8th Grade Economics Flashcards

Unit : 1-5

What is economics?

Economics is the scientific study of how people choose to use limited resources to satisfy unlimited wants.

What is positive economics?

The study of economics based on objective analysis using facts and data.

What is normative economics?

The study of economics that incorporates subjectivity into its analysis which does not rely on facts.

What does 'ceteris paribus' mean?

The analyst holds all other variables constant except those under immediate scrutiny, when considering any economic condition or model.

What is the assumption of rational agents?

All economic agents are assumed to be rational, meaning they never make a choice that makes them worse off.

What is scarcity?

The conflict between limited resources and unlimited human wants, necessitating trade-offs.

What is opportunity cost?

The value of the next best alternative choice.

What is utility in economics?

A measure of the satisfaction, happiness, or benefit gained from consumption….

What does it mean when trade is voluntary?

Voluntary (not forced) trade always makes people better off.

What is an incentive?

Any reward or punishment that motivates an individual or group to perform a specific action.

What is marginal thinking?

The analysis of decisions about small, incremental changes to an existing course of action.

What are goods?

Items that give us satisfaction when we consume them.

What are services?

An intangible act or use for which a consumer, firm, or government is willing to pay.

What is the private sector?

All of the private individuals, or organizations/firms owned by members of the general public within an economy.

What is the public sector?

Any part of the economy that is owned and controlled by government.

What is production?

The making and selling of goods and services that satisfy people’s wants.

What is consumption?

The using up of goods and services to satisfy our wants.

What are the 3 Resources?

Land (natural resources), Capital, and Labor

What is Physical Capital?

Any manufactured asset that is applied in production.

What is Human Capital?

The stock of competences, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value.

What is an economic system?

A particular set of institutional arrangements that acts as a coordinating mechanism for solving the economic problem.

What are the 4 economic systems?

Command/socialism, Traditional, Mixed and Market/capitalism.

What are command/socialism economic systems?

The government owns almost all property and makes allocation decisions.

What are traditional economic systems?

Economic decisions are based primarily on custom and tradition.

What are mixed economic systems?

Combination of at least two other economic systems.

What are market/capitalism economic systems?

The private ownership of resources and the use of markets and prices to coordinate and direct economic activity.

What is efficiency?

The accomplishment of or ability to accomplish a job with a minimum expenditure of time, resources and effort.

Who is Adam Smith?

Scottish philosopher and father of modern-day economics and capitalism.

What is mercantilism?

Government control of foreign trade is of paramount importance for ensuring the prosperity and security of a state or country.

What is a consumer?

A broad label for any individual or household that uses goods and services generated within the economy.

What is utility?

A measure of the satisfaction, happiness, or benefit gained from consumption.

What are utils?

The hypothetical unit of measurement for utility.

What is total utility (TU)?

The total amount of satisfaction received from the consumption of a certain amount of a good.

What is marginal utility (MU)?

The additional utility received (or lost) from the consumption of the next unit of a good.

What is the law of diminishing marginal utility?

The more of a product that a consumer has, the less additional satisfaction they get from one extra unit of that product.

What is the utility maximizing rule?

People maximize utility when marginal utility equals the price of a good or service.

What is a producer?

People who create economic value or produce goods and services.

What is a Production Possibilities Curve (PPC/PPF)?

Shows the various combinations of goods that a society can have given its current level of resources, technology, and trade.

What is productive efficiency?

Using resources in the least costly way; always a point on the PPC.

What is allocative efficiency?

Allocating resources among production techniques in such a way as to produce those goods and services that maximize a society’s well-being.

What is a budget?

A quantitative estimation of a plan for a defined period of time.

What is a budget line?

The alternative combinations of two different goods that can be purchased with a given income and given prices of the two goods.

What is disposable income?

The income a person has leftover after paying taxes.

What is saving?

When a person delays consumption until a later time.

What is debt?

An amount of money borrowed by one party from another.

What is interest?

The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.

What is credit?

The amount of money available to be borrowed by an individual or a company.

List the Determinants of Demand

P- Preferences and tastes of consumers, R-The price of related goods, I-Income of consumers, C- Number of consumers, E- Expected change in the future price of the product

What are complements?

Goods consumed together to provide more satisfaction separately.

