Economics

demand schedule

a table that shows a range of prices for a certain good or service and the quantity demanded at each price

supply schedule

a table the shows a range of prices for a good or service and the quantity supplied at each price

opportunity set

all possible cobinatones of consumption tha someone can afford given the prices of goods and the individuals income

fiscal policy

economic polocies that involve government spending and taxes

marginal analysis

examination of decisions on the margin, meaning a little more or a little less from the status quo

opportunity cost

measrue cost by what we give up/forfeit in exchange; opportuniy cost measure the vakye of teh forgone alternative

consumer surplus

the ectra benefit consumers recieve from buying a good or service, measured by what the individuals would have been willing to pay minus the amount that they actually paid

equilibrium quantity

the quantity at which quanitity demanded and quantitiy supplied are equal for a cretain price level

scarcity

when human wants for goods and services exceed the available supply

economies of schale

when the average cost of productin each individual unit declines as total output increases

Explaun demand, supply, and equilibrium in markets for goods and services

a demand schedule is a table that shows the quantity demanded at different prices in the market. a demand curve shows the relationship between quantity demanded and price in a given market on a graph. the law of demand states that a higher price typically leads to a lower quantity demanded. a supply schedule is a tbale that shows the quantity supplued at different prices in the market. a supply curve shows the relationship between quantity supplied and price on a graphg. the law of supply says that a higher price typically leads to a higher quantity supplied. the equilibrium quantity occur where the supply and demand curves cross. the equilibrium occures where the quantity demanded is equal to the quantity supplied. if the price is below the equilibrium level, tgen the quanitity demanded will exceed the quantity supplied. excess demand or a shortsge will exist. if the price is aboce the equilibirum level, then the quantity supplied will exceed the quantity demanded. excess supply or a surplus will exist. in either case, economic pressures will push the price toward the equilibrium level.

production possibilties frontier (PPF)

a diagram that shows the producvely efficient combination of two products that an economy can produce giventhe resouces it has available

Circular Flow Diagram

a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market

inferior good

a good in which the quantity demanded falls as income rises, and in which quantity demanded rises and income falls

normal good

a good in which the qunatity demanded rises as income rises, and in which quantity demanded falls as income falls

substitute

a good that can replace another to some extent, so that greater consumption of one good can mean less of the other

demand curve

a graphic representatin of the relationship between price and quantity demanded of a certain goof or service, with quantity on the horizontal axis and the price on the vertical axis

price ceiling

a legal maximum price

price floor

a legal minimum price

supplu curve

a line that shows the realationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis

goods and services market

a market in whic firms are seller of what they produce and households are buyers

underground economy

a market where the buyers and sellers make transaction in violation of one or more goverment regulations

Desrcibe the production possibilities frontier and social choices

a production possibilities frontier defines the set of choices society daces for the combination of goods and services it can produce given the resources available. the shape of the PPF is typically curved outward, rather than straight. choices outside the PPF are unattainable and anhoiecs inside the PPF are wasteful, over time, a growing economy will tend to shift the PPF outwards. the law of diminishing returns holds that ans increments of additional resources are devoted to producing somehting, the marginal increase in output will become increasingly smaller. all choices along a production possibilties frontier display productive effecieny; that is, it is impossible to use societys resources to produce more of one good without decreasing production of the other good. the specific choice along a production possiblities frontier that reflects the mix of goods society prefers is the choice with allocative efficieny, the curtacture of the PPG is likely to differ bvy country, which results in different countries having comparative advantage in different goods. total production can increase if countries specialize in the goods in which they have compaartive advantage and trade some of their production for the remaining goods.

