ECO 200 test #1
Terms
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- Scarcity
- The condition in which human wants are forever greater than the available supply of time, goods, and resources.
- Resources
- The basic categories of inputs used to produce goods and services. Also called factors of production. Divided into 3 categories: land, labor, and capital.
- Economics
- The study of how society chooses to allocate its scarce resources to the production of goods and services in order to satisfy unlimited wants.
- Macroeconomics
- The branch of economics that studies decision making for the economy as a whole. Variables include: inflation, unemployment, growth of the economy, the money supply, and the national incomes of developing countries.
- Microeconomics
- The branch of economics that studies decision making by a single individual, household, firm, industry, or level of gov't.
- Ceteris Paribus
- Latin phrase that means while certain variables change, "all other things remain unchanged." Allows us to isolate/focus attention on selected variables.
- Association vs. Causation
- A model is valid only when a cause-and-effect relationship is stable over time, rather than being an association that occurs by chance and eventually disappears.
- Positive economics
- Deals w/the facts and addresses, "what is" or "verifiable" questions. An analysis limited to statements that are verifiable. Can be proven either true or false. "If A, then B..."
- Normative economics
- Attempts to determine, "what should be." Analysis based on value judgements. Express an indiv. or collective opinion on a subject and con't be proven by facts to be true or false. Words: good, bad, should, and ought to.
- Opportunity costs
- The best alternative sacrificed for a chosen alternative. It's the cost of not choosing the next best alternative.
- Marginal analysis
- Examines the effects of additions to or subtractions from a current situation
- Production possibilities curve
- Shows the maximum combinations of 2 outputs that an economy can produce in a given period of time with its available resources and technology.
- Law of Increasing Opportunity Costs
- The opportunity cost increases as production of one output expands, causing the curve to have a bowled out shape.
- Economic growth
- The ability of an economy to produce greater levels of output, represented by an outward shift of its production possibilites curve.
- Nonprice determinants/demand shifters
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1. number of buyers
2. tastes and preferences
3. income
4. expectations of future changes in prices, income, and availability of goods
5. prices of related goods - Normal good
- Any good for which there is a direct relationship between changes in income and its demand curve.
- Inferior good
- Any good for which there is an inverse relationship between changes in income and its demand curve.
- Nonprice determinants of supply
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1. number of sellers
2. technology
3. resource prices
4. taxes and subsidies
5. expectations of producers
6. prices of other goods the firm could produce - Surplus
- A market condition existing at any price at which the quantity supplied is greater than the quantity demanded.
- Shortage
- A market condition existing at any price at which the quantity supplied is less than the quantity demanded.
- Equilibrium
- Any price and quantity where the quantity demanded and the quantity supplied are equal.
- Price ceiling
- A legally established maximum price a seller can charge
- Price floor
- A legally established minimum price a seller can be paid
- Market failure
- When market equilibrium results in too few or too many resources being used in the production of a good or service.
- Externalities
- A cost or benefit imposed on people other than the consumers and produces of a good or service.
- Elastic demand
- Condition in which the percentage change in quantity demanded is greater than the percentage change in price. Elasticity coeffictient is greater than 1.
- Inelastic demand
- The percentage change in quantity demanded is less than the percentage change in price.
- Perfectly elastic demand
- A small percentage change in price brings about an infinite percentage change in quantity demanded.
- Perfectly inelastic demand
- The quantity demanded does not change as the price changes.