Microeconomics
suppose a farmer produces both beans and corn on her farm. If she must give up 16 bushels of corn to be able to get 6 bushels of beans, then her opportunity cost of 1 bushel of beans is
2.67 bushels of corn
british economist, cosidered the father of the modern theory of supply and demand
Alfred Marshall
factors of production can be used in either widget or gizmo production but some are more productive producing widgets, and some at producing gizmos
PPF increasing opportunity costs
a shift in the demand curve can be cause by
a change in one of the determinants of demand
one country can produce more of a good than another country
absolute advantage
the mix of goods and services produced is just what the society desires
allocative efficiency
Farmer Cameron's tractor Kyle's Taco Truck (the truck itself)
capital
includes manufactured products such as tractors, welding equipment, and computers that are used to produce other goods and services
capital
assumption used in economics where other relevant factors or variables are held constant
ceteris paribus
occurs when one or more of the determinants of demand changes, shown as a shift in the entire demand curve
change in demand
occurs when the prices of the product changes, shown as a movement along an existing demand curve
change in quantity demanded
occurs when the price of the product changes, shown as a movement along an existing supply curve
change in quantity supplied
occurs when one or more of the determinants of supply change, shown as a shift in the entire supply curve
change in supply
one country has a lower opportunity cost of producing a good than another country
comparative advantage
goods that are typically consumed together
complementary goods
examples: tastes and preferences fall income falls price of complements rises number of buyers falls
decrease in demand
examples: technology falls resource costs rise number of sellers falls
decrease in supply
the max amount of a product that buyers are willing and able to purchase over some time period at various prices, holding all other relevant factors constant
demand
a graphical illustration of the law of demand, which shows the relationship between the price of a good and the quantity demanded
demand curve
a table that shows the quantity of a good a consumer purchases at each price
demand schedule
nonprice factors that affect demand, including tastes and preferences, income, prices of related goods, number of buyers, and expectations
determinants of demand
nonprice factors that affect supply, including production technology, costs of resources, prices of other commodities, expectations, number of sellers, and taxes and subsidies
determinants of supply
the study how individuals, firms, and society make decisions to allocate limited resources to many competing wants
economics
how well resources are used and allocated
efficiency
sandy uses her life's savings and her grandma's recipe to start producing aunt sandy's jamming jellies
entrepreneurs
when one combines land, labor, and capital to produce goods and services and they assume the risks associated with running a business
entrepreneurs
during the summer, a bumper crop of oranges in florida causes a surplus in the supply of oranges nationwide. as a result, prices fall to compensate for the surplus and civilians enjoy the fruits of the farmers labor
equilibrium
market forces are in balance when the quantities demanded by consumers just equal the quantities supplied by producers
equilibrium
market equilibrium price is the price that results when quantity demanded is just equal to quantity supplied
equilibrium price
market equilibrium quantity is the output that results when quantity demanded is just equal to quantity supplied
equilibrium quantity
the fairness of various issues and policies
equity
production efficiency
goods and services are produced at their lowest possible resource cost
the local river has so much pollution that three-eyed fish are forming. the government responds by regulating the amount of chemicals that can be dumped into the river
government intervention
market demand and supply curves are found by adding together how many units of the product will be purchased or supplied at each price
horizontal summation
the factors that motivate individuals and firms to make decisions in their best interest
incentives
examples: taste and preferences rise income rises price of substitutes rises number of buyers rises
increase in demand
examples: technology rises price of production substitute falls taxes fall or subsidies rise
increase in supply
a good for which an increase in income results in declining demand
inferior good
markets
institutions that bring buyers and sellers together so they can interact and transact with each other
Peyton, a server at Sonic Your coworkers Your favorite bartender
labor
includes the mental and physical talents of individuals who produce products and services
labor
Ore, The Rio Grande, Lake Havasu
land
includes natural resources such as mineral deposits, oil, natural gas, water, and land i the usual sense of the word.
land
holding all other relevant factors constant, as price increases, quantity demanded falls, and as price decreases, quantity demanded rises
law of demand
holding all other relevant factors constant, as price increases, quantity supplied will rise, and as price declines, quantity supplied will fall
law of supply
when trading with more developed countries,
less developed countries have a comparative advantage in the production of some goods or services
as a result of a severe recession, the total output or gross domestic product of a nation falls by 4%
macro
increased consumer spending causes the national unemployment rate to fall
macro
increased consumer spending causes the rate of inflation to rise
macro
the broader issues in the economy such as inflation, unemployment, and national output of goods and services
macroeconomics
an educational software company wants to expand number of economics questions that it offers and is considering hiring another economist. it compares how much adding another worker will improve the product with the additional cost
marginal decisions
the owner of a snow cone trailer realizes that the demand for snow cones is low during the winter and thus, closes shop until the temperature warms back up near summertime
market efficency
institutions that bring buyers and sellers together so they can interact and transact with each other
markets
a tax on tires increases the price of tires paid by car owners
micro
optimism about future car sales leads general motors to hire more auto workers
micro
the decision making by individuals, businesses, industries, and governments
microeconomics
robotic technology reduces the demand for auto workers
microf
a good for which an increase in income results in rising demand
normal good
Positive or normative? the richest 1% of americans should pay more taxes than the rest of the 99%
normative
positive or normative? social welfare spending in sweden occupies too large a portion of the national budget
normative
a question that is based on societal beliefs on what should or should not take place
normative question
absolute advantage
one country can produce more of a good than another country
comparative advantage
one country has a lower opportunity cost of producing a good than another country
on black friday, there are huge sales. david must decide between buying a camera at one store or a flat screen tv at another sotre, and buying one means lowing out on the ability to purchase the other
opportunity cost
the cost paid for one product in terms of the output (or consumption) of another product that must be forgone
opportunity cost
the value of the next best alternative; what you give up to do something or purchase something
opportunity cost
Positive or normative? a decrease in the supply of coconut will increase the price of german chocolate cake, a good which required coconut shavings as a key ingredient
positive
Positive or normative? the higher the minimum wage, the highers the price of goods and services is likely to be
positive
a question that can be answered using available information or facts
positive question
a name given to the market economy because prices provide considerable information to both buyers and sellers
price system
the process of converting resources, land labor capital and entrepreneurial ability, into goods and services
production
goods and services are produced at their lowest resource (opportunity) cost
production efficiency
shows the combinations of two goods that are possible for a society to produce at full employment
production possibilities frontiers PPF
ava finds that there is not enough time after work to have dinner, exercise, and watch tv, and she must make choices about how to use her limited time
resource scarcity
land, labor, capital, entrepreneurial ability
resources
our unlimited wants clash with limited resources
scarcity
occurs when the price is below market equilibrium and quantity demanded exceeds quantity supplied
shortage
at a high end restaurant, the restaurant owner has one chef at a meat station, one at veggies..... the result is increased speed, as more customers get serviced during an evening
specialization
goods consumers will substitute for one another depending on their relative prices
substitute goods
the maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant
supply
a graphical illustration of the law of supply, which shows the relationship between the price of a good and the quantity supplied
supply curve
occurs when the price is above market equilibrium, and quantity supplied exceeds quantity demanded
surplus
allocative efficiency
the mix of goods and services produced is just what the society desires
you have to give one thing up in order to consume another
tradeoffs
an individual's valuation of a good or service, equal to the most an individual is willing and able to pay
willingness-to-pay
