Econ
susbtitutes
-replacement
Indifference Curve
A curve that shows the combinations of two products that generate the same amount of total utility or satisfaction.
supply curve
A curve that shows the relationship between the price of a product and the quantity of the product supplied.
Budget Line
A line showing the different combinations of two products that can be purchased with a given budget and at a known set of prices.
law of diminishing marginal utility
A principle in economics that states that the marginal utility associated with the consumption of a good or service becomes smaller with each extra unit that is consumed in a given time period.
demand schedule
A tabular representation of the relationship between the price of a good, service, or resource and the quantity that individuals and firms are willing and able to buy, all else held constant.
Law of Demand
An economic rule that states that buyers will demand more products when they can buy them at lower prices and fewer products when they must buy them at higher prices.
Given the option of being self-sufficient or trading with others, as long as a ______ advantage exists, there will be potential for trade to make both parties better off.
Comparative
The simple model of production assumes that the opportunity cost of production is______ .
Constant
The wealth, or additional well-being, created by trade, ______
Does not have to be monetary.
When resources are allocated in such a way that it is possible to increase the production of one good only by decreasing the production of another, then the allocation of resources is said to be ______ .
Efficient
According to the circular flow diagram, when a household receives a wage for supplying a firm with labor, the interaction occurs in the ______ market.
Factor
If the price is too ______ , producers will be eager to sell, but buyers will not be willing or able to buy.
High
In the circular flow model, ______ and ______ interact in the resource market and the product market.
Household; firms
In the circular flow model, ______ can obtain the income they need to buy the products they want to consume only by selling their resources.
Households
According to the circular flow, which two groups interact with each other in the product market?
Households and firms
In the real world, the opportunity cost of production ______ as production increases.
Increases
On a production possibilities frontier (PPF), if you are able to increase the production of both goods at the same time, then, initially, resources were allocated ______ .
Inefficiently
The following are other names for resources:
Inputs and factors of production
Specialization causes individuals and nations to rely on one another and increases the degree of ______ between them.
Interdependence
Suppose a farmer has 3 kinds of land for growing peaches; good, better, and best. As the farmer increases production, she will use the best land first, and costs will be low. At some point, she will run out of the best land and will have to start using the better land, and costs will be a little higher. This describes the:
Law of increasing opportunity cost
When the opportunity cost associated with increasing the production of one good or service in terms of another is constant at every level of production, then the production possibility frontier is:
Linear
If the price is too ______ , producers will not be eager to sell, but buyers will be willing and and able to buy.
Low
marginal utility per dollar (bang for buck)
Marginal utility/price
Focusing production entirely on one good or service leaves you susceptible to changes in the ______ .
Market
______ cost is most plainly visible when spending more money one things means that less money can be spent on another thing.
Opportunity
The budget condition is given by which of the following?
PA x QA + PB x QB
When people trade, producers can achieve something they can't without trade. Thus, only with trade is it ______
Possible to operate outside the production possibilities frontier.
Comparative advantage refers to the ability to ______ .
Produce a good or service at a lower opportunity cost than others
The circular flow model shows how households and firms interact in two key markets: the ______ market and the ______ market.
Resource; product
In the circular flow model, households can obtain the income they need to buy the products they want to consume only by selling their ______ , also known as factors of production.
Resources
The opportunity cost of producing a good or a service can be found by:
Solving for the cost of one good in terms of another.
When production is characterized by constant opportunity costs, the resulting production possibilities frontier will be a ______ line.
Straight
Economists measure utility with a unit called the util, which is _____ in nature.
Subjective
Util
Subjective measure of utility associated with consuming a good (happiness)
When consumer income increases but the price of each good does not change what happens to the budget line?
The budget line shifts right.
Equal Marginal Principle (for Utility Maximization)
The idea that consumers maximize their utility when they allocate their limited incomes so that the marginal utility per dollar spent on each of their final choices in a bundle is equal
tastes and preferences
The perception of the desirability associated with consuming a good, service, or resource.
