UCONN Economics 1201 Midterm

scarcity

a situation in which unlimited wants exceed the limited resources available to fulfill those wants

economics

the study of the choices people make to attain their goals, given their scarce resources

economic model

a simplified version of reality used to analyze real word economic situations

marginal

extra or additional

marginal analysis

analysis that involves comparing marginal benefits and marginal costs

trade-off

the idea that because of scarcity, pro ducting more of one good or service means producing less of another good or service

market economy

an economy in which the decisions of households and firms interacting in markets allocate economic resources

mixed economy

an economy in which most economic decisions result from the interaction of buyers and sellers in the markets but in which the government plays a significant role in the allocation of resources

productive efficiency

a situation in which a good or service is produced at the lowest possible cost

voluntary exchange

a situation that occurs in markets when both the buyer and seller of a product are made better by the transaction

equity

the fair distribution of economic benefits

economic variable

something measurable that can have different values, such as the wages of software programmers

positive analysis

analysis concerned with what is

normative analysis

analysis concerned with what ought to be

microeconomics

the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

production possibilities frontier (PPF

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

opportunity cost

the highest-valued alternative that must be given up to engage in an activity

economic growth

the ability of the economy to increase the production of goods and services

trade

the act of buying and selling

absolute advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

comparative advantage

the ability of an individual, a firm, or a country to produce more of a good or service at a lower opportunity cost than competitors

market

a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade

product markets

markets for goods - such as competitors - and services - such as medical treatment

factor markets

markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

factors of production

the inputs used to make goods and services

circular- flow diagram

a model that illustrates how participants in markets are linked

free market

a market with few government restrictions on how a good or service can be proud or sold on how a factor of production can be employed

entrepreneur

someone who operates a business, bringing together the factors of production - labor, capital, and natural resources - to produce goods and services

demand schedule

a table showing the relationship between the price of a product and the quantity of the product demanded

quantity demanded

the amount of a good or service that a consumer is willing and able to purchase at a given price

demand curve

a curve that shows the relationship between the price of a product and the quantity of the product demanded

market demand

the demand by all the consumers of a given good or service

law of demand

the rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease

substitution effect

the change in the quantity demanded of a good that results from a change in market price, making the good more or less expensive relative to other goods that are substituted

income effect

the change in the quantity demanded of a good that results from the effect of a change in the good's price on consumer's purchasing power

substitutes

goods and services that can be used for the same purpose

complements

goods and services that are used together

demographics

the characteristics of a population with respect to age, race, and gender

quantity supplied

the amount of a good or service that a firm is willing and able to supply at a given price

supply schedule

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

supply curve

a curve that shows the relationship between the price of a product and the quantity of the product supplied

law of supply

the rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in the price cause decreases in the quantity supplied

technological change

a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs

market equilibrium

a situation in which quantity demanded equals quantity supplied

competitive market equilibrium

a market equilibrium with many buyers and many sellers

surplus

a situation in which the quantity supplied is greater than the quantity demanded

shortage

a situation in which the quantity demanded is greater than the quantity supplied

price ceiling

a legally determined maximum price that sellers may charge

price floor

a legally determined minimum price that sellers may receive

consumer surplus

the difference between the highest price a consumer is willing to pay for a good or service and the price the consumer actually pays

marginal benefit

the additional benefit to a consumer from consuming one more unit of a good or service

marginal cost

the additional cost to a firm of producing one more unit of a good or service

producer surplus

the difference between the lowest price a firm would be willing to accept a good or service and the price it actually receives

economic surplus

the sum of consumer surplus and producer surplus

deadweight loss

the reduction in economic surplus resulting from a market not being in competitive equilibrium

economic efficiency

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to it's marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum

tax incidence

the actual division of the burden of a tax between buyers and sellers in a market

3 Economic Ideas

- People are rational

- People respond to economic incentives

- Optimal decisions are made at the margin

Economic Models

simplified versions of reality used to analyze real-world economic situations

Market

group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade

Marginal

extra or additional

Marginal Analysis

economists refer to analysis that involves comparing marginal benefits and marginal costs

Trade-Offs

producing more of one good or service means producing less of another good or service

Opportunity Cost

highest valued alternative that must be given up to engage in that activity

Market Economy

an economy in which the decisions of households and firms interacting in markets allocate economic resources

Mixed Economy

an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources

Productive Efficiency

situation in which a good or service is produced at the lowest possible cost

Allocative Efficiency

state of the economy in which production is in accordance with consumer preferences

Voluntary Exchange

a situation that occurs in markets when both the buyer and seller of a product are make better off by the transaction

Equity

fair distribution of economic benefits

Economic Variable

something measurable that can have different values, such as the incomes of doctors

Positive Analysis

analysis concerned with "what ifs"

Normative Analysis

analysis concerned with "what ought to be"

Microeconomics

study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

Production Possibilities Frontier

curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

Economic Growth

the ability of the economy to increase the production of goods and services

Trade

act of buying and selling

Absolute Advantage

ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

Comparative Advantage

ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost then competitors (Having a comparative advantage in X, Country A sacrifices less of Y than Country B)

Product Markets

markets for goods and services

- households are demanders, firms are suppliers

Factor Markets

markets for the factors of production

Factors of Production

inputs used to make goods and services

- Labor: all types of work

- Capital: physical capital used to produce other goods

- Natural Resources: land, water, oil, other raw material

- Entrepreneurial Ability: bring together other factors of production to successfully produce and sell good/services

Household

all individuals in a home, suppliers of factors of production, particularly labor

Firms

suppliers of goods and services, use funds they receive from selling goods/services to buy or hire the factors of production needed to make the goods/services

Free Market

a market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed

Entrepreneur

someone who operates a business, bringing together the factors of production to produce goods/services

Property Rights

the rights individuals or firms have to the exclusive use of their property, including the right the buy or sell it

Perfectly Competitive Market

a market that meets the conditions of 1.) many buyers and sellers 2.) all firms selling identical products 3.) no barriers to new firms entering the market

Demand Schedules

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

Quantity Demanded

the amount of a good or service that a consumer is willing and able to purchase at a given price

Demand Curve

a curve that shows the relationship between the price of a product and the quantity of the product demanded

Market Demand

the demand by all the consumers of a given good or service

Law of Demand

the rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded decreases

Substitution Effect

the change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods that are substitutes

Income Effect

the change in the quantity demanded of a good that results from the effect of a change in the good's price on consumer' purchasing power

Ceteris Paribus Condition

requirement that when analyzing the relationship between two variable- such as price and quantity demanded- other variables must be held constant

Normal Good

a good for which the demand increases as income rises and decreases as income falls

Inferior Good

a good for which the demand increases as income falls and decreases as income rises

Substitutes

goods and services that can be used for the same purpose

Complements

goods and services that are used together