econ

scarcity

unlimited wants but limited resources

efficiency

using resources in such a way as to maximize the production of goods and services

equity

fairness; justice; not equality

opportunity cost

the cost of the next best alternative

marginal thinking

the evaluation of whether the benefit of one more unit of something is greater than its cost

marginal utility

satisfaction or usefulness obtained from acquiring one more unit of a product

externality

the impact of one person's actions on the well-being of a bystander

market power

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

productivity

the quantity of goods and services produced from each unit of labor input

inflation

overall increase in prices and fall in the purchasing value of money

circular flow

the pattern in which goods and services and resources flow in the marketplace

production possiblities frontier

diagram demonstarting the levels of output with current resources, productivity, and technology

microeconomics

the study of the economic behavior and decision making of small units, such as individuals, families, and businesses

macroeconomics

the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth

positive statements

based on facts. backed by evidence/data

normative statements

subjective. usually opinions or things that can't be proved

diminshing marginal utility

The general tendency for marginal utility to decrease as the quantity of a good consumed increases.

absolute advantage

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

compartive advantage

the ability to produce a good or service at a lower opportunity cost than other producers

market

A place where goods can be bought and sold and a price established

quantity demanded

the amount of a good that buyers are willing and able to purchase

quantity supplied

the amount of a good that sellers are willing and able to sell

law of supply/demand

A law which states that when supplies of goods and services become plentiful, prices tend to drop. When supplies become scarcer, prices tend to rise.

normal goods

Goods for which demand goes up when income is higher and for which demand goes down when income is lower.

inferior goods

goods that consumers demand less of when their incomes rise, but demand more when incomes fall

substitute goods

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

complementary goods

Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely).

demand curve

a graph of the relationship between the price of a good and the quantity demanded

supply curve

a graph of the relationship between the price of a good and the quantity supplied

ceteris paribus

all other things held constant (usually never happens in real life)

equilibrium

When supply of a good or service equals that which customers are willing to buy (demand).

PIRTEB

determinants of demand: Price, income, price of related goods, taste/preference, expectation, and number of buyers

demand

the relationship between price and the quantity demanded

P(IP)TEN

supply determinants: Price, input prices, technology, expectations, number of sellers

surplus

when the price is set above equilibrium. Sellers were lower prices and supply less until equilibrium is reached.

shortage

when the price is set below equilibrium. Sellers will raise prices and supply more until equilbrium is reached.

elasticity

A measure of how much one economic variable responds to changes in another economic variable.

elastic demand

the quantity demanded changes significantly to a price change

inelastic demand

the quantity demanded barely or does not respond to a price change

elastic supply

when a small change in price causes a major change in quantity supplied.

inelastic supply

when a change in a good's price has little impact on the quantity supplied

total revenue

Price x Quantity

price ceiling

A legal maximum on the price at which a good can be sold

price floor

A legal minimum on the price at which a good can be sold

price control

government laws to regulate prices to either improve equity or satisfy special needs of buyers/sellers

grey market

An unofficial market in which goods/services fees are charged or lack of quality goods/services are given due to a price ceiling

money

anything that serves as a medium of exchange, a unit of account, and a store of value

medium of exchange

anything that is used to determine value during the exchange of goods and services

unit of account

a means to post the values of goods and services

store of value

something that keeps its value if it is stored rather than used

asset

Anything of value that is owned

liquidity

the ease with which an asset can be converted into cash

wealth

The total value of money and other assets

commodity money

objects that have value in themselves and that are also used as money (gold, ramen)

fiat money

money that has value because the government has ordered that it is an acceptable means to pay debts

M1 money

the most immediate form of money. It includes currency, all checkable deposits, and savings deposits.

M2 money

M1 plus small time deposits and money market mutual funds

demand deposits

balances in bank accounts that depositors can access on demand by writing a check

currency

a system of money in general use in a particular country.

The Fed

acts as the nation's central banking organization, regulating fiat money and adminstering the commerical bank system

central bank

an institution designed to oversee the banking system and regulate the quantity of money in the economy

money supply

the quantity of money available in the economy

monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

reserves

deposits that banks have received but have not loaned out

reserve ratio

the fraction of deposits that banks hold as reserves

money multiplier

the amount of money the banking system generates with each dollar of reserves

reserve requirements

regulations on the minimum amount of reserves that banks must hold against deposits

open-market operation

a purchase or sale of government debt (bonds) by the Fed

discount rate

The interest rate on the loans that the Fed makes to banks

nominal interest rates

the interest rates actually observed in financial markets

real interest rates

Interest rates that have been adjusted for inflation.

nominal variables

variables measured in monetary units

real variables

measured in physical units

deflation

a decrease in the general level of prices

money neutrality

the proposition that changes in the money supply do not affect real variables, and is neutral in the long run

shoeleather costs

the resources wasted by having to go to the bank during inflation (time, gas)

menu costs

the costs to firms of changing prices due to inflation

relative prices/misallocation of resources

the belief that because the price of one thing rises, all things will increase in price, leading to reduced consumer spending

general confusion

incorrect perception of firms earnings/expenses

demand-push inflation

inflation driven by changes in goods/services by consumers

cost-pull inflation

inflation caused by a decrease in supply

supply shocks

unexpected events that affect aggregate supply, sometimes only temporarily