Econ Unit 1

Scarcity

Scarcity

the situation in which available resources, or factors of production, are finite, whereas wants are infinite

Opportunity cost

what is given up when we make a choice.

Command economy

A market where the government or some central authority decides where to allocate resources.

Market economy

resources are owned by private individuals or groups of individuals and it is mainly consumer and firms who make economic decisions by responding to prices that are determined in markets.

Mixed economy

An economy consisting of both free market and command economies - some decisions are made by market forces while some other decisions are made by the government or some central authority.

Production possibilities curve

a model used to show the tradeoffs associated with allocating resources between the production of two goods.

Law of demand 

as the price of a good or service increases, the quantity demanded decreases, and vice versa for a decrease in price, assuming ceteris paribus.

Law of diminishing marginal utility

the more of a good/service that you use or consume, the less satisfaction you get from each additional unit consumed or used.

Substitution effect

if the price of a good falls, the consumer substitutes by buying more of the now less expensive good. There is always a negative relationship between price and quantity. demanded as a result of the substitution effect

Income effect

when price decreses the consumer's real income has increased and quantity demanded of the good/service increases and vise versa

Law of supply

as the price of a product rises, the quantity supplied of the product will usually increase

supply

the amount of a good/service that a producer is willing and able to supply at a given price in a given time period.

demand

the total amount of goods and services that consumers are willing and able to purchase at a given price in a given time period

the short run

Period of time in which at least one factor of production is fixed.

the long run

All factors of production are variable

Excess supply

when the quantity supplied of a product or service exceeds the quantity demanded at a given price level

Excess demand

the quantity demanded is greater than the quantity supplied at the given price

Market equilibrium

when quantity demanded is equal to quantity supplied

Price rationing

to allocate the available quantity to those who are willing and able to pay the price

allocative efficiency

producing the quantity of goods most wanted by society

Subsidy

government payment to producers attempting to lower the price of produce and increase quantity produced

Marginal utility

the satisfaction or benefit gained from an additional unit of consumption

Law of diminishing marginal returns

adding an additional factor of production results in smaller increases in output