Econ 201 Terms

Absolute Advantage

- if you can produce more of a good with the same amount of resources as someone else. (due to previous experience and/or natural endowments) or if you can produce the same amount of good as another producer but using fewer resources.

Unintended Consequences of Trade Restrictions:

1) Higher input costs for domestic producers 2) Follow up subsidies to domestic producers affected by foreign trade restrictions 3) Movement of US companies 4) Higher product prices 5) Secondary job loss 6) More SMUGGLING

Impetus for Trump Administration Trade Restrictions:

1) National Security 2) Protect essential domestic producers (State-owned enterprise in China - subsidized - so our companies that produce the same thing cannot make the products and sell for as low of a price) 3) Other countries stealing US technology - and requirements to share trade secrets 4) Protecting US jobs 5) Concerns about running a trade deficit

Highest form of competition characteristics

1. The goods offered for sale are all exactly the same 2. The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.

Shifts in Supply Curve

1. input prices 2. technology 3. expectations 4. number of sellers

Shifts the Demand Curve

1.Income 2.Prices of related goods 3. Tastes 4. Expectations 5. Number of buyers

Substitutes

2 goods for which an increase in the price of one leads to an increase in the demand for the other Movie tickets and Netflix hot dogs ands hamburgers Sweaters and sweatshirt

True

A comparative advantage exists when one firm can produce the same output as another firm but with a lower opportunity cost.

an increase in the equilibrium price and a decrease in the equilibrium quantity.

A decrease (leftward shift) in the supply for a good will tend to cause

Normal Good

A good for which an increase in income raises the quantity demanded.

Market

A group of buyers and sellers of a particular good or service. The. buyers as a group determine the demand for the product, and the sellers as a group determine the supply of the product.

Market

A group of pizza buyers and pizza sellers forms a(n)

Low income

A lower income means that you have less money to spend on some/most goods.

Competitive Market

A market with many buyers and sellers trading identical products so that each buyer and seller is a price taker.

Supply Schedule

A table that shows the relationship between price of a good and the quantity supplied, holding constant everything else that influences how much of the good producers want to sell.

Tariff

A tax on imported goods

Changes in Taxes and Subsidies

A tax on some aspect of production can increase the cost of the factors of production and decrease supply Tariffs move left and subsidy move right and increase supply Example: The state of Kentucky told Toyota if they built a plant in KY they would give them a tax break.

Comparative Advantage

Ability to produce a good at a lower opportunity cost than another producer. Used when describing the opportunity faced by 2 producers.

Increase in the price of watches

All of the following shift the supply of watches to the right except a. an increase in the price of watches. b. an advance in the technology used to manufacture watches. c. a decrease in the wage of workers employed to manufacture watches. d. manufacturers' expectations of lower watch prices in the future. e. All of the above cause an increase in the supply of watches.

Summary of comparative and absolute

Although it is possible for one person to have an absolute advantage in both goods (as Ruby does in our example), it is impossible for one person to have a comparative advantage in both goods. Because the opportunity cost of one good is the inverse of the opportunity cost of the other, if a person's opportunity cost of one good is relatively high, the opportunity cost of the other good must be relatively low. Comparative advantage reflects the relative opportunity cost. Unless two people have the same opportunity cost, one person will have a comparative advantage in one good, and the other person will have a comparative advantage in the other good.

. an increase in the equilibrium price and quantity.

An increase (rightward shift) in the demand for a good will tend to cause

decrease the quantity demanded of the good.

An increase in the price of a good would

Decrease in demand

An inferior good is one for which an increase in income causes a(n)

Law of diminishing marginal benefit

As more units of a good are consumed, additional units provide less benefit.

Embargo

Ban on imported good

Price takers

Because buyers and sellers in perfectly competitive markets must accept the price the market determines.

Supply Curve

Curve relating price and quantity supplied. Slopes upward because, other things being equal, a higher price means a greater quantity supplied

Left Shift (supply)

Decrease in supply

Inferior Good

Demand increases when income decreases.

Firm C

Firm A can produce 5 teddy bears an hour with 3 workers. Firm B can produce 5 teddy bears an hour with 4 workers. Firm C can produce 5 teddy bears an hour with 2 workers. Which firm has the absolute advantage in the production of teddy bears?

General rule of trade

For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs

for furniture increases when income increases.

Furniture is a normal good if the demand

Subsidies to domestic producers

Giving domestic producers money to support their production

Imports

Goods and services that are produced abroad and sold domestically.

Exports

Goods and services that are produced domestically and sold abroad.

Number of buyers

If Peter were to join Catherine and Nicholas as another consumer of ice cream, the quantity demanded in the market would be higher at every price, and market demand would increase.

False

If a firm has a comparative advantage in producing shirts, then they must also have an absolute advantage in producing shirts.

Inferior good

If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping equipment is

substitutes

If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue jeans and tennis shoes are

Surplus and the price will fall

If the price of a good is above the equilibrium price,

Shortage and the price will rise

If the price of a good is below the equilibrium price,

the quantity demanded is equal to the quantity supplied and the price remains unchanged.

If the price of a good is equal to the equilibrium price,

the law of supply.

