Economics Key Terms: Supply, Demand, Market Equilibrium, and Production Factors

Resource

Used to practice something

Scarce

Not enough

Opportunity Cost

Give up to receive

Trade Off

Cost vs benefit

Marginal Decision

Decision made at margin of activity, do a bit more or less

Incentive

Reward for change

Equilibrium

No individual better off doing something different

Efficient

Taking all opportunities to make some people better off without making other people worse off

Equity

A condition in when everyone gets their fair share

Under Curve

Feasible not efficient

Above Curve

Desirable not feasible

On Curve

Feasible and efficient

Recession

Less worker income, less spending, drop in business

PPF

Production possibilities frontier - show combinations of two goods that are possible for society to produce at full employment

Land

Natural resources, mineral deposits, oil, natural gas, water, land acreage

Labor

Human effort used in production

Physical Capital

Manufactured quality of small jets, items used to produce other goods

Human Capital

Educational achievements and skills of labor forces (within labor productivity)

Theory of Comparative Advantage

More sense to produce things you are especially good at and buy other things

Absolute Advantage

Country has absolute advantage in producing a good or service if it can produce more output per worker than other countries

Comparative Advantage

A country has comparative advantage in producing a good or service if its opportunity cost of producing good or service is lower than other countries

Competitive Markets

Has many buyers and sellers of the same good or service, none of whom can influence price

Supply/Demand Market

How competitive market behaves

Demand Curve

Representation of behavior of buyers, shows quantity demanded at various prices

Law of Demand

High price, small quantity demanded

Shift of Demand Curve

Decrease in demand = left, increase in demand = right

Substitutes

Decrease in price of one, decrease in demand for the other

Complements

Decrease in price of one, increase in demand for the other

Normal Good

Demand increases when income increases

Inferior Good

Demand decreases when income increases

Change in Taste

Demand shift right - reusable water bottle = trend, demand shift left - soda bad based on health info

Change in Expectation

If consumers have a choice about timing of a purchase, they buy according to expectations

Supply Curve

Representation of behavior of sellers, shows quantity supplied at various prices

Quantity Supplied

Quantity that producers are willing and able to sell at a particular price

Consumer Surplus

Difference between market price and what consumers are willing to pay

Producer Surplus

Difference between market price and price at which firms are willing to supply the product

Total Surplus

Producer surplus + Consumer surplus