ECON QUIZ 1

Subsidy

- A payment made by the government that does not necessarily require an exchange of economic activity in return. subsidies most often take the form of payments to businesses. - PAYMENTS TO BUSINESSES -> INCREASE SUPPLY

3 Reasons Why the Demand Curves Slope Downward

- Income effect - Diminishing marginal utility - Substitution effect

Optimization

- The idea that people make choices to maximize the overall benefit or utility of an action subject to its cost - If MB ≥ MC, do it - If MB﹤ MC, don't do it

Change (shift) in Demand

A change in the quantity of a good, service, or resource demanded at every price. Graphically, an increase in demand is represented by a rightward shift of the damnd curve, while a decrease in demand is represented by a leftward shift of the demand curve.

Constant Opportunity Costs

A characteristic of production whereby the opportunity cost associated with increasing the production of one good or service, in terms of another, is constant at every level of production.

Normal Good

A good for which there is a direct relationship between the demand for the good and income. An increase in income increases the demand, and a decrease in income decreases demand; a good with a positive income elasticity of demand

Production Possibilities Frontier

A graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology. The PPF shows the production combinations that are both attainable and efficient.

The supply curve

A graphical representation of the relationship between the price of a good, service, or resource and the quantities producers are willing and able to supply over a fixed period, all else held constant.

Tax

A payment made to the government that is the result of economic activity. Taxes are generally collected from both individuals and firms. - COSTS TO BUSINESSES -> DECREASE SUPPLY

Law of Supply

A principle and economics that states that as the price of a good, service, or resource rises, the quantity supplied will increase, and vice versa, all else held constant.

Law of increasing Opportunity Cost

A principle in economics that holds that because some resources are better suited to producing one good or service than another, as the production of a good or service increases, the opportunity cost of each additional unit rises.

Production Possibilities Schedule

A table that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology

Demand Schedule

A tabular representation of the relationship between the price of a good, service, or resource and the quantities consumers are willing and able to buy over a fixed time period, all else held constant

Supply Schedule

A tabular representation of the relationship between the price of a good, service, or resource and the quantities producers are willing and able to supply over a fixed time period, all else held constant.

Good

A tangible product that consumers, firms, or governments wish to purchase

Land

All natural resources used in production; sometimes referred to as "gifts of nature"

Labor

All physical and mental activity devoted to producing goods and services

Efficient Allocation of Resources

Allocation of resources in such a way that it is possible to increase the production of one good only by decreasing the production of another

Inefficient Allocation of Resources

Allocation of resources in such a way that it is possible to increase the production of one good without decreasing the production of another

Market

Any place where, or mechanism by which, buyers and sellers interact to trade goods, services, or resources

Increase in Demand

Due to a change in a NON-PRICE DETERMINATE

Sellers

Market participants who are willing and able to sell goods, services, or resources.

Buyers

Market participants who seek to obtain goods, services, and resources

Marginal Benefit

The additional benefit associated with one more unit of an activity

Marginal Cost

The additional cost associated with one more unit of an activity

Seller Expectations

The anticipated future outcomes, including prices, that sellers associated with the production of a good, service, or resource.

Income Effect

The effect that a change in the price of a good, service, or resource has on the purchasing power of income. For example, when prices decrease, the purchasing power of income increases, and consumers can purchase more goods, services, or resources.

Substitution Effect

The effect that a change in the price of one good, service, or resource has on the demand for another. for example, an increase in the price of one good will increase the demand for its substitutes, and vice versa.

Self-Interest

The idea that people choose to do the things that interest them

Technology

The knowledge, inventions, and innovations that can potentially increase resource productivity.

Optimal Level of Output

The level of output at which the marginal benefit of the last unit produced and consumed is equal to the marginal cost of that unit

Diminishing Marginal Utility

The negative relationship between the quantity of a good, service, or resource and the marginal utility obtained from each additional unit consumed in a given period of time.

Specialization

The practice of using available resources to produce a single good or service rather than producing multiple goods or services.

Diminishing Marginal Productivity

The principle that if at least one input of production is fixed, the marginal productivity of additional variable resources will eventually fall, all else held constant.