model/theory

a representation of an object or situation that is simpolified while indlucing enough of the key features to help us understand the object or situation

invisible hand

adam smiths concept that individual self-interested behavior can lea to positive social outcomes

budget constraint

all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set

market economy

an economy where economic decisions are decentralized, private indivduals own resources, and businesses supply goods and services based on demans

command economy

an economy where economic decisions are passed down from government authority and where the government owns the resources

law of diminshing returns

as we add additinal icrements of resources to producing a good or srive, the marginal benefit from those additional increments will decline

law of diminishing marginal utility

as we consume more of a good or service, the utility we get from additional unites of the good or service tend to beomce smaller than what we recived from earlier units

surplus

at the existing price, quantity supplied exceeds the quantity demanded; also called excess supply

excess supply

at the existing price, quantity supplied exceeds the quantity dfemanded; also called a surplus

shortage

at the existing price, the quantity deamnded exceeds the quantity supplied; also called excess demand

excess demand

at the existing price, the quantity demanded exceeds the quantity supplies; also called a shortage

define demand, supply, and efficiency

consumer surplus is the gap between the price that consumers are willing to pay, based on their preferences, and the market equilibrium price, producer surplus is the gap between the price for which producers are willing to sell a product, based on their costs, and the market equilibrium price. social surplus is the sum of consumer surplus and procuder surplus, total surplus is larger at the equilibrium quantity and price than it will be at any other quantity and price, deadweight loss is loss in total surplus that occurs when the economy produces at an inefficient quantity.

sunk costs

costs that we make in the past that we cannot recover

what is economics and why is it important?

economics seeks to solce the problem of scarcity, which is when human wants for goods and services exceed the available supplu. a modern economy displays a division of labor, in which people earn income by specialing in what they prduce and then use that income to purchase the product they need or want. the division of labor allows individuals and firms to specialze and to produce more for several reasouns: 1) it allows the agents to fouces on areas of advantage due to natural forces and skill levels; 2) it encourages the agents to learn and invent; 3) it allows agents to take advantage of economies of scale. Division and speciaization of labor only work when individual can purchase what they do not produce in markets. Learning about aconomics helps you understand the major problems facing the world today, prepares you to be a good citizen, and helps you become a well-rounded thinker.

Explain how economists use theroies and models to understand economic issues

economists analyzse problems differently than do other disciplinary experts, the main tools economists use are economic theories or models. a theory is not an illustration of the answer to a problem. rather, a theory is a toolf for determining the answer.

Describe shifts in demand and supply for goods and services

economists often use the ceteris paribus or "other things being equal" assumption: while examining the economic imapct of one event, all other factors remain unchaned for analysis purposes. factors that can shidt the demand curvee for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectation abuot future conditions and prices. factors that can shift the supply curve for goods and services, causing a different quantity to be supplied at any given price, include input prices, natural conditions, changes in technology, and government taxes, regulations, or subsides.

Evaluate how individuals make choices based on their budget constraint

economists see the real world as one of scarcity: that is, a world in which peoples desries exceed what is possible. as a result, economic behavior involves tradeoffs in whichi individuals, firms, and society must forgo something that they desire to obtain things that they desire more. individuals afce the tradeoff of what quantities of goods and services to consume. the budget constraint, which is the frontier of the opportunity set, illustrates the range of available choices. the relative price of the choices determines the slope of the budget contraint. choices beyond the budget constraint are not affordable. opportunity cost measures cost by what we forgo in exchange. sometime we can measure opportunity cost in money, but is often useful to consider time as well, or to measure it in terms of the actual resources that we must forfeit. most economic decisions and tradeoffs are not all-or-nothing. instead, they involve marginal analysis, which means they are about decisions on the margin, involving a little more or a little less. the law of diminishing marginal utility points out that as a person recieves more of something - whehter is a specific good or another resources - the additional marhinal gains tend to become smaller. because sunk costs occured in the past and cannot be recovered.

complements

goods that are often used together so that consumption of one good tends to enhance consumption of the other

price control

government laws to regulate prices instead of letting market forces determine prices

market

interaction between potantial buyers and sellers; a combination of demand and suppky

gross domestic product (GDP)

measure of the size of total production in an economy

Summarize and differintiate microeconmoics and macroeconomics

microeconomics and macro econmics are two different perspectives on the economy. The microeconomic perspective focuses on parts of the economy: individuals, firms, and industries. the macreconmoic perspective looks at the econmy as w hile, focusin on goals like growth in the standard of living, unemployment, and inflation. macroeconmis has two types of policies for pursuins these goals: monetary nad fiscal policy

ceteris paribus

other things being equal

monetary policy

polciy that invoves altering the level of interest rates, teh availability of credit in the economy, and the extent of borrowing

define price ceiling and price floors

price cielings prevent a price from rising above a certain level. when a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result. price floors prevent a price from falling below a certain level. when a price floor is set above the equilibrium price, quantity supplied will exceed quantity demanded, and excess supply or surplus will result. price floors and price cielings often lead to unintended consequences.

