Econ Exam 1

Scarcity

The limited nature of society’s resources

Economics

The study of how society manages its scarce resources

Efficiency

Society gets maximum benefits from its scarce resources

Equality

Economic prosperity is distributed uniformly among society’s members

Externality

source of market failure (how the production or consumption of a good affects bystanders)

Market power

source of market failure (a single buyer or seller has substantial influence on market price)

Inflation

an increase in overall level of prices in the economy

high-inflation

imposes various costs on society

goals of economy policy makers

keep inflation at a reasonable rate

Individual decision making

people face trade-offs among alternative goals

Economic interactions among people

trade and interdependence can be mutually beneficial

economists play 2 roles:

1) Scientists: try to explain the world

2) Policy advisor: try to improve it

Circular flow diagram

Visual model of the economy. shows how dollars flow through markets among households and firms

two decision makers of circular flow diagram

firms and households

interest rate

the price of using money

production possibilities frontier (PPF)

A graph that shows various outputs. What the economy can possibly produce

moving along a PPF

shifting resources from the production of one good to the other

the slope of PPF

opportunity cost of one good in terms of other

straight line PPF

Constant opportunity cost

Bowed outward PPF

increasing opportunity cost

micro

the study of how households and firms make decisions and how they interact in the market

macro

study of economy wide phenomena, including inflation, unemployment, and economic growth

positive statement

an assertion about how the world is

normative statement

an assertion about how the world out to be (policy advisor)

market

a group of buyers and sellers of a particular good or service

buyer

determines the demand for the product

sellers

determines the supply of the product

quantity demand

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

law of demand

The quantity demand of goods fall when prices rise and opposite

demand schedule

a table that shows the relationship between the price of a good and the quantity demand

demand curve

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

market demand

sum of all individual demands for a good or service

market demand curve

sum the individual demand curve horizontally

number of buyers increase

shifts the demand curve to the right

number of buyers decreases

shifts the demand curve to the left

changes in demand

occurs when a non-price determinant of demand changes

changes in the quantity demanded

occurs when a price changes

quantity supplied

sellers are willing and able to sell

law of supply

rises when prices rises/ and opposite

supply schedule

table that shows relationship between the price of a good and quantity supplied

supply curve

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

equilibrium

price has reached the level where quantity supplied equals quantity demand

surplus

The quantity supplied is greater than the quantity demanded

elasticity

How much one thing change when another thing changes

price elasticity demand formula

percent chance in quantity/ percent change in price

calculating percentage change formula

(end value - start value/start value)x100

midpoint formula

p2-p1/(p1+p2)/2. and q2-q1/(q1+q2)/2

percent change of midpoint formula

(end value-start value/midpoint)x100