Econ 101
What we give up when we choose one thing over another.
What is opportunity cost?
The common relationship that a higher price leads to a higher quantity supplied of a certain good or service and a lower price leads to a higher quantity supplied, while all other variables are held constant.
What is the law of supply?
The common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constant.
What is the law of demand?
The difference (or change) in cost of a different choice.
What is marginal cost?
An economy where economic decisions are passed down from government authority and where resources are owned by the government.
What is a command/planned/collective economy?
Total costs divided by quantity produced.
What are average total costs?
a firm that supplies all of the output in a market
What is a monopoly?
When a country can produce a given product using fewer resources than the other country
What is absolute advantage?
An objective statement based on logic and evidence that can be tested.
How sensitive producers are to changes in price
Price and quantity combination where supply equals demand.
What is an equilibrium?
Costs incurred in the past that can’t be recovered and should not be considered in decision making.
What are sunk costs?
An economy where economic decisions are decentralized, resources are owned by private individuals, and businesses supply goods and services based on demand.
What is a market/competitive/free economy?
The 4 conditions for perfect competition.
What are many firms and customers, homogeneous products, perfect information, and no barriers to entry or exit?
The legal, technological, or market forces that discourage or prevent potential competitors from entering a market
What are barriers to entry?
When a country can produce a good at a lower opportunity cost than another country.
What is comparative advantage?
The optimal amount of goods are produced and consumed, minimizing waste.
What is efficiency?
When workers or firms focus on particular tasks for which they are well suited within the overall production process.
What is specialization?
The gap between the price that consumers are willing to pay, based on their preferences, and the market equilibrium price.
What is consumer surplus?
The four types of factors of production.
What are land, capital, labor, and entrepreneurship?
A legal maximum price for a product.
What is a price ceiling?
The shape of the demand curve for a firm's product in a perfectly competitive market.
What is a horizontal line?
charging different prices to different customers for the same product
What is price discrimination?
When a government legislates policies to reduce or block international trade it is engaging in
What is protectionism?
The satisfaction or happiness a person gets from consuming a good or service
What is utility?
The efficiency with which we convert inputs into outputs
What is productivity?
An economics concept that measures responsiveness of one variable to changes in another variable.
What is elasticity?
The period of time during which all factors are variable
What is the long run?
•Shortages, reduced quality, wasted time and resources, deadweight loss, or a loss of gains from trade, misallocation of resources
What are consequences of a price ceiling?
The amount of profit at the long-run equilibrium in a perfectly competitive market.
What are zero economic profits?
any action that firms do to make consumers think their products are different from their competitors
What is product differentiation?
Two types of barriers to trade.
What are tariffs and quotas?
a Latin phrase meaning “other things being equal.”
What is Ceteris Paribus?
Situation where the quantity demanded in a market is less than the quantity supplied; occurs at prices above the equilibrium.
What is a surplus?
This concept indicates a low responsiveness by consumers to price changes.
The situation where, as the quantity of output goes up, the cost per unit goes down
The sum total of skills embodied within an individual including education, intelligence, charisma, creativity, experience, entrepreneurial vigor, perseverance, honesty, physical health, mental health, and skills.
What is human capital?
Charlie Wheelan noted that the market economy directs resources to their most productive use with the example of this person selling insurance or performing in blockbuster movies.
Who is Ryan Gosling?
If firms are able to earn economic profit, it means they have this.
What is market power?
When individuals who have received advanced human capital training at home emigrate to another community.
What is brain drain?
A branch of economics that studies the effects of psychological, cognitive, emotional, cultural and social factors in the decisions of individuals or institutions
What is behavioral economics?
A government payment to firms to encourage production of some good or service. From a firms perspective it reducing the cost of production.
What is a subsidy?
The formula for the elasticity of demand.
What is percentage change in quantity over percentage change in price?
The value to producers of their sales above their cost of production.
What is producer surplus?
The loss in social surplus that occurs when a market produces an inefficient quantity.
What is deadweight loss?
A prerequisite to a well functioning market.
When firms work together to reduce output and keep prices high
What is collusion?
Because it frees up time and resources to do things that we are better at.
Why do we trade?
All possible combinations of goods that someone can afford, given the prices of goods and the income (or time) we have to spend.
What is a budget constraint?
These factors result in a change in supply
What do changes in costs of production, changes in opportunity costs, changes in supplier expectation and changes in the number of suppliers cause?
Number of Substitutes, whether a good is a necessity or a luxury, what share of the consumer’s budget the good consumers, whether you are measuring over the short or long run, and other competitive dynamics.
What are the factors that determine the elasticity of demand?
The opportunity cost of using resources already owned by the firm
What are implicit or economic costs?
When the mix of goods being produced represents the mix that society most desires.
What is allocative Efficiency?
The market force that aligns incentives in such a way that individuals working for their own best interest create a thriving economy and improve the standard of living?
What is the invisible hand?
A branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs based on what other players decide to do
What is game theory?
The rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services.
What is purchasing power parity?
This important concept is not an expected outcome from a free market
What is equity?
As additional increments of resources are devoted to a certain purpose, the marginal benefit from those additional increments will decline.
What is the law of diminishing returns?
The factors shifting the demand curve.
What are changes in the size of the purchasing population, shifts in taste, changes in income, changes in the prices of substitute or complementary goods, or changes in expectations?
Productively efficient combinations of two products that an economy can produce given the resources it has available.
What is a Production Possibilities Frontier?
The economic situation defined by an inefficient distribution of goods and services in the free market. In this case, the individual incentives for rational behavior do not lead to rational outcomes for the group, and it might be a case for government intervention
What is a market failure?
Profit-maximizing rule for a perfectly competitive firm.
What is the level of output where marginal revenue equals marginal cost?
The 4 market structures listed from most competitive to least.
What are perfect competition, monopolistic competition, oligopoly, and monopoly?
In a modern economy, more than 3/4 of goods and services fit this description.
What are non-tradeable goods and services?