ECON 1011, 10.5 Study Guide
ECON 1011, 10.5 Study Guide ECON 1011
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This 5 page Study Guide was uploaded by Samantha Notetaker on Saturday October 15, 2016. The Study Guide belongs to ECON 1011 at George Washington University taught by Yezer, A in Fall 2016. Since its upload, it has received 3 views. For similar materials see Principles of Economics I in Economics at George Washington University.
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Date Created: 10/15/16
Macroeconomics - Looks at the economy as a whole. Scarce - Limited Opportunity Cost - The best alternative that we forgo, or give up, when we make a choice or a decision is the opportunity cost of that decision. Marginalism - In weighing the costs and benefits of a decision, it is important to weigh only the costs and benefits that arise from the decision Effect Markets - Markets where any profit opportunities are eliminated almost instantaneously. Microeconomics - Looks at the functioning of individual industries and the behaviour of individual economic decision-making units: firms and households. Positive Economics - Attempts to understand the behaviour and operation of economic systems without making judgements about whether outcomes are good or bad. Normative Economics - Looks at the outcomes of economic behaviour and asks whether or not they are good or bad and whether they can be made better. Model - The formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables. Variable - A measure that can change from time to time or from observation to observation. Ockham's Razor - The principle that irrelevant details should be cut away. Ceteris Paribus - "All else equal" A device used to analyse the relationship between two variables while the values of other variables are held unchanged. Post hoc, ergo propter hoc - "After this, therefore because of this" A common error made in thinking about causation: If Event A happens before Event B, it is not necessarily true that A caused B. Fallacy of Composition - The erroneous belief that what is true for a part is necessarily true for the whole. Empirical Economics - The collection and use of data to test economic theories. Allocative Efficiency - An economy is allocatively efficient when it is producing what people want at the least possible cost. Equity - Fairness Economic Growth - An increase in the total output of an economy. Growth occurs when a society aquires new resources or when it learns to produce more using existing resources. Stability - A condition in which national output is growing steadily, with low inflation and full employment of resources. Capital - Things that are produced and then used in the production of other goods and services. Factors of Production - The inputs into the process of production. Another word for resources. Three key factors of production are land, labour and capital. Production - The process that transforms scarce resources into useful goods and services. Inputs/Resources - Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants. Outputs - Goods and services of value to households. Theory of Comparative Advantage - David Ricardo's theory that specialisation and free trade will benefit all trading parties, even those that may be 'absolutely' more efficient producers. Absolute Advantage - A producer has an absolute advantage over another in the production of a good or service if he or she can produce that product using fewer resources (a lower absolute cost per unit). Comparative Advantage - A producer has a comparative advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost. Investment - The process of using resources to produce new capital. Production Possibility Frontier (PPF) - A graph that shows all the combinations of goods and services that can be produced if all of society's resources are use efficiently. Marginal Rate of Transformation (MRT) - The slope of the PPF Command Economy - An economy in which a central government either directly or indirectly sets output targets, incomes, and prices. Laissez-Faire Economy - "Allow them to do" An economy in which individual people and firms pursue their own self-interest without any central direction or regulation. Market - The institution through which buyers and sellers interact and engage in exchange. Consumer Sovereignty - The idea that consumers ultimately dictate what will be produced (or not) by choosing what to purchase. Free Enterprise - The freedom of individuals to start and operate private businesses in search of profits Entrepreneur - A person who organises, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business. Firm - An organisation that transforms resources into products. Firms are the primary producing units in a market economy. Households - The consuming units in an economy Product/Output Markets - The markets in which goods and services are exchanged Factor/Input Markets - The markets in which the resources used to produce goods and services are exchanged. Labour Market - The input/factor market in which households supply work for wages to firms that demand labour Capital Market - The input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods. Land Market - The input/factor market in which households supply land or other real estate in exchange for rent. Quantity Demanded - The amount of a product that a household would buy in a given period if it could buy all it wanted at the current market price. Demand Schedule - Shows how much of a given product a household would be willing to buy at