Econ 207 Exam 1 Notes
Economics Exam 1 Study Guide
Vocabulary
Opportunity Cost – the value of the opportunities lost
Total Cost – the “all or nothing” cost of engaging in any activity
Marginal Cost – describes how total costs change as I change the amount (or intensity) of the activity
Benefits – The advantageous or desirable outcome of an action
Inflation – an increase in the general level of prices
Absolute Advantage – the ability to produce the same good using fewer inputs than any other producer.
Production Possibilities Frontier – shows all the combinations of goods that a country can produce given its productivity and supply of inputs
Comparative Advantage – a country has a comparative advantage in producing goods for which it has the lowest opportunity cost.
Demand Curve – a function that shows the quantity demanded at different prices
Quantity Demanded – the quantity that buyers are willing and able to buy at a particular price
Consumer Surplus – the consumer’s gain from exchange, or the difference between the maximum price a consumer is willing to pay for a certain quantity and the market price
Total Consumer Surplus – the area beneath the demand curve and above the price
Normal Goods – a good for which demand increases when income increases
Inferior Goods – a good for which demand decreases when income increases
Substitutes – good that can be purchases in place of each other. A decrease in price of one substitute leads to a decrease in demand for the other good.
Complements – goods commonly purchased together. A decrease in the price of one good leads to an increase in demand for the other good.
Supply Curve – a function that shows the quantity supplied at different prices
Quantity Supplied – the amount of a good that sellers are willing and able to sell at a particular price
Producer Surplus – the producer’s gain from exchange, or the difference between the market price and the minimum price at which a producer would be willing to sell a particular
Vocabulary
Opportunity Cost – the value of the opportunities lost
Total Cost – the “all or nothing” cost of engaging in any activity
Marginal Cost – describes how total costs change as I change the amount (or intensity) of the activity
Benefits – The advantageous or desirable outcome of an action
Inflation – an increase in the general level of prices
Absolute Advantage – the ability to produce the same good using fewer inputs than any other producer.
Production Possibilities Frontier – shows all the combinations of goods that a country can produce given its productivity and supply of inputs
Comparative Advantage – a country has a comparative advantage in producing goods for which it has the lowest opportunity cost.
Demand Curve – a function that shows the quantity demanded at different prices
Quantity Demanded – the quantity that buyers are willing and able to buy at a particular price
Consumer Surplus – the consumer’s gain from exchange, or the difference between the maximum price a consumer is willing to pay for a certain quantity and the market price
Total Consumer Surplus – the area beneath the demand curve and above the price
Normal Goods – a good for which demand increases when income increases
Inferior Goods – a good for which demand decreases when income increases
Substitutes – good that can be purchases in place of each other. A decrease in price of one substitute leads to a decrease in demand for the other good.
Complements – goods commonly purchased together. A decrease in the price of one good leads to an increase in demand for the other good.
Supply Curve – a function that shows the quantity supplied at different prices
Quantity Supplied – the amount of a good that sellers are willing and able to sell at a particular price
Producer Surplus – the producer’s gain from exchange, or the difference between the market price and the minimum price at which a producer would be willing to sell a particular