Econ Basics
This is the study of how society manages its limited resources.
What is economics?
This is something that induces a person to act, such as the prospect of a punishment or reward.
What is an incentive?
This occurs when one person's actions affect the well-being of a bystander; pollution is a classic example.
What is an externality?
This is the amount a seller is paid for a good minus the seller's cost of providing it.
What is producer surplus?
This field of economics studies how the allocation of resources affects overall economic well-being.
What is welfare economics?
This is the fundamental economic problem where human wants are unlimited but resources are limited.
What is scarcity?
In a competitive market, sellers look at this when deciding how much to supply, while buyers look at it when deciding how much to demand.
What is price?
This is an increase in the overall level of prices in an economy.
What is inflation?
A consumer is willing to pay $120 for a winter jacket but buys it for $70. What is the consumer surplus?
What is $50?
Total surplus is calculated by adding these two types of surplus together.
What are consumer surplus and producer surplus?
Getting one thing you want usually requires giving up another thing you want.
What is a trade off?
This economic goal means that society gets the greatest benefits from its scarce resources.
What is efficiency?
If the price of a coffee maker falls from $80 to $60, what happens to consumer surplus?
It increases for existing buyers, and new buyers enter the market.
A consumer is willing to pay $100 for a product but only pays $75. What is the consumer surplus?
What is $25?
This is the allocation of resources that creates the greatest total benefit for society.
What is an efficient allocation of resources?
This is what you give up to get an item.
What is opportunity cost?
This economic goal refers to how evenly the benefits of society's resources are distributed among its members.
What is equality?
When the market price of a good increases, producer surplus rises for these two reasons.
Existing sellers receive higher surplus, and new producers join the market.
What happens to consumer surplus when the market price of a good decreases?
Consumer surplus increases
This can cause a market to produce an inefficient outcome, such as when third parties are affected or firms have market power.
What are externalities or market power?
Economists use this term to describe an incremental adjustment to an existing plan of action.
What is a marginal change?
This metaphor describes how prices guide self-interested firms and households toward outcomes that can promote society's overall well-being.
What is the invisible hand?
In a competitive market without externalities or market power, what role does the invisible hand play at market equilibrium?
It guides resources toward an efficient allocation that maximizes total surplus.
This is the measure of the total value lost to society when market distortions prevent a market from reaching equilibrium.
What is deadweight loss?
In a competitive market, what happens to total surplus when the market reaches an efficient allocation?
Total surplus is maximized, meaning the combined benefits to buyers and sellers are as large as possible.