Untitled Flashcards Set

Economics

The study of how people, businesses, and governments make choices to use limited resources to satisfy unlimited wants.

Scarcity

The fact that there are not enough resources to satisfy everyone’s wants, so people must make choices.

Opportunity Cost

The value of the next best alternative that you give up when making a choice.

Trade-Off

The act of giving up one benefit to gain another benefit.

Incentive

A reward or punishment that motivates a person to behave in a certain way.

Rational Decision-Making

Making a choice when the benefits are greater than the costs.

Production Possibilities Frontier

A graph that shows the best way to use limited resources to produce two different goods.

Law of Demand

When prices increase, quantity demanded decreases and when prices decrease, quantity demanded increases, assuming all other factors remain the same.

Demand Curve

A graph that slopes downward from left to right, showing the relationship between price and quantity demanded.

Law of Supply

When prices increase, quantity supplied increases and when prices decrease, quantity supplied decreases, assuming all other factors remain the same.

Market Equilibrium

The point where quantity demanded equals quantity supplied, meaning there are no shortages or surpluses.

Shortage

When demand is greater than supply, causing prices to rise.

Surplus

When supply is greater than demand, causing prices to fall.

Price Elasticity of Demand

Measures how much quantity demanded changes when price changes.

Elastic Demand

Quantity demanded changes a lot when price changes.

Inelastic Demand

Quantity demanded changes only a little when price changes.

Income Elasticity of Demand

Measures how demand changes when income changes.

Cross-Price Elasticity of Demand

Measures how demand for one good changes when the price of another good changes.

Price Ceiling

A maximum price set by the government, which can lead to shortages.

Price Floor

A minimum price set by the government, which can lead to surpluses.

Deadweight Loss

The lost economic benefits caused by market inefficiencies, such as taxes or price controls.