Economics 101: Principles of Microeconomics Flashcards

Actions taken by business that understand scarcity

Because scarcity relates to employees, just like everything else, businesses will take steps to make sure the needs of their employees are met if they understand this concept.

Monopoly

This type of competition exists if there's only one seller in a market. This seller has no competition.

Factors to consider when thinking about moving manufacturing jobs overseas

• Labor costs

• Capability to produce units per hour

Microeconomics

A kind of economics that focuses on the ways families, individuals and even businesses make decisions as they are influenced by limited resources.

Needs Standard of Resource Allocation

This standard works by giving resources to people with the greatest need. Communism is connected with this standard.

Physical Capital

Structures or pieces of equipment used in the production of goods represent this kind of capital.

Natural Resources

A kind of resource that supplies naturally-made inputs for the production process.

Macroeconomics

This branch of economics looks at the ways that scarcity impacts entire economies. International economics are given special focus. It looks especially at unemployment, growth and inflation.

Perfect Competition

In this kind of competition, you'll find a lot of businesses selling the same kinds of productions. Good information about prices is available and businesses don't face barriers to entry.

Comparative Advantage

People or businesses have this kind of advantage if their opportunity cost to produce a product is lower than the opportunity cost of their competitors.

Absolute Advantage

You have this kind of advantage if you can produce more of a specific product than your competitor if you both have the same resources and the same amount of time to work.

Marginal Impact

We look at this kind of impact when we want to determine how much it would cost us to complete one unit of a given thing.

Profit Maximization

Businesses use this process to try to find what output level and price will give them the highest amount of profit.

Oligopoly

A type of competition that develops if a market is under the control of a small number of firms.

Human Capital

This type of capital is made up of a worker's skills and knowledge.

Utility

This term describes how useful a given product or service is for a given situation. For example, a bunch of pizzas will be more useful than caviar if your friends come over to help you move.

Contributive Standard of Resource Allocation

A standard for allocating resources that asserts that resources should be given to people who contribute. Capitalism is associated with this standard.

Equality Standard of Resource Allocation

If you used this resource allocation standard, you would split resources evenly between everyone, without considering their needs or contributions.

Opportunity Cost

This refers to the value of the best possible alternative course of action that you chose not to take in order to pursue something else.

Resource Allocation Standards

• Needs standards

• Equality standard

• Contributive standard

Scarcity

This tells us that there isn't an infinite quantity of any object. Every single product exists in finite amounts, so all things are scarce.

Labor Productivity

We use this term to refer to how much output a worker produces for each unit of input over a given period of time.

Efficiency in Macroeconomics

This deals with how effectively resources are used. If resources are not used well, it can result in massive inefficiencies, such as unemployment.

Price Floors

This kind of price limit serves to keep prices from falling too much.

Law of Supply

An economic law that tells us that a good with a higher supply will also have a higher price. This law gives the supply curve its foundation and shape.

Reasons demand curves shift to the left

These curves will shift to the left if, for some reason, customers aren't willing to purchase a product at its current price. This forces companies to lower their prices.

Factors that can shift the demand curve and change equilibrium

• Changes in the prices of goods

• Shifts in customer tastes or preferences

• Increases or decreases in income

How businesses can move the supply curve on the supply-side

If a business wants to shift the supply curve in this way, they could lower the prices on their goods. This will influence customers to purchase more products and can make the competition react.

Factors that can shift the supply curve and change equilibrium

• Fluctuations in the cost of materials for production

• Technological advances

• Shifts in the weather, future expectations or taxes

Subsidies

The government offers these payments of money to producers when it wants to influence these companies to create more of a certain product.

Cartel

We use this term to refer to groups of producers who decide to work together in order to limit the supply of their goods and thereby raise their prices. These are only legal internationally.

Reasons supply curves shift to the right

A situation that causes producers to create more goods will shift this curve to the right. This can occur if a company drops prices and many consumers suddenly want to purchase their products.

Disposable Income

The amount of income we have remaining from our paycheck after all taxes have been taken out or paid.

Layout of a supply curve

On this kind of graph, the vertical axis will show the price of the product while the horizontal axis shows how much of the product is supplied.