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.
Utility Maximization
The process of obtaining the greatest level of overall satisfaction or happiness from consuming goods and services, subject to consumers' preferences, incomes, and prices.
Utility
The satisfaction or happiness received from the consumption of goods and services.
Suppose you have $10 to buy either onions or breath mints. Onions cost $0.50 each, and breath mints cost $1.00. On a graph, onions are on the y-axis and breath mints are on the x-axis. If the price of onions increases while the price of breath mints and your budget stay the same, what happens to the budget line?
The vertical intercept shifts downward, closer to the origin.
Whether or not a good or service is traded depends largely on the terms of ______ .
Trade
demand curve
a graphic representation of a demand schedule
change in supply
a shift of the supply curve, which changes the quantity supplied at any given price
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
marginal utility
an additional amount of satisfaction
marginal utility
an additional amount of satisfaction or happiness
Law of Supply
an economic law stating that as the price of a good or service increases, the quantity supplied increases, and vice versa
comparative advantage refers to:
being the lowest relative opportunity cost produce of a good.
income effect
change in price has on purchasing power of income
A model that concisely describes how goods, services, resources, and money flow back and forth in an economy is the:
circular flow model.
A producer has a(n) ______ advantage in the production of a good or a service if his or her relative opportunity cost of production is lower than the opportunity cost of other producers.
comparative
diminishing marginal utility
decrease in additional satisfaction or usefulness as additional units of a product are acquired
shortage
excess demand
surplus
excess supply
taxes and subsides
governments fund themselves and is also used as a tool to reduce the amount of good and service used
inferior good
has a negative correlation between income and consumption
normal good
has a positive correlation between income and consumption
For two parties to be willing to trade, the terms of trade must be:
less than the buyer's opportunity cost but greater than the seller's opportunity cost.
buyers
market participants who seek to obtain goods, services, and resources
As long as there is a difference in ______ costs, there are comparative advantages, and there will be potential for trade to make both Arties better off.
opportunity
complements
pairs of goods for which a rise in the price of one good leads to a decrease in the demand for the other good
Combinations of production that fall inside the production possibilities frontier are ______ but not efficient.
possible
Consumers seek to maximize satisfaction based on:
preferences budget and the prices of the goods and services purchased.
In the circular flow model, ______ must buy resources in order to produce the output they will sell to households.
producers
According to the circular flow diagram, when a firm receives money for a good or service it sold to a household, the interaction occurs in the ______ market.
product
A graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology is the:
production possibilities frontier
The production possibilities frontier, or curve, is a graphical representation of the ______ .
production possibilities schedule
The points on the production possibilities frontier show how we allocate our scarce ______ to the production of two different goods or services.
resources
quantity demanded
the amount of a good or service that a consumer is willing and able to purchase at a given price
quantity supplied
the amount of a good that sellers are willing and able to sell at a given price
substitution effect
the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes
Even though the price per ounce of popcorn is much lower for the largest size at a movie theater not everyone buys the large bucket of popcorn because:
the extra utility from the extra popcorn is less than the extra cost to the buyer.
equal marginal principle
the idea that consumers maximize their utility when they allocate their limited incomes so that the marginal utility per dollar spent on each of their final choices in a bundle is equal
market equilibrium
the point of intersection of demand and supply curves of a given commodity; at equilibrium the market is cleared of the commodity
Terms of trade refers to:
the price of one good or service in terms of another.
law of diminishing marginal utility
the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time
market demand
the sum of the individual demands of all consumers in the market
Total utility
the total amount of satisfaction obtained from consumption of a good or service
market supply
the total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period, ceteris paribus
total utility
the total satisfaction one gets from consuming a product
Opportunity cost is:
the value of the opportunity that you give up when you choose one activity instead of another.
The pope of the production possibilities frontier equals the ______ of the production of one good or service in terms of the other.
trade-off and opportunity cost
The utility-maximizing bundle of goods and services occurs
where the indifference curve is tangent to the budget line