Untitled Flashcards Set

CHAPTER 1: INTRODUCTION TO ECONOMICS

Flashcard 1

Term: Economics
Definition: The study of how people, businesses, and governments make choices to use limited resources to satisfy unlimited wants.

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Term: Scarcity
Definition: The fact that there are not enough resources to satisfy everyone’s wants, so people must make choices.

Flashcard 3

Term: Opportunity Cost
Definition: The value of the next best alternative that you give up when making a choice.
Example: If you spend ten dollars on a movie ticket, your opportunity cost could be a meal you can no longer buy.

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Term: Trade-Off
Definition: The act of giving up one benefit to gain another benefit.

Flashcard 5

Term: Incentive
Definition: A reward or punishment that motivates a person to behave in a certain way.

• Positive Incentive: A company offers a bonus to employees who work extra hours.

• Negative Incentive: A person gets a speeding ticket for driving too fast.

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Term: Rational Decision-Making
Definition: Making a choice when the benefits are greater than the costs.

CHAPTER 2: THINKING LIKE AN ECONOMIST

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Term: Production Possibilities Frontier
Definition: A graph that shows the best way to use limited resources to produce two different goods.

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Term: Points on a Production Possibilities Frontier

• On the curve: The economy is using resources efficiently.

• Inside the curve: The economy is wasting resources or not using them fully.

• Outside the curve: The economy does not have enough resources to produce at this level.

Flashcard 9

Term: Shifts in the Production Possibilities Frontier

• If the curve shifts to the right: More resources, better technology, or economic growth.

• If the curve shifts to the left: Loss of resources, war, or economic decline.

CHAPTER 4: SUPPLY AND DEMAND

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Term: Market
Definition: Any place where buyers and sellers exchange goods or services.

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Term: Law of Demand
Definition: When prices increase, quantity demanded decreases and when prices decrease, quantity demanded increases, assuming all other factors remain the same.

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Term: Demand Curve
Definition: A graph that slopes downward from left to right, showing the relationship between price and quantity demanded.

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Term: Factors That Shift Demand

1. Consumer Preferences: If a good becomes popular, demand increases.

2. Income Changes:

   • Normal Goods: Demand increases when income increases.

   • Inferior Goods: Demand decreases when income increases.

3. Prices of Related Goods:

   • Substitutes: If the price of Coca-Cola rises, demand for Pepsi increases.

   • Complements: If gasoline prices rise, demand for cars decreases.

4. Expectations: If people expect prices to rise in the future, they buy more now.

5. Number of Buyers: If more people enter the market, demand increases.

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Term: Law of Supply
Definition: When prices increase, quantity supplied increases and when prices decrease, quantity supplied decreases, assuming all other factors remain the same.

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Term: Supply Curve
Definition: A graph that slopes upward from left to right, showing the relationship between price and quantity supplied.

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Term: Factors That Shift Supply

1. Input Costs: If the price of raw materials increases, supply decreases.

2. Technology Improvements: More efficient production increases supply.

3. Government Policies: Taxes reduce supply, while subsidies increase supply.

4. Expectations: If suppliers expect higher prices in the future, they reduce supply now.

5. Number of Sellers: More sellers increase supply.

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Term: Market Equilibrium
Definition: The point where quantity demanded equals quantity supplied, meaning there are no shortages or surpluses.

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Term: Shortage
Definition: When demand is greater than supply, causing prices to rise.

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Term: Surplus
Definition: When supply is greater than demand, causing prices to fall.

CHAPTER 5: ELASTICITY

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Term: Price Elasticity of Demand
Definition: Measures how much quantity demanded changes when price changes.
Formula:

%change in quantity demanded%change in price\frac{\% \text{change in quantity demanded}}{\% \text{change in price}}%change in price%change in quantity demanded​

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Term: Elastic Demand
Definition: Quantity demanded changes a lot when price changes.

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Term: Inelastic Demand
Definition: Quantity demanded changes only a little when price changes.

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Term: Total Revenue and Elasticity

• If demand is elastic: Raising price decreases total revenue.

• If demand is inelastic: Raising price increases total revenue.

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Term: Income Elasticity of Demand
Definition: Measures how demand changes when income changes.
Formula:

%change in quantity demanded%change in income\frac{\% \text{change in quantity demanded}}{\% \text{change in income}}%change in income%change in quantity demanded​

• Positive result: Normal Good.

• Negative result: Inferior Good.

Flashcard 25

Term: Cross-Price Elasticity of Demand
Definition: Measures how demand for one good changes when the price of another good changes.
Formula:

%change in quantity demanded of Good 1%change in price of Good 2\frac{\% \text{change in quantity demanded of Good 1}}{\% \text{change in price of Good 2}}%change in price of Good 2%change in quantity demanded of Good 1​

• Positive result: Substitutes.

• Negative result: Complements.

GOVERNMENT POLICIES AND MARKET EFFECTS

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Term: Price Ceiling
Definition: A maximum price set by the government, which can lead to shortages.
Example: Rent control laws limit how much landlords can charge for apartments.

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Term: Price Floor
Definition: A minimum price set by the government, which can lead to surpluses.
Example: Minimum wage laws set a base pay for workers.

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Term: Taxes and Subsidies

• Taxes on goods: Increase prices and reduce demand.

• Subsidies: Lower costs for producers and increase supply.

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Term: Deadweight Loss
Definition: The lost economic benefits caused by market inefficiencies, such as taxes or price controls.