Supply Curve

The relationship that exists between the price of a product and how much of the product someone will willingly buy can be represented on this graph.The relationship that exists between the price of a product and how much of the product someone will willingly buy can be represented on this graph.

Wage Floor

This represents a limit on how little people can be paid. It's also called minimum wage.

Deadweight Loss

We use this to look at the amount of economic efficiency is lost as a result of the use of price ceilings or floors.

Reasons demand curves shift to the right

If consumers grow more interested in purchasing a product, perhaps because of advertising, it will cause this curve to shift to the right, allowing businesses to raise prices.

Demand Curve

Looking at this curve can tell you how much of a particular good consumers will buy if the good is offered at various prices. It slopes down because people will buy more if prices are lower.

Effects of excess demand

This kind of demand results in upward pressure for both prices and the quantity of the good or service required.

Market Equilibrium

This state occurs when market supply is balanced by market demand. When a market reaches this state, prices will be stable.

Market Forces

This term refers to how the actions of sellers and buyers in a market change the prices for different services and goods. This occurs without government intervention or other influences.

Banning Products

Governments may take this step, which involves outlawing the purchase of certain products, if they want people to have a harder time accessing specific goods.

Effects of excess supply

If this kind of supply occurs, then prices will be faced with downward pressure.

Shortages

These generally occur when an economy fails to work at full efficiency. This is considered bad in regards to market forces.

Reasons supply curves shift to the left

This shift can occur when suppliers see no reason to produce goods. If people steal goods, such as when they take part in internet piracy, they move the supply curve in this way.

Supply

Economists use this term when talking about different amounts of goods or services that are sold for varying prices.

Price Ceilings

A limit on pricing that prevents prices from climbing too high. Sometimes governments institute these to protect individuals who are vulnerable to these prices.

Price Elasticity of Demand

This looks at the percentage of change in the amount of goods demanded by consumers and divides it by percentage changes to the product's price.

Cross Price Elasticity of Demand

This tells us how responsive the demand for one product is when faced with changes in other product's prices. It determines if goods are unrelated, complements or substitutes.

Cross Price Elasticity of Demand Formula

% change in quantity demanded of Product A / % change in price of product B

Categories of Goods

• Inferior

• Normal

• Superior (luxury)

Elastic Supply

A kind of supply that occurs when businesses raise the quantity of goods that they have to a greater extent than they raise their prices. A buy one, get one half-off sale is an example of this.

Inelastic Demand

This kind of demand won't be affected by changes in price. It remains constant if prices go up or if they fall.

Income Elasticity of Demand

A term used by economists when they discuss the fact that changes to an individual's income will in turn change the goods and services they demand.

Inferior Goods

If you avoid buying a product once your income level increases, it is this type of good.

Superior Goods

We consider these to be goods that experience greater demand as an individual's income grows larger. They are sometimes referred to as luxury goods.

Unitary Elasticity

Goods with this kind of elasticity experience identical changes in price and quantity, so there's no effect on total revenue.

Method for classifying goods in economics

Economists classify these by looking at how much demand for them increases or decreases compared to changes in a person's income level.

Derived Demand

A type of demand that is connected to the market conditions that affect a separate good.

Normal Goods

These are goods that people purchase in about the same amount no matter what their income level is, though they might choose items that are of higher quality.

Smuggling

An illegal form of trading that doesn't follow the regulations of any government. Drugs, weapons and many other objects have been traded in this way. It's often the result of an embargo.

How importing companies adjust to tariffs

Foreign companies can work around this tax by moving some portion of their production so that it occurs domestically (in the country imposing the tax).

Embargo

Governments use this to ban trading. They may use it to ban only one good or these bans may be broader, perhaps preventing trade with an entire country.

Quota

Economists use this term to refer to the limits governments place on importers regarding how many goods they can import.

Mercantilism

A process used by countries in the 16th-17th centuries to try to prevent other lands from growing rich. One way they did this was by preventing other countries from using their colonies or ports.

Purpose of Embargoes

These trade barriers are only used if a country determines there is no advantage to be had by continuing to trade with a different country.

Trading empires in Europe in the 16th and 17th centuries

The growth of trade turned Holland, Spain, France, England and other countries into huge powers on the global scale in this time period. This led to the development of global trade routes.