Quantity supplied

The quantity of a good, service, or resource that producers are willing and able to supply at a given price.

Movement Along the Demand Curve

a change in the quantity of a good, service, or resource demanded due to a change in its price. Graphically, this change is represented as a movement along an existing demand curve.

Change (shift) in supply

a change in the quantity of a good, service, or resource supplied at every price. Graphically, an increase in supply is represented by a rightward shift on the supply curve, and a decrease is represented by a leftward shift

Movement along the supply curve

a change in the quantity of a good, service, or resource supplied due to a change in its price. Graphically, this change is represented as a movement along an existing supply curve.

Scarcity

a condition that results from the inability of limited resources to satisfy unlimited wants

Inferior Good

a good for which there is an inverse relationship between the demand for the good and income. An increase in income decreases demand, and a decrease in income increases demand; a good with a negative income elasticity of demand.

Demand curve

a graphical representation of the relationship between the price of a good, service, or resource and the quantities consumers are willing and able to buy over fixed time period, all else held constant

Circular Flow Model

a model that concisely describes how goods, services, resources, and money flow back and forth in an economy.

Law of demand

a principle in economics that states that as the price of a good, service, or resource rises, the quantity demanded will decrease, and vice versa, all else held constant.

Service

an intangible product or action that consumers, firms, or governments wish to purchase

Increasing Marginal Cost

as more of a good is produced in a given time period, the cost to produce it tends to rise.

Diminishing Marginal Benefit

as you do more of something in a specific time period, you enjoy each successive unit less.

Macroeconomics

focuses on the economy as a whole, studying it at the large scale level, examining total output, the price level, and other aggregate variables

Complements

goods, services, or resources that are used or consumed with one another.

Substitutes

goods, services, or resources that are viewed as replacements for one another

Physical capital

refers to tangible items that are created to increase productivity

Human capital

refers to the knowledge and skills that people acquire to increase productivity

Comparative Advantage

the ability to produce a good or service at a lower opportunity cost than another producer.

Expectations

the anticipation by individuals and firms of costs and benefits that lie in the future

Gains from Trade

the benefit, or wealth, that accrues to a buyer or seller as a result of trading one good, service, or resource for another.

Relative Scarcity

the comparison of the scarcity of one good, service, or resource to that of another

Resource

the inputs used to produce goods and services; also known as factors of production. Resources fall into four categories- land, labor, capital, and entrepreneurial ability.

Resources

the inputs used to produce goods and services; also known as factors of production. Resources fall into four categories: land, labor, capital, and entrepreneurial ability.

Market supply

the overall or total supply of a good service or resource. It represents the horizontal summation of the quantities supplied by individuals, firms, states, or even nations at each price over a fixed time period, all else held constant

Market Demand

the overall, or total, demand for a good, service, or resource. It represents the horizontal summation of the quantities demanded by individuals, firms, states, or even nations at each price over a fixed time period, all else held constant

Tastes and Preferences

the perception of the desirability associated with consuming a good, service, or resource

Terms of Trade

the price of one good, service, or resource in terms of another. Beneficial to both parties are prices that lie between both parties' opportunity costs.

Allocation

the process of assigning a good, service, or resource to one use instead of another

Marginal Decision Making

the process of making choices in increments by evaluating the additional or marginal, benefit against the additional, or marginal cost of an action

Quantity Demanded

the quantity of a good, service, or resource that consumers are willing and able to buy at a given price

Economics

the study of how individuals and societies allocate scarce resources among many competing uses and how this decision-making affects the economy at large

Microeconomics

the study of the economy at the small-scale level, examining individuals and specific markets

Entrepreneurial Ability

the talent or ability to combine land, labor, and capital to produce goods and services. Different from human capital in that it primarily involves assuming risk and organizing resources into a productive process

Capital

the tools, machinery, infrastructure, and knowledge used to produce goods and services. Sometimes divided into "physical" and "human" capital.

Opportunity cost

the value of the next-best forgone alternative; the value of the opportunity that you gave up when you chose one activity, or opportunity, instead of another. Found by solving for the cost of one good in terms of another.

Supply

the willingness and ability to produce a good/service in a given time period at various prices, holding all else constant.

How to find Profit

total revenue - total cost