All economics Terms

Economics

Study of How individuals and societies deal w/ scarcity

Scarcity

Unlimited wants but limited resources

Microeconomics

Study of small economics units such as individuals, firms, and markets.

Macroeconomics

Study of the large economy as a whole or economic aggregates.

Positive Statements

Based on facts. Avoids value judgements.

Normative Statements

Includes value judgments.

Marginal

Additional (Small units), satisfactions every round decreases (And doesn’t match the price) which makes it not worth it.

Marginal Analysis

Making decisions based on increments.

Trade-Off

All the alternatives that we give up when we make a choice.

Opportunity Cost

Most desirable alternative given up when you make a choice. (2nd best option)

Utility

Satisfactions

Marginal

Additional

Allocate

Distribute.

Price

What the consumer pays.

Cost

What the seller pays to produce a good.

Investment

Money spent by firms to increase their production

Consumer goods

created for direct consumption

Capital goods

Created for indirect consumption (I.e. things that make the consumer goods)

Productivity

A measure of efficiency that shows the outputs per unit of input.

Points under the curve

Inefficient/Unemployment

Point on the line

Efficent

Point over the curce

(Impossible/unattainable. And or results in inflation.

Constant opportunity cost

Resources are easily adaptable to producing either good (Straight PPC line)

Increasing opportunity cost

As you produce more of any good, the opportunity cost will increase (results in a concave PPC)

1. A change in resource quantity or quality (labor included)

(in the case of increase population, countries that produce more capital goods will have more growth in the future.)

Shifting the PPC #1

Change in technology

Shifting the PPC #2

Change in trade

Shifting the PPC #3

Land

Four factor’s of Production #1

Labor

Four factor’s of Production #2

Capital (Human capital included) i.e. machinery, tools (Things made to create consumer goods)

Four factor’s of Production #3

Entrepreneurship (the human resource that combines the other factors of production (land, labor, and capital) to produce goods and services, take risks, and introduce innovations with the goal of making a profit.)

Four factor’s of Production #4

Society has unlimited wants and limited resources.

5 Economic Assumptions #1

Due to scarcity, choices must be made. Every Choice has a cost (Trade-off).

5 Economic Assumptions #2

Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own “Self-Interest”.

5 Economic Assumptions #3

Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice. (The first pizza will always be more enjoyable than the seventh, and therefore)

5 Economic Assumptions #4

Real-life situations can be explained and analyzed through simplified models and graphs.

5 Economic Assumptions #5

Per unit opportunity cost

(Opportunity cost)/(Units gained)

Absolute Advantage

_____ ______ is the ability of a person, company, or country to produce a larger quantity of a good or service than competitors using the same amount of resources.

Comparative Advantage

The producer that has the lowest opportunity cost. (Countries should trade if they have a relatively lower opportunity cost.)

Export

Sell to another country

Import

Buy from another country

Terms of Trade

The agreed upon conditions that would benefit both countries

Demand

Demand is the different quantities of goods that consumers are willing and able to buy at different price and quantity demanded

Substitution effect

If the price goes up for a product, consumers buy less of that product and more of another substitute. (And Vice Versa)

Income Effect

If the price goes down for a product, the purchasing power increases for consumers allowing them to purchase more.

Law of Diminishing Marginal Utility (Satisfaction)

The more you buy of any good the less satisfaction you get from each new unit consumed.

Shifts in Demand

A shift means that at the same prices, more people are willing and able to purchase that good. (This is a change in demand, not a change in quantity demanded.)

Demand

The whole curve

Quantity Demanaded

A Single point

5 Shifters of (Determinants) of Demand #1

Tastes and Preferences - Consumers change ideas concerning what they want.

5 Shifters of (Determinants) of Demand #2

Number of Consumers - the amount of people go up or down

(The total number of potential buyers in a specific market)

Substitute goods

Are goods used in place of one another (If price of one increases, the demand for the other will increase (And vice versa)

Complement goods

Are two goods that are bought and used together, (if the price of one increases the demand for the other decreases.)

5 Shifters of (Determinants) of Demand #3

The cost of substitutes (goods that can replace each other, like Coke and Pepsi) or complements (goods used together, like hot dogs and hot dog buns) (Complement vs substitute)

5 Shifters of (Determinants) of Demand #4

How much money consumers earn. (Normal Vs Inferior goods)

Normal Goods

For normal goods (like restaurant meals or new cars), higher income increases demand (shift right).

Inferior Goods

(Second hand) For inferior goods (like instant ramen), higher income decreases demand as people upgrade to better alternatives (shift left). [1, 2, 3]

5 Shifters of (Determinants) of Demand #5

Expectations of Future Prices

• Definition: What consumers think prices or availability will be in the near future.

• Effect: If buyers expect prices to rise next week, they buy more right now (shift right). If they expect a big discount or sale next month, they delay purchases (shift left).

Law of Demand

Inverse relationship between price and the quantity demanded.

Change in price does what?

DOES NOT SHIFT THE CURVE, it instead just moves the point on the line.

Supply

Is the different quantities of a good that sellers are willing and able to sell/produce at different prices.

Law of Supply

There is a direct or positive relationship between price and quantity supplied. (As price increases quantity produce can make also increases + vice-versa)

5 Shifters of Supply #1

Prices/Availability (As labor and other inputs become less expensive, supply will increase. (and Vice versa)

5 Shifters of Supply #2

#Of Sellers, and increase int he number of producers will increase supply.

5 Shifters of Supply #3

Technology (A change in technology that increases efficiency will increase supply (& Vice Versa)

5 Shifters of Supply #4

Government Action (taxes and Subsidies)

5 Shifters of Supply #5

Future expectations (Higher future prices will decrease supply) (Saving supply to make more money with increased price)

No shift

A CHANGE IN PRICE WONT SHIFT THE CURVE

Surplus

When the QD (Quantity Demanded) is LESS than QS (Quantity Supplied)

Shortage

When the QD (Quantity Demanded) is More than QS (Quantity Supplied)

Equilibrium

When the demand and supply lines intersect. (Neither in surplus nor shortage)

• Anything else is considered disequilibrium.