Purpose of Quotas

These limits serve to prevent supply of a particular good from increasing too much, since this rise in supply would decrease product prices, potentially negatively impacting domestic producers.

Subsidies

We use this term to refer to monies that the government pays to producers who work domestically. These funds are supposed to ensure that domestic producers can compete with imported goods.

Protectionism

A series of trade barriers designed to protect a country's home businesses. Mercantilism is an example of this kind of trade barrier.

Laws that create trade barriers

These laws are often said to help businesses at home remain profitable and to help people maintain their jobs. Politicians often pass them because it raises their chances of re-election.

Tariff

A tax placed on imported goods.

Trade Barriers

These are barriers set up by governments to limit the sale of goods between countries.

License (in trade)

This acts as governmental permission for an importer to sell goods. Governments can make these mandatory if they want to control market access.

How the 'invisible hand' guides the economy

This is at work when buyers and sellers are guided by their own best interest in their economic decisions. It ensures prices are set at a level agreeable to buyers and sellers

Macroeconomic reasons that governments benefit from knowing what consumers buy

• Allows governments to set up infrastructure to handle possible future consumer desires

• Allows for the encouragement of economic growth

Correlation

This describes the situation that occurs if two compared items mirror each other in increases or decreases in occurrence without any evidence of causation.

Economic Assumptions about Utility

Economists assume that consumers will consider this factor while making purchasing decisions. Consumers generally buy products that demonstrate the highest level of usefulness.

Economics

This focuses on studying the ways that resources are allocated in order to meet the needs or wants of people.

Producer

We use this term to refer to the people who take raw materials and turn them into some kind of completed good that can be sold in the economy.

Economic Models

A small version of our world that allows economists to analyze all kinds of data in order to form predictions or generalizations about both whole economies or parts of economies.

Consumer

This label is applied to everyone who makes use of an economic product. Every one of these individuals will be subject to resource scarcity.

Microeconomics

You can study this aspect of economics if you want to focus on the economic decisions that are made by businesses as well as consumers.

Inflation

Economists use this term to refer to expansions in an economy's general price-level.

Applications of the law of supply and demand

This law can tell us that a product's prices will rise if there is a low supply and high demand. Likewise, it tells us that a product's price will be low if there's a high supply and low demand.

Normative Economic Statement

These are economic statements that don't have support from data or facts. They are valuable and may help economists understand utility. An example would be saying that the school should be free.

Economic Systems

These are ways that economies are set up. Examples can include mixed, free market and command economies.

Potential limits on economic growth

• Technological improvements may reach an end

• Resources are finite

Positive Economic Statement

These economic assumptions can be easily supported by facts. If we say that children who go to school are less likely to be unemployed as adults, it's this kind of statement.

Adam Smith

An economist who wrote the book The Wealth of Nations. He came up with the term 'invisible hand' and was interested in how this force impacted the economy.

The Law of Supply and Demand

Economists consider this law to be a very important microeconomics concept. It deals with the relation of price, demand and supply when all other things are considered to stay the same.

The Fallacy of Composition

This fallacy says that if one component of a product has a particular outcome, then the entire product will.

Example of Correlation

An example of this would be when people wear shorts and eat more ice cream in the summer. While both things increase, people aren't eating more ice cream because they wear shorts.

Macroeconomics

A branch of economics that focuses on looking at the entirety of an economy.

Economic Growth

We use this term to refer to increases in the amount of goods and services an economy can produce. This is demonstrated when a business grows in size, efficiency and productivity.

Post Hoc Ergo Propter Hoc

This Latin phrase is taken to mean that because something occurred first, it must have caused another event to occur afterwards.

Consumer Preference Assumptions

A set of assumptions about consumer choices that include completeness, transitivity and non-satiation. Based on the choices they make, consumers may get utility, happiness or satisfaction.

Consumers in Microeconomics

This represents anyone who serves as a product's final user. They make purchases and are very important because these purchases represent 70% of our economy.

Producer Applications of Utility

You can apply this to the transportation of goods by producers. To get the most of their transportation, a producer would send their product to multiple stores so the most customers could buy it.