Econ final
price ceiling
A legal maximum price for a good or service -binding price sets price below equilibrium
flow, stock
income is a ______ variable. Wealth is a _______ variable.
positive economics
objective statements that can be tested, amended, or rejected by referring to the available evidence ex. if the government raises taxes on beer, this will lead to a fall in profits for the brewers
market period
output and number of firms are fixed
more elastic
over long periods of time, demand tends to be
partnership
ownership is distributed among a small number of people. This type of business is subject to unlimited liability.
scarcity
people have limited resources
market failure
when free markets provide a suboptimal amount of goods and services -occurs when either external costs or benefits are present -sometimes the government intervenes
relative poverty
when households receive 50% less than average median income (changes with economic growth)
normal good
when income elasticity is a positive number less than 1, the good is a
inferior good
when income elasticity is negative, the good is a
luxury good
when the income elasticity is greater than 1, the good is a
Gini Coefficient
A measure of income inequality within a population that ranges from zero (perfect equality) to 1 (or 100) in the case of absolute inequality.
allocative efficiency
A state of the economy in which production is in accordance with consumer preferences -will occur when marginal price= marginal cost
regressive tax
A tax for which the percentage of income paid in taxes decreases as income increases
progressive tax
A tax for which the percentage of income paid in taxes increases as income increases
the equity-efficiency trade-off
Actions intended to make economic outcomes fairer can cause efficiency to decrease
Lorenz curve
Graph showing how much the actual distribution of income differs from an equal distribution- the extent to which the curve sags below a straight diagonal line indicates the degree of inequality of distribution.
0, 1
If an economy's income is completely equally distributed, then the value of its Gini coefficient is ____. If an economy's income is completely unequally distributed, then the value of its Gini coefficient is ____.
price gouging
Pricing products unreasonably high when the need is great or when consumers do not have other choices ex. price of sleeping bags increases after deadly tornado ruins many homes
$3594
Suppose that the least expensive plan with which a family of four can provide itself a nutritionally balanced meal plan in 1963 is $1198. Given this information, what is the poverty threshold in 1963 for a family of four?
income deficit
The depth of poverty measurement that is the difference between the poverty threshold and a family's income is called the
Assymetric information
When one party to a transaction has access to relevant information that the other party doesn't ex. doctor
external benefit
a benefit received by people other than the consumers or producers trading in the market ex. moving into an apartment above a donut shop b/c you love the smell of donuts
external cost
a cost paid by people other than the consumer or the producer trading in the market ex. the smell of donuts makes you sick, so you don't move into an apartment above a donut shop
rivalrous and excludable goods
a item that is possible to prevent someone from using; usually payment is required ex. no one can enjoy a t-shirt without buying it
price floor
a legal minimum price for a good or service -binding price that sets price above the equilibrium
perfect competition
a market structure in which a large number of firms all produce the same product
cross-price elasticity of demand
a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
explicit costs
accountants include only _________ costs
diminishing returns
an additional worker adds less to total output than the previous worker hired
market
an economic institution that facilitates interactions between buyers and sellers -exists when people exchange money for goods and services -will always tend toward equilibrium
marginal decisions
an examination of the additional benefits of an activity compared to the additional costs incurred by that same activity. Companies use this as a decision-making tool to help them maximize their potential profits
the law of demand
as the price of a good increases, buyers are willing and able to purchase less
market-oriented activities
buyers/sellers make all production/consumption decisions
relatively low
compared to less developed nations, income inequality in the United States is ______________
relatively high
compared to other economically advanced nations, income inequality in the United States is ____________
absolute poverty
condition where household income is insufficient to afford basic necessities from life (food, shelter) -determined by specific-numerical value threshold
more elastic
demand for a luxury item tends to be
more elastic
demand for an item that uses a large portion of your budget tends to be
inferior good
describes a good whose demand drops when people's income rises; anything a consumer would demand less of if they had a higher level of income ex. raise at work means no more frozen pizzas
normal good
describes a good whose demand increases as people's income or the economy rises; income elasticity coefficient that is positive, but less than 1 ex. loosing clients means buying less smoothies- smoothies are what?