If the price of cheeseburgers rose to $12 per cheeseburger, producers would produce more cheeseburgers than if the price were $10 per cheeseburger. If the price of hotdogs fell to $3 per hotdog, producers would produce fewer hotdogs than if the price were $5 per hotdog. These relationships illustrate

Right Shift (supply)

Increase in Supply

Right Shift (demand)

Increase in demand

Trade Quota

Limit on the amount of an imported good

Demand Curve

Line relating price and quantity demanded. Slopes downward because, other things being equal, a lower price means a greater quantity demanded.

only 1 seller

Monopolistic market has

Deterministic

Predictable patterm

movement along the supply curve

Price of the good itself

Movement along the demand curve

Price of the good itself changes

Stochastic

Randomly determined process or pattern that cannot be predicted

David Ricardo

Showed that both countries can gain by opening up trade and specializing based on comparative advantage.

surplus (excess supply)

Situation in which quantity supplied is greater than quantity demanded.

Price will increase; quantity is ambiguous.

Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice?

Price will increase; quantity is ambiguous.

Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today?

There is an increase in the demand for apples and an increase in the quantity supplied of apples.

Suppose consumer tastes shift toward the consumption of apples. Which of the following statements is an accurate description of the impact of this event on the market for apples?

equilibrium quantity to rise and the equilibrium price to fall.

Suppose there is an increase in both the supply and demand for personal computers. Furthermore, suppose the supply of personal computers increases more than demand for personal computers. In the market for personal computers, we would expect the

equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.

Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect the

Quantity Demanded

The amount of a good that buyers are willing and able to purchase.

Quantity Supplied

The amount of a good that sellers are willing and able to sell.

Ceteris Paribus Assumption

The assumption that all else will be held constant

Law of Supply and Demand

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance.

Law of Supply

The claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises

The value of what certain resources could have produced had they been used in the best way.

The concept of opportunity cost is described in which of the following statements?

Decreases quantity demanded

The law of demand states that an increase in the price of a good

Increases the quantity supplied

The law of supply states that an increase in the price of a good

budget contraint

The limit on the consumption bundles that a consumer can afford.

Law of Demand

The relationship between price and quantity demanded is true for most goods in the economy. The claim that, other things being equal, the quantity demanded of a good falls when the price of good rises.

Market Demand

The sum of all the individual demands for a particular good or service

Market Supply

The sum of the supplies of all sellers. Sum of 2 individual supplies.

the expected future price of corn.

Today's supply curve for corn could shift in response to a change in

Trade Surplus

Value of exports> imports

Trade deficit

Value of imports> exports

Complements

When a fall in the price of one good raises the demand for another good. Pairs of goods that are used together Gas and cars PB and Jelly Fudge and ice cream

Absolute Advantage

When comparing productivity of one person, firm, or nation to that of another. The producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.

Tastes

When you like the taste of things you will buy more.

a decrease in the price of watch batteries if watch batteries and watches are complements

Which of the following shifts the demand for watches to the right?

The equilibrium price and quantity of salad dressing will fall.

Which of the following statements is true about the impact of an increase in the price of lettuce?

Expectation

Your expectations about the future may affect your demand for a good or service today. If you expect to earn a higher income next month, you may choose to save less now and spend more of your current income on ice cream. If you expect the price of ice cream to fall tomorrow, you may be less willing to buy an ice-cream cone at today's price.

CHAPTER 9: Quota:

a limited quantity of a product that can officially be imported or exported.

Economic Model

a simplified framework intended to explain complex economic processes.

Shortage

a situation in which quantity demanded is greater than quantity supplied Market price is below the equilibrium price

Economic Theory

a way of explaining economic phenomena in a rigorous, scientific way.

Trade War

an economic conflict resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party.

CHAPTER 9: Embargo:

an official ban on trade or commercial activity with a particular country.

CHAPTER 9: Trade restrictions:

any sort of government control that limits the degree of importing and/or exporting that domestic firms in a country can participate in. This can be a quota or tariff, for example.

Left Shift (demand)

decrease in demand

How comparative advantage works

he producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X and is said to have a comparative advantage in producing it.

comparative advantage

if you have the lowest opportunity cost of producing something

CHAPTER 9: Product standards

official specifications products must meet in order to be sold in a country.

Public Standards

rules about quality and safety of product - such as no lead in paint.

Economic Assumption

simplifications of the world in order to make phenomena easier to understand.

Demand Schedule

table that shows the relationship between a price of a good and the quantity demanded, holding constant everything else that influences how much of the good consumers want to buy.

opportunity cost

that the opportunity cost of some item is what we give up to get that item.

CHAPTER 9: Dumping:

the export by a country or firm of a good at a lower price in the foreign market than the domestic market, or at a lower price than the cost to produce.

Equilibrium

the point where the supply and demand curves intersect

equilibrium price

the price at the intersection of the market supply and demand curves; at this price, the quantity demanded equals the quantity supplied At the equilibrium price, the quantity of the good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell.

equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price

CHAPTER 9: Subsidies to domestic producers:

transfer payments from governments to domestic firms in order to give them an advantage over international competitors.