices rise when the government prints too much money

principle ten of economics

society faces a short-run trade-off between inflation and unemployment

opportunity cost

whatever must be given up to obtain some item

PPF

maximum efficiency curve

positive statement

claims that attempt to describe the world as it is

normative statement

claims that attempt to prescribe how the world should be

trade

negotiation and exchange of one's goods and services for desired good and service's that someone else possesses

absolute advantage

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

comparative advantage

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

terms of trade

the relationship between how much someone pays for its imports and how much it brings in from exports

demand

utility for a good or service of an economic agent

determinants of demand

price of the commodity, individual preferences, substitutute goods

supply

amount of something that firms, consumers, laborers, providers of financial assets

determinants of supply

price changes and quantity supplied

equilibrium

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

disequilibrium

a loss or lack of equilibrium or stability