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What is scarcity?
The limited nature of resources relative to human wants.
What is economics?
The study of how individuals and societies allocate scarce resources.
What is opportunity cost?
The next best alternative foregone when making a decision.
What are the three questions every society must answer?
What to produce? How to produce it? For whom to produce?
What are the three ways to organize an economy?
Market economy, Command economy, Mixed economy.
What are the four main economic super sectors?
Households, businesses, government, and foreign sector.
What are goods vs. services?
Goods: Physical products; Services: Intangible offerings.
What is a durable good vs. nondurable good?
Durable goods: Long-lasting; Nondurable goods: Consumed quickly.
According to Adam Smith, people are motivated by what?
Self-interest.
What are incentives?
Rewards or punishments that influence behavior.
What factors promote economic growth?
Stable institutions, property rights, free markets, investment, education.
What is inflation?
The general rise in prices over time.
What are economic booms and busts?
Boom: Period of rapid growth; Bust: Period of economic decline.
What does 'thinking on the margin' mean?
Making decisions based on small incremental changes.
What is the relationship between economic growth and well-being?
Economic growth often leads to improved living standards.
What is the production possibilities frontier (PPF)?
A curve showing the maximum possible output combinations of two goods.
What is absolute advantage?
The ability to produce more of a good than another entity using the same resources.
What is comparative advantage?
The ability to produce a good at a lower opportunity cost than another entity.
How do specialization and trade affect consumption?
They allow entities to consume beyond their PPF.
What is the relationship between knowledge, productivity, and economic output?
Knowledge increases productivity, leading to higher economic output.
What is the relationship between trade and specialization?
Trade enables specialization, increasing efficiency and wealth.
What is demand?
The willingness and ability to purchase a good or service.
What is the law of demand?
As price decreases, quantity demanded increases (and vice versa).
What factors shift the demand curve?
Income, preferences, prices of related goods, expectations, number of buyers.
What is consumer surplus?
The difference between what consumers are willing to pay and what they actually pay.
What is supply?
The willingness and ability to sell a good or service.
What is the law of supply?
As price increases, quantity supplied increases (and vice versa).
What factors shift the supply curve?
Input costs, technology, expectations, number of sellers, government policies.
What is producer surplus?
The difference between the price received by producers and their costs.
What is market equilibrium?
The point where quantity demanded equals quantity supplied.
What happens in a market surplus?
Prices tend to fall.
What happens in a market shortage?
Prices tend to rise.
How do shifts in demand and supply affect equilibrium?
Increased demand raises price and quantity; increased supply lowers price but raises quantity.
What is elasticity of demand?
The responsiveness of quantity demanded to price changes.
What factors influence demand elasticity?
Substitutes, necessity vs. luxury, time horizon.
What is elasticity of supply?
The responsiveness of quantity supplied to price changes.
What is a commodity tax?
A tax on goods, affecting supply and demand.
Who bears the tax burden?
Determined by the relative elasticities of demand and supply.
What is deadweight loss?
The loss of economic efficiency due to taxation.
What is a subsidy?
A government payment to encourage production or consumption.
How do prices serve as signals?
They reflect scarcity and consumer preferences.
What is speculation?
Predicting future prices to profit from market movements.
What are futures?
Contracts to buy/sell at a future date, influencing price stability.
What is a price control?
Government-imposed limits on prices.
What is a price ceiling?
A maximum legal price, leading to shortages.
What is a price floor?
A minimum legal price, leading to surpluses.
What shits demand
Income
Population
price of subsidies and compliments
Expectations
taste
one time shocks
What shifts supply
Tech
Taxes and subsides
Expectaions
Entry or exit
Changes in opportunity cost
one time shocks
Rule of elasticity
If two linear curves run through eachother the flatter of the two is more elastic
Note 
Flashcard (33)