ECON 2105 Exam #1

absolute advantage

the ability of one producer to make more than another producer with the same quantity of resources

black markets

illegal markets that arise when price controls are in place

capital goods

goods that help produce other valuable goods and services in the future

ceteris paribus

the concept under which economists examine a change in one variable while holding everything else constant

comparative advantage

the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can

competitive market

one in which there are so many buyers and sellers that each has only a small impact on the market price and output

complements

two goods that are used together; when the price of a complementary good rises, the demand for the related good goes down

consumer goods

goods produced for present consumption

consumer surplus

the difference between the willingness to pay for a good and the price that is paid to get it

deadweight loss

the decrease in economic activity caused by market distortions

demand curve

a graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices

demand schedule

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

economic thinking

a purposeful evaluation of the available opportunities to make the best decision possible

economics

the study of how people allocate their limited resources to satisfy their nearly unlimited wants

efficiency

an allocation of resources that maximizes total surplus

endogenous growth

growth driven by factors inside the economy

equilibrium

condition occurring at the point where the demand curve and the supply curve intersect

equilibrium price

the price at which the quantity supplied is equal to the quantity demanded; also known as the market-clearing price

equity

the fairness of the distribution of benefits within the society

excise taxes

taxes levied on a particular good or service

imperfect market

one in which either the buyer or the seller has an influence on the market price

incentives

factors that motivate a person to act or exert effort

incidence

the burden of taxation on the party who pays the tax through higher prices, regardless of whom the tax is actually levied on

inferior good

a good purchased out of necessity rather than choice

inputs

the resources (labor, land, and capital) used in the production process

investment

(1) the process of using resources to create or buy new capital; (2) private spending on tools, plant, and equipment used to produce future output

law of demand

the law that, all other things being equal, quantity demanded falls when prices rise, and rises when prices fall

law of increasing relative cost

law stating that the opportunity cost of producing a good rises as a society produces more of it

law of supply

the law that, all other things being equal, the quantity supplied of a good rises when the price of the good rises, and falls when the price of the good falls

law of supply and demand

the law that the market price of any good will adjust to bring the quantity supplied and the quantity demanded into balance

macroeconomics

the study of the overall aspects and workings of an economy

marginal thinking

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

market

a system that brings buyers and sellers together to exchange goods and services

market demand

the sum of all the individual quantities demanded by each buyer in the market at each price

market economy

an economy in which resources are allocated among households and firms with little or no government interference

market supply

the sum of the quantities supplied by each seller in the market at each price

microeconomics

the study of the individual units that make up the economy

monopoly

condition existing when a single company supplies the entire market for a particular good or service

normal good

a good consumers buy more of as income rises, holding other things constant

normative statement

an opinion that cannot be tested or validated; describes "what ought to be"

opportunity cost

the highest-valued alternative that must be sacrificed in order to get something else

positive statement

an assertion that can be tested and validate; it describes "what is"

price ceilings

legally established maximum prices for goods or services

price controls

an attempt to set prices through government involvement in the market

price floors

legally established minimum prices for goods or services

price gouging laws

temporary ceilings on the prices that sellers can charge during times of emergency

producer surplus

the difference between the willingness to sell a good and the price that the seller receives

production possibilities frontier

a model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently

quantity demanded

the amount of a good or service that buyers are willing and able to purchase at the current price

quantity supplied

the amount of a good or service that producers are willing and able to sell at the current price

rent control

a price ceiling that applies to the housing market

scarcity

the limited nature of society's resources, given society's unlimited wants and needs

shortage

market condition when the quantity supplied of a good is less than the quantity demanded

total surplus

the sum of consumer surplus and producer surplus

substitutes

goods that are used in place of each other; when the price of a substitute good rises, the quantity demanded falls and the demand for the related good goes put

supply curve

a graph of the relationship between the prices in the supply schedule and the quantity supplied at those prices

supply schedule

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

surplus

market condition when the quantity supplied of a good is greater than the quantity demanded

trade

the voluntary exchange of goods and services between two or more parties

welfare economics

the branch of economics that studies how the allocation of resources affects economic well-being

willingness to pay

the maximum price a consumer will pay for a good

willingness to sell

the minimum price a seller will accept to sell a good or service