Economic Concepts

Role of government

To protect private property rights, Provide public goods and address externalites, Insure Competition, Provide for equality in the distribution of income, stabilize economy

Consumers are usually willing to pay more for a product than they actually pay. (true or false)

True

The demand curve shows the consumer's 'willingness to pay', and represents the value that consumers put on a product. True or fals

True

The equilibrium price is the price we observe in the market at a specific point in time (true or false)

True

3 Basic Economic Questions

What goods will be produced? How will goods be produced? For whom will goods be produced?

Capital

a factor of production that has been produced for use in the production of other goods and services.

Law of increasing opportunity cost

as an economy moves along its production possibilities curve in the direction of producing more of a particular good, the opportunity cost of additional units of that good will increase.

Supply shifters include

change in the cost of factors of production, returns from alternative activities, changes in technology, expectations, natural events, number of sellers.

An increase in consumer income will cause a change in demand and a [change in supply OR a change in quantity supplied]?

Change in quantity supply, since the supply curve itself did not change.

The equilibrium price never changes (true or false)

False

Demand shifters include

Tastes and preferences, price of other goods (substitutes/complements), income, expectations, demographics.

The law of demand states

That as the price of a product goes up, the quantity demanded goes down.

The law of supply states

That as the price of a product goes up, the quantity supplied goes up.

Choice at the Margin

is a decision to do a little more or a little less of something

Models

models are simplifications of the real world in which only the essential relationships needed to analyze a specific problem or answer a given question are used

Natural Resources

resources of nature that can be used for the production of goods and services.

complements

something we buy "with"

substitutes

something we could have bought "instead"

Microeconomics

the branch of economics that focuses on the choices made by individual decision-making units (consumers and firms)

Scarcity

the condition of having to choose among alternatives

Labor

the human effort that can be applied to the production of goods and services.

Demand

the maximum consumers are willing and able to pay for various quantities of a good or service.

Supply

the minimum firms are willing to accept in order to willingly produce various quantities of a good.

Opportunity Cost

the value of the best alternative forgone in making any choice

The law of supply implies that the supply curve will always slope ________

up

Tradeoff

when we do one thing, we usually can't do something else

Increasing national security means we must

Produce fewer other goods.

Market economy

Profits encourage businesses to efficiently produce the things people want.

An increase in consumer income will cause the demand curve to shift ______ (left or right)

Right

Production Possibilities Curve

Shows the maximum combination of goods an economy can produce using all available resources and the best available technology.

Production Function

Shows the relationship between inputs and outputs, Q=f(L, K, NR).

Surplus

exists when the market price is above the equilibrium price.

Shortage

exists when the market price is below the equilibrium price.

Macroeconomics

he branch of economics that focuses on the impact of choices on the total, or aggregate, level of economic activity.

Social Science

in which models or theories are developed and used as aids in understanding, explaining, and predicting economic phenomena

Mixed Economy

in-between market (capitalist) economy and socialist economy

Price ceiling

A maximum legal price for a product (like rent controlled apartments in New York)

Price floor

A minimum legal price for a product (such as minimum wage, or price floor for agricultural products.)

Comparative advantage

In producing a good or service, the situation that occurs if the opportunity cost of producing the good or service is lower for that economy than for another.

A demand schedule...

Is a table containing various combinations of Price and Quantity Demanded.

Factors of Production

Labor (L), Capital (K), and Natural Resources (NR)

An increase in the price of steel will cause the supply curve for cars to shift (left or right)

Left

Full employment

Occurs when all factors of production are being utilized under current market conditions.

Efficient production

Occurs when an economy is operating on its production possibilities curve.

Self-adjusting prices

The idea that prices will naturally move toward the equilibrium price (without intervention by the government).

Entrepreneur

The person who bears risk and seeks to make a profit by turning resources into products.

Economic growth

The process through which an economy achieves an outward shift in its production possibilities curve.

The law of demand implies that demand curves will always slope _________

down

Innovation/Technology

drives economic growth

Human Capital

education, training, workers as resources