First Exam: Units 1-3 9/20

indirect incentive

A secondary change in behavior brought on by the original incentive

market demand

Horizontal sum of all individual quantities demanded by each buyer in the market at each price

make choices

Scarcity forces us as individuals and society to _____________ ____________.

Economics

The study of how individuals and societies allocate their limited sources to satisfy their unlimited needs

exogenous factors

Variables that cannot be accounted for in a model

trade

_______ creates value; without it, we would have to produce everything that we want

Specialization

_______ gives us comparative advantage

change in demand

_______ is caused by changes in non-price factors; creates a SHIFT of the demand curve

competitive markets

_________ have many buyers and sellers, and no individual has any influence over the price

change in quantity demanded

_________ is caused by a change in the price of the good; creates movement ALONG the demand curve

taxes, subsidies

_________ raises the cost and decreases demand, while ________ encourages consumers to afford more goods

Ceteris Paribus

a Latin phrase that means "all other things held equal"; it allows economists to study the effect of ONE variable by holding everything else constant

market power

a firm's ability to influence the price of a good or service by exercising control over its demand, supply, or both

marginal thinking

a purposeful evaluation of the available opportunities to make the best decision possible; "is the benefit of this unit better than the other unit?"

marginal benefit

additional benefit derived from extra unit

marginal cost

additional cost incurred from extra unit

law of supply

all else equal, there is a direct relationship between price and quantity supplied

law of demand

all else equal, there is an INVERSE relationship between price and quantity demanded; ex: price goes up, demand goes down (and vice versa)

quantity demanded

amount of a good buyers are willing and able to buy to purchase at a single price

demand

amount of a good/service buyers are willing and able to buy at all possible prices

normative statement

an opinion that can't be tested or validated

Resource

anything that can be used to produce something else

terms of trade

as long as the _______ fall within the opportunity cost of both traders, then both people benefit

supply schedule

as price goes down, quantity supplied goes down

imperfect markets

buyer or seller has an influence on the price

positive statement

can be tested and validated; it describes "what is"

negative incentive

discourages action by providing undesirable consequences or punishments

economic growth

enables a society to produce more output; ex: new technology = pizzas able to be made with less resources

positive incentive

encourages action for reward

market

facilitates trade; brings buyers and sellers together to exchange goods and services

incentives

factors that motivate you to act or exert effort

example of a direct incentive

giving students pizza if they all get As

consumer goods

good produced for current consumption

inferior good

good we buy less of when we get more income; ex: McDonald's

normal good

good we buy more of when we get more income; ex: clothing

capital goods

goods that helo produce other valuable goods; PPF will shift OUT

market supply

horizontal sum of all individual quantities supplied by each seller in the market at each price

example of microeconomics

how does a rise in sales tax impact the retail industry?

price expectations

if the _______ are high, then firms may delay sales until the future if possible; the higher it is the lower the supply

taxes, subsidies

in terms of supply, _____ paid by the producer will be an added cost of production and supply will decrease. But _______ offered by the gov. pay sellers to produce goods and reduces the cost of production, so supply increases.

Scarcity

inherently limited nature of society's resources given society's unlimited wants and needs

capital goods

investment in _______ instead of producing consumer goods will allow an economy to expand its PPF in the future; sacrificing consumption today for more consumption in the future

example of macroeconomics

is the economy of Japan in recession?

technology

knowledge available to use in production of a good or service

you make a decision when...

marginal benefit is greater than or equal to the marginal cost

mixed economy

market economy with SOME government intervention

Productions Possibilities Frontier aka PPF

model that illustrates the combinations of outputs a society can product if all of its recourses are being used efficiently

shortage

occurs when the quantity demanded is GREATER than the quantity supplied; aka shortage

surplus

occurs when the quantity demanded is LESS than the quantity supplied; aka excess

absolute advantage

one producers ability to make more than another producer with the same quantity of resources

economic system

organized way a company allocates its resources and exchanges goods/services

price expectations

our consumption today may depend on what we think the price may be tomorrow

capitalism

private ownership of resources and production aims to maximize profit

market economy

resources are allocated among households and firms with LITTLE or NO government interference; producers and consumers are motivated by self-interest

input

resources used in the production process; when this goes down, supply goes down.

Trade offs

scarce resources imply that individuals, firms, and governments are constantly faced with difficult choices that involve benefits and costs; doing one thing, means you do less of another; scarcity = choice

circular flow

shows how goods, services, and resources flow through the economy

economic models

simplified framework/versions of reality used to understand the real world economy; simplifies complex reality by making assumptions

monopoly

single company that supplies the entire market for a good/service

example of an indirect incentive

students want pizza, so they cheat on their test to receive an A

invisible hand

the _______ of the market guides resources to their highest valued uses

comparative advantage

the ability to make a good at a lower opportunity cost

quantity supplied

the amount of a good or service that producers are willing and able to sell at the current price

supply

the amount of a good/service that producers are willing and able to sell at all possible prices

minimizes

the best decision is the one that _______ the opportunity cost

opportunity cost

the highest-valued alternative that must be sacrificed to get something else; scarcity = choice = app. cost

law of supply and demand

the market price of any good will adjust to bring the quantity supplied and the quantity demanded into balance

firms in the industry

the more _________, or individual sellers, the more market supply, and supply will go up.

Law of increasing opportunity cost

the opportunity cost of producing a good rises as a society produces more of it

equilibrium price

the price at which the quantity supplied is equal to the quantity demanded

Microeconomics

the study of individual units that make up the economy; focuses on individual business and industries

Macroeconomics

the study of overall aspects and workings of an economy; "big picture"

trade

the voluntary exchange of a good or a service between two or more parties

substitues

two goods used in place of each other; ex: iPhone or android; inverse relationship of demand

complements

two goods used together; ex: hot dogs and buns; direct relationship of demand

unintended consequence

unplanned result that is usually negative and unwanted of an incentive

endogenous factors

variables can be controlled for inside a model; the more ______ factors, the more realistic it is

calculating opportunity cost

what you give up/what you get

tastes and preferences

when a good becomes more fashionable or popular

comparitie advantage

when a producer can produce a good at a lower opportunity cost than a competitor

changes in technology

when there are new _________, or new knowledge on how to produce a product is introduced, supply will go up

number of buyers

when there is a larger __________, or individual consumers, then there is more market demand

efficient

when you are _______, you cannot have more of one thing without sacrificing the other

direct incentive

"Here is what I want you to do, and here is what I am going to do in order to get you to do it."