ECO 105 Definitions

Definitions:

Economic Model– An economic model is a simplified, small-scale version of some aspect of the economy. Economic models are often expressed in equations, by graphs, or in words.

Efficiency– A set of outputs is said to be produced efficiently if, given current technological knowledge, there is no way one can produce larger amounts of any output without using larger input amounts or giving up some quantity of another output.

PPF– Shows the different combinations of various goods, any one of which a producer can turn out, given the available resources and existing technology.

Economic Growth–  An increase in the amount of goods and services produced per head of the population over a period of time.

Demand Curve- The consumer’s willingness to pay for a good. It has an inverse relationship because as price decreases, the quantity demanded increases. As the price increases, the quantity demanded decreases.

Supply Curve- The supplier’s willingness to accept a price for a good. It has a positive relationship because as price increases, quantity supplied will increase. As the price decreases, the quantity supplied decreases.

Equilibrium- The point where the demand curve and supply curve cross. This means that the consumer’s willingness to pay will meet the supplier’s willingness to accept. Notice that there are still suppliers that offer goods at higher prices than people want (no one will buy these goods). And there are suppliers that offer goods at lower prices than people expected to pay (these will be bought up quickly).

Shifts in demand

  1. tastes
  2. income
  3. price of other goods
  4. # of consumers

Shifts in supply

  1. price on an input
  2. taxes
  3. technology
  4. price of other goods
  5. nature
  6. # of producers

Price floors

  1. agriculture
  2. minimum wage

Price ceilings

  1. housing market
  2. credit market
  3. energy market

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