Introduction
These are factors that motivate individuals or groups to act in a certain way, often driving economic decision-making through rewards or penalties.
What are incentives?
This economic law states that as the price of a good increases, the quantity demanded decreases, and vice versa.
What is the law of demand?
Price floors and ceilings are examples of these types of economic policies.
What are price controls?
True or false: increases in international trade have increased the amount of people in poverty
FALSE
This term describes a sustained increase in the overall price level of goods and services in an economy over time.
What is inflation?
This can be best defined as the "value of the next best alternative"
Opportunity Cost
This happens when a price ceiling is set below equilibrium, leading to shortages in the market.
What is a shortage?
When a price ceiling is set above equilibrium, it has this effect on the market.
What is no effect?
This type of tax is placed on imports to make them more expensive and protect domestic industries.
What is a tariff?
When inflation is extremely high and out of control, leading to a collapse in the value of currency, it is called this.
What is hyperinflation?
This coordinates behavior between buyers and sellers
Prices
When supply increases while demand stays constant, this typically happens to price.
Price decrease, quantity increase
A price floor set above equilibrium typically results in this.
What is a surplus?
This is the economic principle where countries specialize in producing goods they can create most efficiently, trading for other goods.
What is comparative advantage?
Central banks, like the Federal Reserve, often increase this to combat high inflation by reducing consumer spending and investment.
What is the interest rate?
This cognitive bias occurs when individuals continue investing in a decision or project due to prior resources spent, even when the costs outweigh the benefits.
What is the sunk cost fallacy?
What are the determinants of demand?
TRIBE
This type of price control sets a maximum legal price for a good or service, often to make it affordable for consumers.
What is a price ceiling?
Who are the winners of international trade?
Consumers and industries with comparative advantages (cheaper goods and larger markets)
This measure tracks the average change in prices over time for a basket of goods and services purchased by households.
What is the Consumer Price Index (CPI)?
These set the rules, norms, and systems that shape economic behavior
Institutions
These are the determinants of supply?
SPITE
A government-imposed minimum price, like for wages, that can result in a surplus of labor.
What is a price floor?
Who are the losers of international trade?
Domestic producers in industries that face foreign competition, often lose out due to lower prices and reduced demand for their goods.
Economists attribute this to the main reason societies experience long term inflation.
What is expansion of the money supply.