Economic Way of Thinking
What are the three questions every economy must answer?
What to produce, how to produce, and who to produce it for
What is the reason scarcity exists
Limited resources and unlimited wants
What is the law stating price go up = quanitity demanded goes down
Law of Demand
What is a legal minimum price?
What are costs that require cash payments?
Explicit costs
The concept of "making decisions based on small changes" is what?
Thinking at the margin
What is the value of the next best alternative?
Opportunity Costs
What is a factor that shifts demand?
Income, tastes, population, or expectations
What is a legal maximum price?
Price ceiling
What is costs representing forgone opportunities?
Implicit cost
What determines a nation's standard of living?
What is productivity?
What is a curve showing max combinations an economy can produce?
Production Possibilities Frontier (PPF)
What price changes cause?
Change in quantity demanded
What is risky behavior due to protection?
Moral hazard
TC = TFC + TVC applies to this run
Short Run
The payment earned by entrepreneurs
What is profit?
Why does opportunity cost increase?
Specialization of resources
What is %ΔQ ÷ %ΔP?
Elasticity Formula
What are High-risk buyers driving out low-risk one?
Adverse selection
When adding workers lowers marginal output?
Diminishing marginal returns
The diagram that shows how money and goods flow in an economu
Circular flow diagram
700 bushels of wheat
What is elasticity when price goes up 8% and Q goes down 16%?
2 (elastic demand)
What is market output with negative externalities?
More than the socially optimal level
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