lower
economic profit is typically _______ than accounting profit
market economy
economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets
explicit, implicit
economists include both _________ and ________ costs
tradeoffs
everything you do requires giving up something (time, money, etc)
short run
firms can employ more labor if needed
long run
firms can enter and exit an industry
Ceteris Paribus
holding all else equal (unchanged)
Income Elasticity
how responsive quantity demanded is to change in income
near poor
if a family's ratio of income to poverty measurement is 1.07, the family is considered by the Census Bureau as
unit elastic
if the price effect is equal to the quantity effect ex. increase prices by 19% result in no change in total revenue
inelastic
if the price effect is larger than the quantity effect ex. increase prices by 49% results in total revenue increasing by 22%
elastic
if the quantity effect is larger than the price effect ex. increase prices by 51% results in total revenue deceasing by 69%
inverse, negative
in a market economy, there is an _________ or _________ relationship between the price of a good and the amount of a good that buyers are willing and able to purchase
the income effect
increases in quantity demanded that are attributable to changes in purchasing power as the price of a good falls
the total effect
increases in quantity demanded that are attributable to the combination of the income effect and the substitution effect
the substitution effect
increases in quantity demanded that are attributable to the good becoming cheaper relative to other goods
wealth
is income of wealth more unequally distributed in the United States?
corporation
it is argued that this form of business contributes the most to increases in the nations output (GPD)
nonrivalrous and nonexcludable
item that is impossible to prevent someone from consuming ex. the air we breathe
corporation
limited liability encourages investors to invest large amounts of money into this form of business
stock variable
measured at one specific time, and represents a quantity existing at that point in time (ex. October 4, 2016)
flow variable
measured over an interval of time (per unit of time)
Sole Proprietorship
most American businesses are this form of business
total revenue
price per unit x the number of units sold
the maximin principle
principle to ensure that the people who are least well off in society have as great a share of the goods necessary for well-being as possible
productive efficiency
producing goods and services at the lowest possible cost -on the PPC, it is impossible to produce more of one good without producing less of another
income elasticity of demand
refers to the sensitivity of the quantity demanded for a certain good to a change in real income of the consumers who buy this good
corporations
shareholders are owners of this form of business
macroeconomics
studies the behavior of a country and how its policies affect the economy as a whole. Analyzes entires industries and economies, rather than individual or specific companies
normative economics
subjective statement of opinion rather than a fact that can be tested by looking at the available evidence ex. pollution is the most serious economic problem
0, 1
suppose a family's income is exactly the same as the poverty threshold: This families income deficit would be __ and their ratio of income to poverty would be __
comparative advantage
the ability to produce a good or service at a lower opportunity cost than another
inelastic
the absolute value of price elasticity of demand between 1 and 0 is
elastic
the absolute value of price elasticity of demand greater than 1 is
marginal utility
the additional utility a consumer derives from an additional unit of a good -usually decreases as consumption increases
marginal product
the change in total output divided by the change in the number of workers
specialization
the development of skills in a specific kind of work
planned economy activities
the government makes all production/consumption decisions
producer surplus
the market price - the minimum price a seller is willing to accept
supply
the max amount of a product that sellers are willing and able to provide for sale over a relevant range of prices, holding all other factors constant
consumer surplus
the maximum price a buyer is willing to pay - the market price
poverty threshold
the minimum level of income deemed adequate in a particular country to meet basic needs of a family
demand
the quantity of a good or service that consumers are willing and able to purchase at different possible prices
price elasticity of demand
the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve
land
the resource category _______ refers to all natural resources, including fertile land, forests, mineral deposits, solar and wind energy, and water
labor
the resource category ________ refers to the mental and physical productivity of workers
entrepreneurial ability
the resource category _____________ refers to business skills such as management of resources, the drive to innovate, and the willingness to bear risk
microeconomics
the study of decision made by people and businesses regarding the allocation of resources and prices of goods and services. Also takes into account taxes and regulations created by governments -supply, demand, equilibrium -production theory -cost of production -labor economics
total utility
the total amount of satisfaction that a customer gets from consumption of a good or service -usually increases as consumption increases
average product
total output divided by the number of workers
there has been economic growth in our society
what explains why do modern American's enjoy a higher standard of living than American's 100 years ago?
opportunity cost
whatever must be given up to obtain some item
excess supply
when quantity supplied is greater than quantity demanded only occurs when the price is greater than the equilibrium price
the law of supply
when the market price of a good increases, the amount that sellers are willing to offer for sale increases
corporations
which business organization gives owners limited liability?
partnership
which business organization has unlimited liability and more than one owner?
Sole Proprietorship
which business organization typically has a single owner that has unlimited liability?
less elastic
with fewer substitutes, demand tends to be
