ECONOMICS: Chapter 1-4

Marginal Analysis

Making choices based on comparing marginal benefits with marginal costs

Market failures

Markets fail to produce the right amount of the product

Why is money not considered to be a capital resource in economics?

Money is not productive

Shortage

More demand than supply

Surplus

More supply than demand

Demand curve: change in market price

Movement along demand curve

Supply curve: change in market price

Movement along the supply curve

Economic Resources

Natural, human, and manufactured inputs used to produce goods and services

Demand curve: change in the prices of an unrelated good

No change

Non-excludability

No effective way of excluding individuals from the benefit of the good once it comes into existence

Dollar votes

Not enough votes, business will stop production

Supply-side market failures

Occurs when a firm does not pay the full cost of producing it's output

Market equalibrium

Occurs where the demand and supply curve interest

Rivalry

One use of a good, that is not available for someone else

Price and quantity: Supply decreases and demand is constant.

P: increases Q:decreases

Price and quantity: demand decreases and supply is constant

P:decreases Q:decreases

Price and Quantity: Supply increases and demand is constant

P:decreases Q:increases

Price and Quantity: Supply increases and demand decreases

P:decreases Q:indeterminate

Price and Quantity: demand increases and supply is constant

P:increases Q:increases

Price and Quantity: demand increases and supply decreases

P:increases Q:indeterminate

Price and Quantity: demand decreases and supply decreases

P:indeterminate Q:decreases

Price and Quantity: demand increases and supply increases

P:indeterminate Q:increases

Market and Prices

Price is the driver, major mechanism on what we want to buy and sellers figure out what price is best for them

Price floor

Prices are set above the market price

Minimum price+actual price=

Producer surplus

Productive efficiency

Producing goods in the least costly way

Allorative efficiency

Producing the right mix of goods

Public goods

Provided by the government

In the circular flow model there is a flow of...

Real goods and services and a flow of money

What is the circular flow model?

Resource markets provide for the exchange of labor and product markets provide for the exchange of goods and services

Excludability

Sellers can keep people who do not pay for a product from obtaining it's benefits

Price ceiling

Set below equalibrium price

Economic systems

Set of institutionalized arrangements

Market

An institution that brings buyers and sellers together

Why is entrepreneurial ability distinct from labor even though both are considered as a category of economic resources

Because entrepreneurial ability is not directly engaged in production

As demand decreases businesses _______ price and quantity

Decrease

As supply increases businesses _______ price and _______ quantity

Decrease - increase

Equalibrium price

Demanders and suppliers agree at a price

Equalibrium quantity

Demanders and suppliers agree at a quantity

Direct/Inverse: A sports team's winning percentage and attendance at it's home games

Direct relationship

Factors of production and input

Economic resources used to produce goods and services

Mutually agreeable

Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off

True of false: a change in quantity demanded is a shift of the entire demand curve to the right or the left

False

Complementary good

Goods that are consumed jointly

Inferior goods

Goods we buy more of as our income decreases

Normal goods

Goods we buy more of as our income increases

Substitute good

Goods we use in a place of one another

Determinants of Demand

Income, price of related goods, number of consumers

As demand increases businesses _______ price and quantity

Increase

As supply decreases businesses _______ price and _______ quantity

Increase - decrease

What are the major functions of the entrepreneur?

Innovate, take risks, make decisions

Direct/Inverse: A person's income and how often he or she shopsat discount stores

Inverse relationship

Direct/Inverse: Higher gasoline prices and miles driven in automobiles

Inverse relationship

Dirext/Inverse: Higher temperature and sweater sales

Inverse relationships

Resources Classified by Economists

Labor, land, real capital, and entrepreneurs.

Substitution effect ☆

Lower price gives an incentive to substitute the lower priced good for the new relatively higher priced goods

Income effect ☆

Lower prices increases the purchasing power of money income, this enables the consumer to buy more at a lower price

The Market System

A mix of decentralized decision making with some government control

Supply curve: Change in the price of other goods

A shift in the supply curve

Supply curve: change in factor productivity

A shift in the supply curve

Supply curve: change in producer expectations

A shift in the supply curve

Supply curve: change in resource prices

A shift in the supply curve

Supply curve: change in taxes

A shift in the supply curve

Supply curve: change in technology

A shift in the supply curve

Economics

A social science concerned with making optimal choices under conditions of scarcity

Demand curve: Change in consumer expectations

Shift in demand curve

Demand curve: change in income

Shift in demand curve

Demand curve: change in preferences for this good

Shift in demand curve

Demand curve: change in the price of a related good

Shift in demand curve

Determinants of supply

Technology, resource prices, number of producers

Freedom of enterprise

The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice

Freedom of Choice

The freedom of resource owners to dispose if their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate

Opportunity Cost

The next best thing that must be forgone in order to produce one or more unit of a given product

Utility

The pleasure, happiness, or satisfaction obtained from consuming a good or service

Private property

The right of a private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property

Macroeconomics

The study of the entire economy or a major aggregate of the economy

Microeconomics

The study of the individual consumer, firm, or market

Self-Interest

What each individual or firm believes is best for itself and seeks to obtain

Demand-side market failures

When it is not possible to charge consumers for the product

Creative destruction ☆

When new products and production methods destroy the market positions of firms that are not able of willing to adjust

Division in Labor

Workers specialize in tasks that take advantage of their individual abilities and skills