Krugman Macroeconomics Ch. 1-3
opp. cost
what you must give up in order to get it (besides money)
trade-off
decide costs vs benefits
marginal decisions
whether to do more or less
marginal analysis
the study of marginal decisions
efficient
makes some people better off without making other worse off
equity
everyone gets his or her fair share
scarcity
idea that there isn’t enough for everyone
individual choice
decision by an individual of what to do
resource
anything that can be used to produce something else
incentive
reward to change behavior
model
simplified representation
other-things equal assumption
means that all other relevant factors remain unchanged
production possibility frontier
illustrates an economy of 2 goods where a trade-off in production is made (proportional scale).
factors of production
resources used to create goods + services
technology
technical means of producing goods and services
comparative advantage
the opportunity cost of production is lower for me than all these jongbags.
absolute advantage
where I can more effectively produce goods in every way w/ the same resources
barter
when people directly exchange goods/services
circular flow diagram
represents the cyclical transactions in an economy
household
a group of people who share income
firm
organization that produces goods and services for sale
factor markets
where firms buy resources they need to produce goods/services
income distribution
the way total income is divided among the owners of various factors of production
positive economics
describes how economics actually works
normative economics
describes how economics should work
forecast
simple prediction of the future
competitive market
a market where there are many buyers and sellers of the same good, none of which can influence price
supply and demand model
displays the competitiveness of a market
demand schedule
shows how much of a good or service consumers will want to buy at different prices
shift of the demand curve
a change of the quantity demanded at any given price, represented by the change of the original demand curve to a new position, denoted by the new curve.
movement along the demand curve
a change in quantity demanded of a good that is the result of a change in that goods’ price
substitutes
if a rise in price of one of the goods leads to an increase in the demand of another.
complements
rise in price of one good leads to a decrease in demand of another
normal good
a rise in income increases demand for a good
inferior good
a rise in income decreases demand for a good
individual demand curve
demonstrates quantity demanded vs. price for an individual
quantity supplied
actual amount of a good/service producers are willing to sell at a specific price
supply schedule
shows how much of a good/service producers will supply at different prices
supply curve
quantity vs price
equilibrium
where where quantity equals demand of a good/service
surplus
quantity supplied exceeds quantity demanded
shortage
quantity supplied does not meet quantity demanded