What are substitutes?

Goods that can be used in place of one another.

What are normal goods?

Goods for which demand increases as income increases.

What are inferior goods?

Goods for which demand decreases as income increases.

List the Determinants of Supply

S- Subsidies or taxes on producers, P- Price of inputs or resources, E- Producer expectations of future prices, N- Number of producers or sellers, T- Technology and productivity used in making the product

What is a price ceiling?

The maximum legally allowable price sellers can charge.

What is a price floor?

The minimum legally allowable price sellers can offer.

What is consumer surplus?

The difference between what consumers are willing to pay and what they actually pay.

What is producer surplus?

The difference between what producers are willing to sell for and what they actually sell for.

What is elasticity?

A measure of the responsiveness of one variable to changes in another variable.

What is price elasticity of demand?

The responsiveness of quantity demanded to changes in the product’s price.

What is price elasticity of supply?

The responsiveness of quantity supplied to changes in the product’s price.

List Factors Affecting Elasticity of Demand

P-Proportion of income, L-Luxuries vs. necessities, A-Availability of substitutes, T-Time

List Factors Affecting Elasticity of Supply

A-Availability of inputs, T-Time

What is short-run?

A period of time too short to change the amount of physical capital.

What is the long-run?

A period of time long enough to alter the amount of physical capital.

What are fixed inputs?

Production inputs that cannot be changed in the short run.

What are variable inputs?

Production inputs that the firm can adjust in the short run to meet changes in demand for their output.

What is explicit costs?

Direct, purchased, out of pocket costs paid to resource suppliers outside the firm.

What is implicit costs?

Indirect, non-purchased, or opportunity costs of resources.

What is an accounting profit?

The difference between total revenue and total explicit costs.

What is Total Fixed Costs (TFC)?

The costs that do not vary with changes in short-run output. They must be paid even when output is zero.

What is Total Variable Costs (TVC)?

The costs that change with the level of output. If output is zero, so are the total variable costs.

What is Total Cost (TC)?

The sum of total fixed and total variable costs at each level of output.

What is economic profit?

The difference between total revenue and total explicit and implicit costs.

What is Marginal cost (MC)?

The additional cost of producing one more unit of output.

What is Average fixed cost (AFC)?

The total fixed cost divided by output.

What is Average variable cost (AVC)?

The total variable cost divided by output.

What is Average total cost (ATC)?

Total cost divided by output.

Define Perfect Competition

Many producers, free entry and exit, price takers, normal product in the long run, identical product from all producers

Define Monopoly

Single producer, barriers to entry, market power, positive long-run profit, no close substitutes

Define Monopolistic competition

Many producers, free entry and exit, market power, zero normal long-run profit, differentiated products

Define Oligopoly

A small number of large producers, barriers to entry, interdependence, positive long-run profit, products are either homogeneous or differentiated

What are examples of barriers to entry?

Legal restrictions, control of scarce resources, or economies of scale

What are categories of monopolies?

Natural, technological, and government monopolies

What is Price Discrimination?

Selling the same good at different prices to different consumers.

What are conditions needed for Price Discrimination?

The firm must have market power, be able to identify/separate groups of consumers, and prevent resale.

What is the firm four concentration ratio?

The four firms with the highest market share combined to have market concentration

In the short run what profit maximizing conditions do firms want to be in?

A firm will always maximize its profits where MR=MC

Define Market Failure

A market produces the wrong amount of a certain good. A market fails to allocate resources

Define Negative Externalities

When firms impose uncompensated cost on others and the market generates a negative externality

Define Positive Externalities

A market that generates uncompensated benefits on others.

List potential ways to correct a Negative Externality

Individual bargaining, Rules/Lawsuits, Tax on producers, Direct Controls, Market for tradeable permits

List potential ways to correct Positive Externalities

Individual bargaining, Subsidy to Consumers, Subsidy to Producers, Government provision

Define private good

Goods are excludable and rival in consumption

Define Public Good

A Public good is non-excludable and non-rival in consumption

Define a progressive tax structure.

Higher income earners pay a higher percentage of their income in taxes

Define a proportional tax structure.

Everyone pays the same percentage in taxes; Taxed regardless of income level

Define a regressive tax structure

Higher income earners pay a smaller percentage of their income in taxes