First Exam: Units 1-3 9/20
indirect incentive
A secondary change in behavior brought on by the original incentive
market demand
Horizontal sum of all individual quantities demanded by each buyer in the market at each price
make choices
Scarcity forces us as individuals and society to _____________ ____________.
Economics
The study of how individuals and societies allocate their limited sources to satisfy their unlimited needs
exogenous factors
Variables that cannot be accounted for in a model
trade
_______ creates value; without it, we would have to produce everything that we want
Specialization
_______ gives us comparative advantage
change in demand
_______ is caused by changes in non-price factors; creates a SHIFT of the demand curve
competitive markets
_________ have many buyers and sellers, and no individual has any influence over the price
change in quantity demanded
_________ is caused by a change in the price of the good; creates movement ALONG the demand curve
taxes, subsidies
_________ raises the cost and decreases demand, while ________ encourages consumers to afford more goods
Ceteris Paribus
a Latin phrase that means "all other things held equal"; it allows economists to study the effect of ONE variable by holding everything else constant
market power
a firm's ability to influence the price of a good or service by exercising control over its demand, supply, or both
marginal thinking
a purposeful evaluation of the available opportunities to make the best decision possible; "is the benefit of this unit better than the other unit?"
marginal benefit
additional benefit derived from extra unit
marginal cost
additional cost incurred from extra unit
law of supply
all else equal, there is a direct relationship between price and quantity supplied
law of demand
all else equal, there is an INVERSE relationship between price and quantity demanded; ex: price goes up, demand goes down (and vice versa)
quantity demanded
amount of a good buyers are willing and able to buy to purchase at a single price
demand
amount of a good/service buyers are willing and able to buy at all possible prices
normative statement
an opinion that can't be tested or validated
Resource
anything that can be used to produce something else
terms of trade
as long as the _______ fall within the opportunity cost of both traders, then both people benefit
supply schedule
as price goes down, quantity supplied goes down
imperfect markets
buyer or seller has an influence on the price
positive statement
can be tested and validated; it describes "what is"
negative incentive
discourages action by providing undesirable consequences or punishments
economic growth
enables a society to produce more output; ex: new technology = pizzas able to be made with less resources
positive incentive
encourages action for reward
market
facilitates trade; brings buyers and sellers together to exchange goods and services
incentives
factors that motivate you to act or exert effort
example of a direct incentive
giving students pizza if they all get As
consumer goods
good produced for current consumption
inferior good
good we buy less of when we get more income; ex: McDonald's
normal good
good we buy more of when we get more income; ex: clothing
capital goods
goods that helo produce other valuable goods; PPF will shift OUT
market supply
horizontal sum of all individual quantities supplied by each seller in the market at each price
example of microeconomics
how does a rise in sales tax impact the retail industry?
price expectations
if the _______ are high, then firms may delay sales until the future if possible; the higher it is the lower the supply
taxes, subsidies
in terms of supply, _____ paid by the producer will be an added cost of production and supply will decrease. But _______ offered by the gov. pay sellers to produce goods and reduces the cost of production, so supply increases.
Scarcity
inherently limited nature of society's resources given society's unlimited wants and needs
capital goods
investment in _______ instead of producing consumer goods will allow an economy to expand its PPF in the future; sacrificing consumption today for more consumption in the future
example of macroeconomics
is the economy of Japan in recession?
technology
knowledge available to use in production of a good or service
you make a decision when...
marginal benefit is greater than or equal to the marginal cost
mixed economy
market economy with SOME government intervention
Productions Possibilities Frontier aka PPF
model that illustrates the combinations of outputs a society can product if all of its recourses are being used efficiently
shortage
occurs when the quantity demanded is GREATER than the quantity supplied; aka shortage
surplus
occurs when the quantity demanded is LESS than the quantity supplied; aka excess
absolute advantage
one producers ability to make more than another producer with the same quantity of resources
economic system
organized way a company allocates its resources and exchanges goods/services
price expectations
our consumption today may depend on what we think the price may be tomorrow
capitalism
private ownership of resources and production aims to maximize profit
market economy
resources are allocated among households and firms with LITTLE or NO government interference; producers and consumers are motivated by self-interest
input
resources used in the production process; when this goes down, supply goes down.
Trade offs
scarce resources imply that individuals, firms, and governments are constantly faced with difficult choices that involve benefits and costs; doing one thing, means you do less of another; scarcity = choice
circular flow
shows how goods, services, and resources flow through the economy
economic models
simplified framework/versions of reality used to understand the real world economy; simplifies complex reality by making assumptions
monopoly
single company that supplies the entire market for a good/service
example of an indirect incentive
students want pizza, so they cheat on their test to receive an A
invisible hand
the _______ of the market guides resources to their highest valued uses
comparative advantage
the ability to make a good at a lower opportunity cost
quantity supplied
the amount of a good or service that producers are willing and able to sell at the current price
supply
the amount of a good/service that producers are willing and able to sell at all possible prices
minimizes
the best decision is the one that _______ the opportunity cost
opportunity cost
the highest-valued alternative that must be sacrificed to get something else; scarcity = choice = app. cost
law of supply and demand
the market price of any good will adjust to bring the quantity supplied and the quantity demanded into balance
firms in the industry
the more _________, or individual sellers, the more market supply, and supply will go up.
Law of increasing opportunity cost
the opportunity cost of producing a good rises as a society produces more of it
equilibrium price
the price at which the quantity supplied is equal to the quantity demanded
Microeconomics
the study of individual units that make up the economy; focuses on individual business and industries
Macroeconomics
the study of overall aspects and workings of an economy; "big picture"
trade
the voluntary exchange of a good or a service between two or more parties
substitues
two goods used in place of each other; ex: iPhone or android; inverse relationship of demand
complements
two goods used together; ex: hot dogs and buns; direct relationship of demand
unintended consequence
unplanned result that is usually negative and unwanted of an incentive
endogenous factors
variables can be controlled for inside a model; the more ______ factors, the more realistic it is
calculating opportunity cost
what you give up/what you get
tastes and preferences
when a good becomes more fashionable or popular
comparitie advantage
when a producer can produce a good at a lower opportunity cost than a competitor
changes in technology
when there are new _________, or new knowledge on how to produce a product is introduced, supply will go up
number of buyers
when there is a larger __________, or individual consumers, then there is more market demand
efficient
when you are _______, you cannot have more of one thing without sacrificing the other
direct incentive
"Here is what I want you to do, and here is what I am going to do in order to get you to do it."