exports

products (goods and services) made domestically and sold abroad

imports

products (goods and services) make abroad and the sold domestically

utility

satisfaction, usefulness, or value one obtains from sonsuming goods and services

positve statement

staement which describes the world as it is

normative statment

statement which describes how the world should be

private enterprise

system where private individuals or groups of private individual own and operatre the means of production (resources and businesses)

macroeconomics

the branch of economics that focues on broad issues such as growth, unemployments, inflation, and trade balance

microeconomics

the branch of economics that focuses on action of particular agents within the economy, like households, workers, and business firms

law of demand

the common relationship that a higher price leades to a lower qunatity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variable are held constant

law of supply

the common relationship that a higher price leads to a greater quantity supplied and a lower prices leads to a lower quantity supplied, while all other varibale are held constant

Describe confronting objection to the economic approach

the economic way of thinking provides a useful approach to understanding human behavior. economists make the careful distinction between positive statements, which describe the world as it is, and noremative statements, which describe how to world hsould be, even when economic analyzes the gains and losses from varios event or policies, and thus draw normative conclusions about how the world should be, the analysis of economics is rooted in a positive anaylsis of how opeople, firms, and government actaully behave, not how they should behave.

producer surplus

the extra benefit producers recieve from selling a good or service, measured by the price the producer actaully recieved minus the price the produced would have been willing to accept

deadweight loss

the loss in social surplus that occurs when a market produces an inefficient quanitity

labor market

the market in which households sell their labor as workers to business firms or other employers

equilibrium price

the price where quantity demanded is equal to quantity supplied

demand

the relationship between price and the quantity demanded of a certain good or service

supply

the relationship between price and the quantity supplied og a certain good or service

factors of production

the resources such a labor, materials, and machinery that are used to produce goods and services; also called inputs

inputs

the resources such as labor, materials, and machinery that are used to produce goods and services; also called factors of production

equilibrium

the situation where quantity demanded is equal to the quantity supplied; the combination of prie and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change

economics

the study of how humans make choices under conditions of scarcity

economic/social/total surplus

the sum of consumer surplus and producer surplus

quantity demanded

the total number of units of a good or service consumers rae willing to purchase at a given price

quantity supplied

the total number of units of a good or srvice producers are willing to purchase at a givenprice

globaliation

the trend in which buyinf and selling in markets have increasingly crossed national borders

division of labor

the way in which different workers divide required taks to produce a good or service

tradition economy

typically an agricultural economu where things are done the same as they have aslways been donw

How are economies organized?

we can organize societies as traditional, command, or market-oriented economies. most societies are a mix. the last few decades have seen globalization evolve as a result in commercial and financial networks that cross national borders, making businesses and workers from different economies increasingly interdependent.

price

what a buyer pay for a unit of the specific good or service

shift in demand

when a change in some economic facot (other than price) causes a different quantity to be demanded at every price

shift in supply

when a change in some economic factor (other than price) causes a different qunatity to be supplied at every price

comparative advantage

when a country can produce a good with a lower opportunity cost than another country; or, when a country has a lower opportunity cost of production

productive efficency

when it is impossible to rpduce more of one good (or service) without decreasing the quantity produced of another good (or service)

allocative efficieny

when the mix of goods produced represents the mix that society most desires

explain the four step process of changes in equilibrium prices and quantity

when using the supply and demnd framework to think about how an event will affect the equilibrium price and quantity, proceed through four steps: 1) sketch a supply and deman diagram to think about what the market looked like before the event; 2) decide whether the event will affect supply or demand; 3) decide whether the effect on supply or demand is negative or positive, and draw the appropriate shifted supply or demand curve; 4) compare the new equilibrium price and quantity to the original ones

specialixation

when workers or firms focus on particular tasks for which they are well-suited within the overall production process