ECON 203

in most societies, resources are allocated by
the combined actions of millions of households and firms
people face trade offs applies to
individuals, families, and societies.
efficiency means that society
is getting the maximum benefits from its scarce resources
circular flow daigram
firms provide households with output
a market includes
buyers and sellers
two goods are substitutes when a decrease in the price of one good
decreases the demand for the other good
if the demand for a good falls when income falls, then the good is
normal good
what is the primary cause of inflation
an increase in the quantity of money
an increase in the price of a good will
increase quantity supplied
elasticity is a measure of
how much buyers and sellers respond to changes in market conditions.
as price elasticity of supply increase, the supply curve
becomes flatter
positive statement
attempts to describe the world as it is
externalities
when the production of consumption of a good affects bystanders
market power
a single buyer or seller has substantial influences on market price
households
buys and consumes goods and services
firms
produce and sells goods and services
elasticity is the measure of
how much buyers and sellers responds to changes in market conditions
law of demand
the claim that the quantity demanded of a good falls when the price of a good rises, other things equal
marginal change
small, incremental adjustment
absolute advantage
the ability to produce a good using fewer inputs than another producer
demand schedule
a table that shows the relationship between the price of a good and quantity demanded
PPF
a graph that shows the combination of 2 goods the economy can possibly produce given the available resources
slope of PPF
tells you the opportunity cost of one good in terms of the other
what do trade offs reduce
incentives, to work hard
A binding price ceiling
causes a shortage and is set at a price below the equilibrium price
An outcome that can result from either a price ceiling or a price floor
nonbinding price control
price ceiling causes
a shortage
price floor causes
a surplus
if a price ceiling is not binding, then
there will be no effect on the market price or quantity sold
if a tax is imposed on a market with inelastic demand and elastic supply, then
a buyer will bear most of the burden of the tax
a minimum wage that is set below a markets equilibrium wage will
have no impact on employment
when a tax is levied on buyers of tea
buyers or teas and sellers of tea are both worse off
in a competitive market free of Gov regulations
price adjusts until quantity demanded equals quantity supplied.
On a graph, the area below a demand curve and above the price measures
consumer surplus
Producer Surplus
the amount a seller is paid minus the cost of production
Total Surplus
the total value of the good to buyers minus the cost to sellers of providing the good.
The benefit to buyers of participating in a market is measured by
consumer surplus
the decrease in total surplus that results from a market distortion, such as a tax, is called
dead-weight loss
the size of the dead weight that results from the tax is smaller….
the smaller is the price elasticity of supply
when a tax is imposed on a good,
the equilibrium quantity of the good always decreases
What is added to profit to obtain total revenue?
total cost
the amount of money that a firms cost (variable/fixed) depends on the
time horizon under consideration
when a firms long run average total costs do not vary as output increases, the firm exhibits
constant returns to scale
dairy farming exhibits the characteristics of
free entry
average revenue equals
marginal revenue
In a competitive market
a firm has little ability to influence market prices.
when a competitive firm doubles the quantity of output is sells its
total revenue doubles
A firm that exits its market( in the long run) has to pay
nothing
when firms have an incentive to exit a competitive market, their exit will lead to
a raise in the profits of the firms that remain in the market
in a perfectly competitive market, the process of entry and exit will end when
economic profits are zero
what is a characteristic of Monopoly?
one buyer
A monopolist faces a
downward sloping demand curve
Price discrimination is the business practice of
selling the same good at different prices to different customers
when a local grocery store offers discount coupons in the sunday paper it is most likely trying to
price discriminate
when a new firm enters a monopolistic competitive market, the individual demand curves faced by all existing firms in the market will..
shift to the left
under which of the following market structures would consumers likely pay the highest price for a product?
monopoly
a group of firms that act in unison to maximize collective profits is called
cartel
when collusion in an oligopoly breaks down then we should expect
price to fall and quantity to rise
Oligopoly
a market structure in which a few firms dominate
Game theory is important for the understanding of
oligopoly
the study of the behavior of individual decision making units is
Microeconomics
Health insurance should be provided to every citizen in a wealthy nation such as the US this statement is best described as…..
normative
according to the law of demand, as price rises
quantity demanded decreases
if the demand of sardines increases as income decreases then sardines are
an inferior good
according to the law of supply
positive relationship between price and the quantity of a good supplied.
economics deals primarily with the concept of
scarcity

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