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University of Calgary
ECON 201
Annette Tezli

Chapter 1 Market Failure: when the market fails to allocate society's resources efficiently - An individual farmer requires property rights to benefit from a market economy Equity: equal treatment - Biggest trade of faced in society is : Guns Living Standard is determined by and butter productivity - Rational Person acts when the action Inflation: increases in the general level of produces marginal benefits that exceed prices marginal cost Phillips Curve: the curve that illustrates this - According to Adam Smith, Buyers and tradeoff between inflation and sellers acting independently and out of self unemployment. interest can promote general economic well Policymaker: A politician or political leader is being without even realizing it. an individual who is influencing public policy - In the short run, a decrease in inflation temporarily increases unemployment Marginal Benefit: additional satisfaction or utility a person receives from an additional Scarcity: the limited nature of society's unit of a good or resources. resources Economics: the study of how society manages its resources Efficiency: when society gets the most from its scarce resources Equity: when prosperity is distributed uniformly among society's member Opportunity cost: anything you give up to get something. ( for school you give up tuition, time and forgone wages) Marginal Change: incremental adjustment to existing plan ( when a manager considers whether or not to hire more workers) Incentives- something that motivates an individual to act or do something Market: a group of buyers and sellers Market Economy: allocates resources through the decentralized decisions of many households and firms as they interact in markets Chapter 2 Microeconomics: the study of how households and firms make decisions and - Economic models are simplifications of how they interact in markets reality Macroeconomics: the study of how - Macroeconomics is the study of economy- economy- wide phenomena, including wide phenomena inflation, unemployment and economic growth. - The factors of productions are owned by households Positive Statements: describe the world as it - To address the benefits of trade, an is economist assumes that there are two Normative Statements: attempts to people and two goods. prescribe how the world SHOULD be - A reduction in unemployment will not shift a country's PPF outwards - Issue in microeconomics- The impact of oil prices on auto production Model: a highly simple version of something complicated Circular Flow diagram- a visual model of the economy shows how dollars flow through markets among households and firms Factors of Production- the resources the economy uses to produce goods and services including labor, land and capital Production Possibilities Frontier ( PPF): the combination of two goods the economy can possibly produce given the available resources and technology over line = not possible on the line= possible and efficient under the line- possible but not efficient The Shape of PPF might be bow shaped since there will be people who are good at making one product or another Chapter 3 - A market does not need to be in a specific physical location; buyers and sellers can - If a nation has an absolute advantage in interact without being in the same location something, it means they can produce that good using fewer resources than its partner - Shortage can be fixed by raising the price - If a nation has a comparative advantage in something, it means they can product that Market: a group of buyers and sellers of a good at a lower opportunity cost than its particular product trading partner Competitive Market: where there are many - Trade can benefit everyone in society buyers and sellers, where one person can't because it allows people to specialize in affect the price activities in which everyone have a comparative advantage in Perfectly Competitive market: all goods exactly the same, Lots of buyers and sellers Export: foods sold to other counties so one person can not affect the market Import: goods produced somewhere else Quantity Demanded: the amount of the but sold here good that buyers are willing and able to purchase Absolute advantage: the ability to produce a good using fewer inputs than Law of demand: that quantity falls when another producer prices rise Comparative Advantage: the ability to Demand Curve Shifters produce a good at a lower opportunity cost than another producer # of buyers income/ income expectations price of related goods Substitute: if the price for one thing increases the demand for other thing decreases Complements: increase in the price of one causes a fall in demand for the other Supply quantity supplied: is the amount that sellers are willing and able to sell Law of Supply: the quantity supplied of a good rises when the prices of the good rises Chapter 4 Equilibrium Price: the price that equates Chapter 5 quantity supplied with quantity demanded - A normal good is one for which the income Equilibrium Quantity: the quantity supplied elasticity is less than one and the quantity demanded at the -For a good with price elasticity of demand equilibrium price: of 0.8, an increase in price will cause total Surplus: Excess supply, when quantity consumer spending on that good to rise supplied is greater than quantity demanded - The major problem is inelastic demand, so Sellers try to increase sales by cutting that increased supply lowers total revenue prices Elasticity measures how much one variable Shortage: excess demand: when quantity responds to changes in another variable demanded is greater than quantity supplied Price Elasticity of demands measure how - facing a shortage sellers raise the price much quantity demanded responds to a causing demand to fall and supply to ride change in Price Elasticity= Quantity ( percentage)/ Price ( Percentage)
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