different prices for a given time period. Demand Curve - A graph illustrating how much of a given product a household would be willing to buy at different prices. Law of Demand - The negative relationship between price and quantity demanded: Ceretis paribus, as price rises, quantity demanded decreases; as price falls, quantity demanded increases. Income - The sum of all a household's wages, salaries, profits, interest payments, rents and other forms of earnings in a given period of time. It is a flow measure. Wealth/Net Wealth - The total value of what a household owns minus what it owes. It is a stock measure. Normal Goods - Goods for which demand goes up when income is higher and for which demand goes down when income is lower. Inferior Goods - Goods for which demand tends to fall when income rises. Substitutes - Goods that can serve as replacements for one another; when price of one increases, demand for the other increases Perfect Substitutes - Identical prodcuts Complements/Complementary Goods - Goods that 'go together'; a decrease in the price of one results in an increase in the demand for the other and vice versa. Shift of a Demand Curve - The change that takes place in a demand curve corresponding to a new relationship between quantity demanded of a good and price of that good. The shift is brought about by the change in the original conditions. Movement along a Demand Curve - The change in quantity demanded brought about by a change in price. Market Demand - The sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service. Quantity Supplied - The amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period. Supply Schedule - Shows how much of a product firms will sell at alternative prices. Law of Supply - The positive relationship between price and quantity of a good supplied: An increase in market price will lead to an increase in quantity supplied and decrease in market price will lead to a decrease in the quantity supplied. Supply Curve - A graph illustrating how much of a product a firm will sell at different prices. Market Supply - The sum of all that is supplied each period by all producers of a single product. Equilibrium - The conditions that exist when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for the price to change. Excess Demand/Shortage - Happens when the quantity demanded exceeds quantity supplied at the current price. Excess Supply/Surplus - The condition that exists when quantity supplied exceeds quantity demanded at the current price. Price Rationing - The process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied. Price Ceiling - A maximum price that sellers may charge for a good, usually set by the government. Queuing - Waiting in line as a means of distributing goods and services: a nonprice rationing mechanism Favoured Customers - Those who receive special treatment from dealers during situations of excess demand. Ration Customers - Ticket of coupons that entitle individuals to purchase a certain amount of a given product per month. Black Market - A market in which illegal trading takes place at market-determined prices Price Floor - A minimum price below which exchange is not permitted. Minimum Wage - A price floor set for the price of labour. Consumer Surplus - The difference between the maximum amount a person is willing to pay for a good and its current market price. Producer Surplus - The difference between the current market price and the cost of production for the firm Deadweight Loss - The total loss of producer and consumer surplus from underproduction or overproduction Elasticity - A general concept used to quantify the response in one variable when another variable changes. Price Elasticity of Demand - The ratio of the percentage of change in quantity demanded to the percentage of change in price; measures the responsiveness of quantity demanded to changes in price. Perfectly Inelastic Demand - Demand in which quantity demanded does not respond at all to a change in price Perfectly Elastic Demand - Demand in which quantity drops to zero at the slightest increase in price Elastic Demand - A demand relationship which the percentage change in quantity demanded is larger than the percentage change in price in absolute value (a demand elasticity with an absolute value greater than one) Inelastic Demand - Demand that responds somewhat, but not a great deal, to changes in price. Inelastic demand always has a value between zero and one. Unitary Elasticity - A demand relationship in which the percentage change in quantity of a product demanded is that same as the percentage change in price in absolute value (a demand elasticity of one) Midpoint Formula - A more precise way of calculating percentage using the value half way between P1 and P2 for the base in calculating the percent change in price and the value halfway between Q1 and Q2 as the base for calculating the percentage change in quantity demanded. Point Elasticity - A measure of elasticity that uses the slope measurement Income Elasticity of Demand - A measure of the responsiveness of demand to changes in income. Elasticity of Supply - A measure of the response of quantity of good supplied to a change in the price of that good. Likely to be positive in output markets. Cross-price Elasticity of Demand - A measure of the response of the quantity of one good demanded to a change in the price of another good Elasticity of Labour Supply - A measure of the response of labour supplied to a change in the price of labour.
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