Econ Chapter 1-5 Flashcards

Economics Overview

• Economics studies choices made by individuals, businesses, governments, and societies to manage scarcity.

Production in the U.S.

• Majority of U.S. production comprises services, particularly in trade and health care.

Factors of Production

• Key components include land, labor, capital, and entrepreneurship.

Opportunity Cost

• Defined as the highest-value alternative that is forgone when making a decision.

Production Possibilities Frontier (PPF)

• Graphical representation showing the maximum combinations of goods and services produced given available resources and technology.

Production Efficiency

• Achieved when producing additional units of one good requires a reduction in the production of another good.

Marginal Cost and Opportunity Cost

• Moving along a PPF, marginal cost equates to the opportunity cost of producing one more unit of a good or service.

Gains from Trade

• Societies must establish and enforce property rights to benefit from trade.

Law of Demand

• As prices rise, quantity demanded decreases, leading to movement up along the demand curve.

Normal Goods

• When prices of normal goods fall, both substitution and income effects lead to an increase in quantity purchased.

Law of Supply

• Price increases result in a greater quantity supplied, shown by movement up along the supply curve.

Supply Dynamics

• An increase in the number of fast food outlets raises the supply of fast food meals.

Market Shortages

• Result in rising prices.

Equilibrium Adjustments

• A decrease in demand with unchanged supply leads to lower equilibrium prices and quantities.

Elasticity

• Measures how responsive one variable is to changes in another.

Elastic Demand

• For elastic goods, an increase in price causes a larger percentage decrease in quantity demanded.

Total Revenue and Price Elasticity

• Total revenue increases if prices rise and demand is inelastic.

Marginal Benefit

• Maximum amount a person is willing to pay for an additional unit of a good.

Consumer Surplus

• Defined as the difference between the value of a good or service and its purchase price.

Producer Surplus

• The difference between a good's selling price and the marginal cost of production.

Price Ceiling

• A legal maximum price established for selling a good.

Allocative Efficiency

• Achieved when goods and services are produced at the lowest cost and provide the greatest benefit.

Technological Change

• Refers to the development of new goods and improved production methods.

Capital Accumulation

• Growth in capital resources.

Comparative Advantage

• Occurs when a person can perform activities at a lower opportunity cost than anyone else.

Markets

• Arrangements that facilitate information and transaction between buyers and sellers.

Relative Price

• The price ratio of one good to another.

Complements

• Goods that are used together.

Inferior Goods

• Demand decreases as income increases.

Normal Goods

• Demand increases as income rises.

Total Revenue

• Calculated as price multiplied by quantity sold.

Total Revenue Test

• Estimates price elasticity of demand based on the relationship between price changes and total revenue changes.

Cross Elasticity of Demand

• Measures the percentage change in quantity demanded in response to a percentage change in the price of related goods.

Income Elasticity of Demand

• Percentage change in quantity demanded divided by the percentage change in income.

Individual Demand vs. Market Demand

• Individual demand pertains to one person, while market demand aggregates demands from all consumers for a good.

Deadweight Loss

• Represents the decrease in total surplus resulting from production inefficiencies.

Efficiency and Fairness

• Refers to the tradeoff known as the "big tradeoff."

Earnings from Economic Resources

• Land earns rent, labor earns wages, capital earns interest, and entrepreneurship earns profit.

Test your knowledge of key concepts from Economics Chapters 1 to 5 with these flashcards. Each card defines essential terms and ideas that form the foundation of economic principles. Perfect for students looking to reinforce their understanding of economics.