EPF Q1 test
Opportunity Cost
The value of the next best option sacrificed for a chosen option.The cost of NOT choosing the “best” alternative.
Trade-off
All the options given up when a decision is made.
Scarcity
Desirable items are in limited supply
Choice
Deciding how best to use limited resources
Marginal Cost
Cost incurred from one more item
Marginal Benefit
Benefit gained from one more item
Utility
Usefulness or value surrounding a decision
Diminishing Marginal Return / Utility
Adding more reaches a point where the return becomes negative
Factors of Production
Because of scarcity, no society has enough resources to produce everything it wants. Resources are the basic categories of inputs used to produce goods and services.
Land
Having the actual space to perform production. Physical land to build production and distribution facilities or the physical space within those facilities.
Labor
Having a skilled / educated workforce to be able to complete tasks associated with specific jobs
Capital
Monetary resources to start, maintain and expand production. - Cash, credit, machinery, raw materials
Entrepreneurship
Having the desire, skills, insight to start a business.
Competition
rivalry among sellers in the same market to win customers
Perfect Competition
Many producers supply and sell identical products or services. Prices determined by supply and demand. Example: farmers market
Monopolistic competition
Market structure characterized by many small sellers, varied products, and easy market entry. Example: Restaurants (slightly different products, all trying to monopolize you)
Oligopoly
Few producers dominate the market and produce similar or identical goods or services. Examples: Airline, Automobile, Technology, Soft Drink Industry
Monopoly
Single producer supplies a product or service for which there are no close substitutes.
Price
the amount of money that is needed to pay for or buy something
Revenue
income that a business has from its normal business activities (the sale of goods and services to customers), (price * quantity)
Cost
the value a producer gives up to produce the good, (cost * quantity)
Profit
the total revenue a firm receives from selling its products minus the total cost of producing it (revenue - costs)
Break EvenPoint
the point at which you have made enough to cover the cost of making the good or service (revenue = costs)
Supply
the amount of goods and services a producer makes available at a given price
Demand
the amount of goods and services customers are willing and able to buy at a given price
Law of Demand
There is an inverse relationship between the price of a good or service and the quantity buyers purchase.
Law of Supply
A direct relationship between price and quantity: quantities respond in the same direction as price changes.
Equilibrium Price
The market price where the quantity of goods supplied is equal to the quantity of goods demanded. This is the point at which the demand and supply curves in the market intersect.
Price elasticity
how the fluctuation in price impacts demand
Elastic Demand
When one can of coke goes up 10%, demand falls by 10%
There are substitute products
Inelastic Demand
When 1 carton of milk goes up 10%, demand hardly changes
There are no substitute products
Very Inelastic Demand
When spa treatments rise by 10%, demand falls by 20%
A spa is a non-essential item
Productivity
the value of outputs that can be produced by a given amount of input
Standard of Living
the level of wealth, comfort, material goods,
and necessities available to a certain socioeconomic class in a certain geographic area, usually a country
Cost of Production
the total of certain costs associated with the production of goods.
Demand Shifters
Number of Buyers
Adding more consumers either by increase in population or expansion into different markets. More consumers= more demand (shift right).
Tastes/Preference
A favorable (or unfavorable) change in consumer tastes shifts the demand curve.
Income Effect
An increase in income can cause consumers to buy more - Normal goods A decrease in income could result in inferior good purchases.
Expectations of Buyers
Consumers anticipate future changes in price
Gas prices are expected to increase
Threat of bad weather
War breaks out
Price of related Goods/Competition
Influence of other prices on the demand curve.
Behavioral economics: The study of consumer choices, market events and human psychology to help understand their decisions and to try to make more accurate economic models.
Herd Mentality
The tendency to conform to the behaviors/beliefs of the people around you
FOMO
The tendency to feel anxiety/fear that an exciting or interesting event may currently be happening elsewhere, often aroused by posts seen on a social media website
Loss Aversion
The tendency to regard losses as considerably more important than gains of comparable magnitude
Confirmation bias
people tend to seek out and interpret information in ways that confirm what they already believe.
Misinformation effect
When you remember an event, your perception of it can be altered if you later receive misinformation about the event. In other words, if you learn something new about an event you saw, it can change how you remember the event, even if what you are told is unrelated or untrue
Overconfidence bias
The tendency people have to be more confident in their own abilities
Halo effect
If you are under the influence of a halo effect bias, your general impression of a person is being unduly shaped by a single characteristic. One of the most influential characteristics? Beauty. People routinely see attractive people as more intelligent and conscientious than their actual academic performance indicates.
