Microeconomics chapters 1-2 & 9

maximizes benefits to society

EFFICIENCY means that goods are distributed in a way that __________

fair

EQUITY means that goods are distributed in a way that is _______

production possibilities frontier

a curve showing the maximum attainable combinations of two goods that can be produced with available resources and current technology

market

a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade

product market

a market for goods-- such as computers-- or services-- such as medical treatment

factor market

a market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability

free market

a market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed

circular flow diagram

a model that illustrates how participants in markets are linked

psychic reward

a non-monetary form of remuneration that lifts one's spirits

quota

a numerical limit a government imposes on the quantity of a good that can be imported into the country. imposed by the importing country

economic model

a simplified version of reality used to analyze real-world economic situations

autarky

a situation in which a country does not trade with other countries

productive efficiency

a situation in which a good or service is produced at the lowest possible cost

scarcity

a situation in which unlimited wants exceed the limited resources available to fulfill those wants

voluntary exchange

a situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction

allocative efficency

a state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it

tariff

a tax imposed by a government on imports

voluntary export restraint

an agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country

mixed economy

an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation or resources

market economy

an economy in which the decisions of households and firms interacting in markets allocate the economy

centrally planned economy

an economy in which the government decides how economic resources will be allocated

world trade organization

an international organization that oversees international trade agreements

positive analysis

analysis concerned with "what is"

normative analysis

analysis concerned with "what ought to be"

marginal analysis

analysis that involves comparing marginal benefits and marginal costs

main sources of comparative advantage

climate and natural resources, relative abundance of labor and capital, technology, external economies

test models

economic data is used to ______

labor

factor of production that includes all types of work

natural resources

factor of production that includes land, water, oil, iron ore, and other raw materials that are used in producing goods

capital

factor of production that includes physical _______, such as computers and machine tools, that produce other goods

imports

goods and services bought domestically, but produced in other countries

exports

goods and services produced domestically, but sold in other countries

suffers a loss

if a firm is NOT productively and allocatively efficient, it ________

profit

if a firm is productively and allocatively efficient, it earns ________

the firm

in a market system, what determines how goods and services will be produced?

yes

is it necessary for all economic systems to limit services, such as health care?

factors of production

labor, capital, natural resources, and other inputs used to make goods and services

simplified to be useful

models are based on assumptions because they have to be _________________________________

key economic ideas

people are rational, people respond to economic incentives, and optimal decisions are made at the margin

external economies

reductions in a firm's costs that result from an increase in the size of an industry

dumping

selling a product for a price below its cost of production

economic variable

something measurable that can have different values, such as the incomes of doctors

additional barriers to trade

strict health and safety regulations on imported goods, restrictions on imports on the grounds of national security; these are often used mostly to shield domestic firms from foreign competition

comparative advantage

the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

absolute advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

economic growth

the ability of the economy to increase the production of goods and services

entrepreneurial ability

the ability to bring together the other factors of production to successfully produce and sell goods and services

trade

the act of buying and selling

micro

the effect of cigarette taxes on the number or packs sold is a ________economic issue

macro

the effect of higher income taxes on the total amount of consumer spending is a _______economic issue

equity

the fair distribution of economic benefits

opportunity cost

the highest-valued alternative that must be given up to engage in an activity

trade off

the idea that, because of scarcity, producing more of one good or service means producing less of another good or service

increased

the outcome of enforcing contracts and property rights in a market system are ________________ economic activity

globalization

the process of countries becoming more open to foreign trade and investments

terms of trade

the ratio at which a country can trade its exports for imports from other countries

property rights

the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

microeconomics

the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

economics

the study of the choices people make to attain their goals, given their scarce resources

macroeconomics

the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth

what goods will be produced, how will they be produced, and who will receive them

the three economic questions every society must answer are:

protectionism

the use of trade barriers to shield domestic firms from foreign competition

purpose of most tariffs and quotas

to reduce the foreign competition that domestic firms face

free trade

trade between countries that is without government restrictions

marginal

what economists refer to as "extra" or "additional"

to develop an economic model

what is the purpose of these steps: 1. decide on the assumptions to use in development 2. formulate a testable hypothesis 3. use economic data to test the hypothesis 4. revise if it fails to explain the economic data well 5. retain the revised version to help answer similar economic questions in the future