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Econ Exam 1 Vocab
Something to hopefully help me figure out my life in this econ class
77 cards·by crayonwarrior
The study of how households and firms make choices, how they interact in markets, and how the
government attempts to influence their choices
Microeconomics
The study of the economy as a whole, including topics such as inflation, unemployment, and
economic growth
macroeconomics
A situation in which unlimited wants exceed the limited resources available to fulfill those
wants
Scarcity
The study of the choices people make to attain their goals, given their scarce resources.
Economics
A simplified version of reality used to analyze real-world economic situations.
Economic model
A group of buyers and sellers of a good or service and the institution or arrangement by which
they come together to trade.
Market
Analysis that involves comparing marginal benefits and marginal costs.
marginal analysis
Three Important Ideas
people are rational, people respond to economic incentives, optimal decisions are made at
the margin
The idea that because of scarcity, producing more of one good or service means producing less
of another good or service.
trade-off
The highest-valued alternative that must be given up to engage in an activity.
Opportunity cost
Three Fundamental Questions
what goods and services will be produced? how will the goods and services be produced? who will
receive the goods and services?
An economy in which the government decides how economic resources will be allocated
centrally planned economy
An economy in which they decisions of households and firms interacting in markets allocate
economic resources.
Market economy
Econ influenced by buyer/seller activity AND government
Mixed Economy
The fair distribution of economic benefits.
Equity
When a good or service is produced at the lowest possible cost.
Productive efficiency
When production is in accordance with the consumer preferences.
Allocated efficiency
In which both the buyer and the seller of a product are made better off by the transaction.
Voluntary exchange
What does scarcity require?
Trade-offs
A curve showing the maximum attainable combinations of two products that may be produced with
available resources and current technology.
PPF
the ability of an individual, firm, or a country to produce more of a good or service than
competitors using the same amount of resources.
Absolute advantage
The ability of an individual, firm, or country to produce a good or service at a lower
opportunity cost than competitors.
Comparative advantage
A table that shows the relationship between the price of a product and the quantity of the
product demanded.
Demand schedule
The amount of a good or service that a consumer is willing and able to purchase at a given price.
quantity demanded
A curve that shows the relationship between the price of a product and the quantity of the
product demanded.
Demand curve
The demand by all the consumers of a given good or service.
market demand
When the price of a product falls, the demand rises. When the price rises, demand falls.
law of demand
A change in demand relative to a change in price, making the good more or less expensive
relative to substitute goods
substitution effect
A consumer can buy more with higher income, so the quantity demanded changes
Income effect
A good for which the demand increases as income rises and decreases as income falls.
Normal good
A good for which the demand increases as income falls and decreases as income rises
Inferior good
Goods/services that can be used for the same things as other goods/services
Substitutes
Goods and services that are used together.
Compliments
The amount of a good or service that firm is willing and able to supply at a given price
Quantity supplied
A table that shows the relationship between the price of a product and the quantity of the
product supplied
Supply schedule
A curve that shows the relationship between the price of a product and the quantity of the
product supplied
Supply curve
Increases in price cause increases in the quantity supplied and vice versa
Law of Supply
A situation in which quantity demanded equals quantity supplied.
Market equilibrium
A market equilibrium with many buyers and many sellers.
Competitive Market Equilibrium
A situation in which the quantity supplies is greater than the quantity demanded
Surplus
A situation in which the quantity demanded is greater than the quantity supplied.
Shortage
the supply of one thing can increase while the other decreases if it’s more profitable to
produce the other thing.
substitution
The reduction in economic surplus resulting from a market not being in competitive
equilibrium.
Deadweight loss
A legally determined maximum price that sellers may charge
Price ceiling
A legally determined minimum price that sellers may receive
Price floor
A good that is both rival and excludable
Private good
A good that is both nonrival and nonexcludable
Public good
Benefiting from a good without paying for it.
Free riding
goods that are excludable but not rival
quasi-public goods
A good that is rival but not excludable
Common resource
The tendency for a common resource to be overused.
Tragedy of the commons
The difference between the highest price a consumer is wiling to pay for a good or service and
the price the consumer actually pays.
consumer surplus
The additional benefit to a consumer from consuming one more unit of a good or service.
Marginal benefit
A benefit or cost that affects someone who is not directly involved in the production or
consumption of a good or service
Externality
The cost borne by the producer of a good or service
private cost
The total cost of producing a good or service, including both the private cost and any external
cost
social cost
The benefit received by the consumer of a good or service.
private benefit
The total benefit from consuming a good or service, including both the private benefit and any
external benefit.
social benefit
A situation in which the market fails to produce the efficient level of output
market failure
The rights individuals or businesses have to the exclusive use of their property, including
the right to buy or sell it.
Property rights
Negative externality
Overproduction
Positive externality
underproduction
A situation in which the market fails to produce the efficient level of output
market failure
A contract in which a buyer agrees to pay premiums in exchange for the provider paying their
medical bills
health insurance
A system under which doctors and hospitals receive a separate payment for each service that
they provide.
Fee-for-service
Reimburse doctors with a flat fee per patient
HMOs
Has a single payer health care system
Canada
Has a universal health insurance system
Japan
Has socialized medicine
UK
in which one party to a transaction takes advantage of knowing more than the other party
adverse selection
in which one party to a transaction has less information than the other party
asymmetrical information
An example of this in effect is how much more careful uninsured people tend to be
moral hazard
A problem caused by agents pursuing their own inters rather than the interests of the
principals who hired them
principal-agent problem
Taxes and subsidies used by the government to deal with externalities
Pigouvian taxes and subsidies
In which the government imposes quantitative limits on pollution production
Command-and-control approach
Tradable emissions policies are...
cap-and-trade policies
Insurance companies guess at risk levels for clients
risk pooling