Opportunity Cost
The value of the next best option sacrificed for a chosen option.The cost of NOT choosing the “best” alternative.
Trade-off
All the options given up when a decision is made.
Scarcity
Desirable items are in limited supply
Choice
Deciding how best to use limited resources
Marginal Cost
Cost incurred from one more item
Marginal Benefit
Benefit gained from one more item
Utility
Usefulness or value surrounding a decision
Diminishing Marginal Return / Utility
Adding more reaches a point where the return becomes negative
Factors of Production
Because of scarcity, no society has enough resources to produce everything it wants. Resources are the basic categories of inputs used to produce goods and services.
Land
Having the actual space to perform production. Physical land to build production and distribution facilities or the physical space within those facilities.
Labor
Having a skilled / educated workforce to be able to complete tasks associated with specific jobs
Capital
Monetary resources to start, maintain and expand production. - Cash, credit, machinery, raw materials
Entrepreneurship
Having the desire, skills, insight to start a business.
Competition
rivalry among sellers in the same market to win customers
Perfect Competition
Many producers supply and sell identical products or services. Prices determined by supply and demand. Example: farmers market
Monopolistic competition
Market structure characterized by many small sellers, varied products, and easy market entry. Example: Restaurants (slightly different products, all trying to monopolize you)
Oligopoly
Few producers dominate the market and produce similar or identical goods or services. Examples: Airline, Automobile, Technology, Soft Drink Industry
Monopoly
Single producer supplies a product or service for which there are no close substitutes.
Price
the amount of money that is needed to pay for or buy something
Revenue
income that a business has from its normal business activities (the sale of goods and services to customers), (price * quantity)
Cost
the value a producer gives up to produce the good, (cost * quantity)
Profit
the total revenue a firm receives from selling its products minus the total cost of producing it (revenue - costs)
Break EvenPoint
the point at which you have made enough to cover the cost of making the good or service (revenue = costs)
Supply
the amount of goods and services a producer makes available at a given price
Demand
the amount of goods and services customers are willing and able to buy at a given price
Law of Demand
There is an inverse relationship between the price of a good or service and the quantity buyers purchase.
Law of Supply
A direct relationship between price and quantity: quantities respond in the same direction as price changes.
Equilibrium Price
The market price where the quantity of goods supplied is equal to the quantity of goods demanded. This is the point at which the demand and supply curves in the market intersect.
Price elasticity
how the fluctuation in price impacts demand
Elastic Demand
When one can of coke goes up 10%, demand falls by 10%
There are substitute products
Inelastic Demand
When 1 carton of milk goes up 10%, demand hardly changes
There are no substitute products
Very Inelastic Demand
When spa treatments rise by 10%, demand falls by 20%
A spa is a non-essential item
Productivity
the value of outputs that can be produced by a given amount of input
Standard of Living
the level of wealth, comfort, material goods,
and necessities available to a certain socioeconomic class in a certain geographic area, usually a country
Cost of Production
the total of certain costs associated with the production of goods.
Demand Shifters
Number of Buyers
Adding more consumers either by increase in population or expansion into different markets. More consumers= more demand (shift right).
Tastes/Preference
A favorable (or unfavorable) change in consumer tastes shifts the demand curve.
Income Effect
An increase in income can cause consumers to buy more - Normal goods A decrease in income could result in inferior good purchases.
Expectations of Buyers
Consumers anticipate future changes in price
Gas prices are expected to increase
Threat of bad weather
War breaks out
Price of related Goods/Competition
Influence of other prices on the demand curve.
Behavioral economics: The study of consumer choices, market events and human psychology to help understand their decisions and to try to make more accurate economic models.
Herd Mentality
The tendency to conform to the behaviors/beliefs of the people around you
FOMO
The tendency to feel anxiety/fear that an exciting or interesting event may currently be happening elsewhere, often aroused by posts seen on a social media website
Loss Aversion
The tendency to regard losses as considerably more important than gains of comparable magnitude
Confirmation bias
people tend to seek out and interpret information in ways that confirm what they already believe.
Misinformation effect
When you remember an event, your perception of it can be altered if you later receive misinformation about the event. In other words, if you learn something new about an event you saw, it can change how you remember the event, even if what you are told is unrelated or untrue
Overconfidence bias
The tendency people have to be more confident in their own abilities
Halo effect
If you are under the influence of a halo effect bias, your general impression of a person is being unduly shaped by a single characteristic. One of the most influential characteristics? Beauty. People routinely see attractive people as more intelligent and conscientious than their actual academic performance indicates.