Midterm 1 Economics Review

Flashcards covering key vocabulary and concepts for Economics Midterm 1, based on Modules 1-4 including basic economics, PPC, supply and demand, and elasticity.

Marginal Cost

The additional change in total costs resulting from one more unit of activity.

Marginal Benefit

The additional change in total benefits resulting from one more unit of activity.

Opportunity Cost (PPC)

The cost of one good in terms of the amount of another good that must be given up to produce it, often represented by the slope of the Production Possibilities Curve.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than another producer.

Rule of 70

A rule used to estimate the number of years it takes for a certain variable to double, given a constant annual growth rate.

Shortage

A situation where the quantity demanded for a good or service exceeds the quantity supplied at a given price.

Surplus

A situation where the quantity supplied for a good or service exceeds the quantity demanded at a given price.

Equilibrium Price

The price at which the quantity demanded equals the quantity supplied in a market.

Equilibrium Quantity

The quantity of a good or service bought and sold at the equilibrium price.

Elasticity of Demand

A measure of the responsiveness of quantity demanded to a change in price, income, or the price of another good.

Elasticity of Supply

A measure of the responsiveness of quantity supplied to a change in price.

Income Elasticity

A measure of the responsiveness of the quantity demanded of a good to a change in consumer income.

Cross Price Elasticity

A measure of the responsiveness of the quantity demanded of one good to a change in the price of another good.

Marginality (Economics)

The concept of analyzing the incremental changes or additional units when making economic decisions.

Opportunity Cost

The value of the next best alternative that must be foregone when making a choice.

Scarcity

The fundamental economic problem of having seemingly unlimited human wants and needs in a world of limited resources.

Microeconomics

The branch of economics that studies the behavior of individual economic agents, such as households and firms, in making decisions regarding the allocation of scarce resources.

Macroeconomics

The branch of economics that studies the structure, performance, behavior, and decision-making of an economy as a whole.

Normative Economics

A branch of economics that focuses on 'what ought to be,' incorporating value judgments and opinions.

Positive Economics

A branch of economics that focuses on 'what is,' using objective analysis and verifiable facts to describe, explain, and predict economic phenomena.

Resources in Production

The inputs used to produce goods and services, traditionally categorized as land, labor, and capital.

Absolute Advantage

The ability to produce more of a given good or service than another producer using the same amount of resources.

PPC (Production Possibilities Curve)

A graphic illustration of the various combinations of two goods or services that an economy can produce efficiently, given its available resources and technology.

Gains from Trade

The benefits that result from specializing in production and exchanging goods and services with others, leading to increased overall consumption.

Pareto Improving Outcomes

An economic action that makes at least one individual better off without making any other individual worse off.

Diminishing Marginal Product of Inputs

The principle that as more of a variable input is added to a fixed input, the marginal product of the variable input will eventually decline.

Demand Curve Shape

Typically downward-sloping, reflecting the law of demand (marginal benefit).

Non-Price Determinants of Demand

Factors other than price that can shift the entire demand curve, such as consumer income, tastes, expectations, and prices of related goods.

Supply Curve Shape

Typically upward-sloping, reflecting the relationship between marginal return and marginal costs.

Non-Price Determinants of Supply

Factors other than price that can shift the entire supply curve, such as input prices, technology, expectations, and the number of sellers.

Equilibrium Mechanism

The process by which prices adjust in a market until the quantity demanded equals the quantity supplied, eliminating shortages and surpluses.

Deadweight Loss

The loss of economic efficiency that can occur when the free market equilibrium for a good or service is not achieved, often due to interventions like price controls or taxes.

Elastic Demand

A situation where the quantity demanded changes significantly in response to a change in price, indicating a relatively high responsiveness.

Inelastic Demand

A situation where the quantity demanded changes very little in response to a change in price, indicating a relatively low responsiveness.

Normal Good

A good for which demand increases as consumer income rises.

Inferior Good

A good for which demand decreases as consumer income rises.

Substitutes (Cross-price elasticity)

Goods that can be used in place of each other; an increase in the price of one leads to an increase in demand for the other (positive cross-price elasticity).

Complements (Cross-price elasticity)

Goods that are typically consumed together; an increase in the price of one leads to a decrease in demand for the other (negative cross-price elasticity).