tas1_ECON 252 Purdue University Flashcards

Terms Definitions
Scarcity
that although our wants are unlimited, the resources available to fulfill thos wants are limited.
Economics
is the study of the chices consumer, business manager, and government official make to attain their goals, given their scarce resources
Three important economic ideas
1) People are rational,
2) People respond to incentived
3) optimal decisions are made at the margin
Three Fundimental Questions
1)What goods and services will be produced?
2) How will the goods and services be produced?
3)Who will recieive the goods and services produced?
Economic Models
are simplified version of reality used to analyze real-world economic situations
Market
is a group of buyers and sellers of a good or service and the instituion or arrangement by which thery come together to trade
Rationality
Economists generally assume that people are rational.
Incentives
Economists emphasize that consumers and firms consistently respond to economic incentives
Marginal
"extra" or "additional"
When is it the optimal dcision to continue any activity.
Up to the point where Marginal Benefit = Marginal Cost
Marginal Analysis
comparing marginal benefits and marginal costs
trade-offs
Producing more of one good or service means producing less of another good or service
Opportunity Costs
is the highes-valued alternative that must be given up to engage in that activity.
Centrally Planned Economy
the government decides how economic resources will be allocated
Market Economy
decisions of households and firms interacting in markets allocate economic resources
Mixed Economy
 still primaily a market economy because most economic decisions result from interaction of buyers and sellers in markets, howerver, the government plays a significant role in the allocation of resources
Positive Analysis
concerned with what is
Normative Analysis
concerned with what ought to be
Production Possibilities Frontier (PPF)
is a curve showing the maximum attainable combinations of two products that may be produced witha vailable resources and current technology.
What are Points  A,B,and C referred to as?
A- is attainable, but not efficient
B- is attainable and efficient
C- is unattainable
How is  Economic Growth  shown?
Shifts in the Production possibiliites frontier (outwards)
Absolute Advantage
ability of and individual, afirm, or a country to produce more of a good or service than competitors
Comparative Advantage
the ability of and individual, a firm, or a country to produce a good or service at a loer opportunity cost than competitors
Market
is a group of buyers and sellers of a good or service and thye institution or arrangement by which they come together to trade
Product Markets
are markets for goods-such as computers-and services-such as medical treatment
Factors of Production
are the inputs used to make goods and services.
What are the four broad categories of the factors of production
1) Labor
2) Capital
3) Natural resources
4) An Entrepeneur
Circular-Flow Diagram
simple economic model to see how participants in markets are linked
What are the two key groups in a market structure?
1) Household
2) Firms
Free Market
when athe government places few restrictions on how a goodor a service can be produced or sold or on how a factor of production can be employed.
Entrepreneur
is a someone who operates a business.
Perfecly Competitive Market
many buyers and sellers, all the products sold are identical, and there are no barriers to new firms entering the market
Demand Schedules
shows the relationship between the price of a product and the quantity of the product demanded at that price
Quantity Demanded
amount of a good or a service that a consumer is willing and able topurchase at a given price
Demand Curve
curve that shows the relationship between the price of a product and the uantiy of the product demanded.
Market Demand
demand by all the consumers of a given good or service
Law of Demand
Holding everything else constant, when the price of a product falls, the quantity demanded of  the product will increase, and when the prce of a product rises, the uantity demanded of the product will decrease
Substitution Effect
refer to the change in the quantity demanded of agood that results from a change in price, making the good more or less expensive relative to other goods that are substitutes
Income Effect
price change refers to the change in the quantty demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power
certeris paribus condition
Latin for  "all else equal"
Variable that shift the demand curve
-Income
-Prices of related goods
-Tastes
-Population and demographics
-Expected future prices
Normal Goods vs Inferior Goods
Normal goods will show an increase in demand as income increase and a decrease in demand as income decreases.  And inferrior good as hand inverse relation to the relation of income.   An inferior good will be purchased in substitute for a normal good when the income in decreased and vise versa.
Substitutes vs  Complements
If two goods are substitutes then the change in demand of one will cause a shift in the demand curve of the other in a way that is opposite of the the change.   If two goods are complements then the change in demand of one will cause a shift in another in a way that is the same as the change of the original good.
Allocative Efficency
 occurs when there is an optimal distribution of goods and services
Quantity Supplied
the amount of a good or service that a firm is willing and able to supply at a given price
Supply Schedule
is a table that shows the relationship between theprice of a product and the quantity of the product supplied
Supply Curve
shows the relationship between the price of a production and the quantity of the product supplied.
Law of Supply
which states that, holding everything else constant, increases in price caus increases in the quantity supplied, and decreases in pice cause decreades in the quantity supplied
Variables that shift the market supply
- Prices of inputs
- Technological change
- Prices of substitutes in production
- Number of firms in the market
- Expected future prices
Market Equilibrium
At market equilibruimwillthe quantitydemanded equal the quantity supplied
Competitve Market Equilibrium
Markets that have many buyers and many sellers are competitive markets, and equilibruim in thers markets.
Productive Efficiency
occurs when the economy is operating at its production possibility frontier (PPF).
Neutral Analysis
measures the costs and benefits of different courses of action
One of the basic facts of life is that people must make choices as they try to attain their goals.  This unavoiidable fact comes from a reality an economist calls....
Scarcity
Productive Efficiency
occurs when a good or service is produced at the lowest possible cost
Allocative Efficiency
occurs when production is in accordance with consumer preferences
Equity
the fair distribution of economic benfits
Black Market
market in which buying and selling take place at prices that violate government price regulations
Tax Incidence
the actual division of the burden of tax between buyers and sellers in a market
Which Areas Represtent Consumer and Producer Surplus
Area A is the Consumer Surplus
Area B is the Producer Surplus
Which Areas Represtent Consumer and Producer Surplus and Dead Weight Loss
 
A is the Consumer Surplus
B+C+D is the Producer Surplus
E+F is the Dead Weight Loss
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