for Modern Principles of Economics by Tyler Cowen Alex Taborrok Verified Latest Update

Modern Principles of Economics Study Guide by Cowen Taborrok | Recently Updated Verified Incentives - answer - Are rewards and penalties that motivate behaviour. Opportunity cost - answer - The opportunity cost of a choice is the value of the opportunities lost. Inflation - answer - Is an increase in the general/average level of prices. Big Ideas in Economics - answer - 1. Incentives matter 2. Good Institutions Align Self-Interest with the Social Interest 3. Trade-offs Are Everywhere 4. Thinking on the Margin 5. The Power of Trade 6. The Importance of Wealth and Economic Growth 7. Institution Matter 8. Economic Booms and Busts Cannot Be Avoided but Can Be Moderated 9. Prices Rice When the Government Prints Too Much Money 10. Central Banking Is a Hard Job 0. Economics is Fun Absolute advantage - answer - Is the ability to produce the same good using fewer inputs than another producer. Production Possibilities Frontier (PPF) - answer - A Production Possibilities Frontier shows all the combinations of goods that a country can produce given its productivity and supply of inputs. Comparative Advantage - answer - A country has a comparative advantage in producing goods for which it has the lowest opportunity cost. Adam Smith - answer - (), author of 'The Wealth of Nations' and one of the greatest economists of all time. When smith could not finish teaching one semester, he told his students he would refund their tuition.When the students refused the refund saying they had learned so much already, Smith wept. One, however, will not refund the purchase of a book even if you read only half of it. Division of labour - answer - Utilise specialisation to increase productivity Demand Curve - answer - A demand curve is a function that shows the quantity demanded at different prices. Quantity Demanded - answer - The quantity demanded is the quantity that buyers are willing and able to buy at a particular price. Consumer surplus - answer - Is the consumer's gain from exchange, or the maximum price a consumer is willing to pay for a certain quantity and the market price. Total consumer surplus - answer - Is measured by the area beneath the demand curve and above the price. Important demand shifters - answer - Income, Population, Price of substitutes, Price of compliments, Expectations, Tastes. Shift in demand curve (decrease) - answer - A decrease in demand shifts the demand curve inward, down and to the left. Shift in demand curve (increase) - answer - An increase in demand shifts the demand curve outward, up and to the right. Important supply shifters - answer - Technological innovations and changes in the price of inputs, Taxes and subsidies, Expectations, Entry or exit of producers, Changes in opportunity costs. Shift in supply curve (decrease) - answer - A decrease in cost shifts the supply curve down and to the right. Shift in supply curve (increase) - answer - An increase in costs shifts the supply curve up and to the left. Normal Good - answer - A normal good is a good for which demand increases when income increases. Substitute products - answer - If two goods are substitutes, a decrease in the price of one good leads to a decrease in demand for the other good. Complement products - answer - If two goods are complements, a decrease in the price of one good leads to an increase in the demand for the other good. Supply curve - answer - The supply curve is a function that shows the quantity supplied at different prices. Quantity supplied - answer - The quantity supplied is the amount of a good that sellers are willing and able to sell at a particular price. Producer surplus - answer - Is 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 quantity. Total producer surplus - answer - Is measured by the area above the supply curve and below the price. Surplus - answer - A surplus is a situation in whic