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147 Cards in this Set
- Front
- Back
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Efficient |
Resource use is efficient if it is not possible to make someone better off without making someone else worse off. |
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Entrepreneurship |
The human resource that organizes the other three factors of production: Labour, land, and capital. |
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Factors of Production |
The productive resources used to produce goods and services. |
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Goods and services |
The objects that people value and produce to satisfy human wants. |
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Human capital |
The knowledge and skill that people obtain from education, on the job training, and work experience. |
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Incentive |
A reward that encourages an action or a penalty that discourages one. |
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Interest |
The income that capital earns. |
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Labour |
The work time and work effort that people devote to producing goods and services. |
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Land |
The “gifts of nature” that we use to produce goods and services. |
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Macroeconomics |
The study of the performance of the national economy and the global economy. |
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Margin |
When a choice is made by comparing a little more of something with its cost, the choice is made at the margin. |
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Marginal benefit |
The benefit a person receives from consuming one more unit of a good or service. Measured as the maximum amount a person is willing to pay for one more unit of the good or service. |
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Marginal Cost |
The opportunity cost of producing one more unit of a good or service. The best alternative forgone. |
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Microeconomics |
The study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments. |
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Opportunity Cost |
The highest valued alternative that we must give up to get something. |
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Preferences |
A description of a person’s likes and dislikes and the intensity of those feelings. |
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Profit |
The income earned by entrepreneurship. |
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Rational Choice |
A choice that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice. |
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Rent |
The income that land earns. |
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Scarcity |
Our inability to satisfy all our wants. |
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Self interest |
The choices that you think are the best ones available for you are choices made in your self interest. |
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Social interest |
Choices that are the best ones for society as a whole. |
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Tradeoff |
A constraint that involves giving up one thing to get something else. |
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Wages |
The income that labour earns. |
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Absolute advantage |
A person has an absolute advantage if that person is more productive than another person. |
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Allocative efficiency |
A situation in which goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit. |
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Capital accumulation |
The growth of capital resources, including human capital. |
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Comparative advantage |
A person or country has a comparative advantage in an activity if they perform an activity at a lower opportunity cost than any other. |
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Economic growth |
The expansion of production possibilities. |
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Firm |
An economic unit that hires factors of production and organizes those factors to produce and sell goods and services. |
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Marginal benefit curve |
A curve that shows the relationship between the marginal benefit of a good and the quantity of that good consumed. |
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Market |
Any arrangement that enables buyers and sellers to get information and to do business with each other. |
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Money |
Any commodity or token that is generally acceptable as a means of payment. |
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Production efficiency |
A situation in which good and services are produced at the lowest possible cost. |
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Production Possibilities Frontier (PPF) |
The boundary between those combinations of goods and services that can be produced and those combinations that cannot. |
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Property rights |
The social arrangements that govern the ownership, use, and disposal of anything that people value. |
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Technology change |
The development of new goods and of better ways of producing goods and services. |
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Change in Demand |
A change in buyers’ plans that occurs when some influence on those plans other than the price of the good changes. It is illustrated by a shift in the demand curve. |
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Change in Supply |
A change in sellers’ plans that occurs when some influence on those plans other than the price of the good changes. It is illustrated by a shift in the supply curve. |
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Change in Supply |
A change in sellers’ plans that occurs when some influence on those plans other than the price of the good changes. It is illustrated by a shift in the supply curve. |
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Change in the Quantity Demanded |
A change in buyers’ plans when a change in the price of a good changes but all other influences on buyers’ plans remain unchanged. It is illustrated by movement along the demand curve. |
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Change in the Quantity Supplied |
A change in sellers’ plans that occurs when the price of a good changes but all other influences on sellers’ plans remain unchanged. It is illustrated by movement along the supply curve. |
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Competitive Market |
A market that has many buyers and many sellers, so no single buyer or seller can influence the price. |
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Complement |
A good that is used in conjunction with another good. |
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Demand |
The entire relationship between the price of a good and the quantity demanded of it when all other influences on buyers’ plans remain the same. It is illustrated by a demand curve and described by a demand schedule. |
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Demand Curve |
A curve that shows the relationship between the quantity demanded of a good and its price when all other influences on consumers’ planned purchases remain the same. |
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Equilibrium Price |
The price at which the quantity demanded equals the quantity supplied. |
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Equilibrium Price |
The price at which the quantity demanded equals the quantity supplied. |
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Equilibrium Quantity |
The quantity bought and sold at the equilibrium price. |
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Equilibrium Price |
The price at which the quantity demanded equals the quantity supplied. |
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Equilibrium Quantity |
The quantity bought and sold at the equilibrium price. |
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Inferior good |
A good for which demand decreases as income increases. |
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Law of Demand |
Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded of it; the lower the price of a good, the larger is the quantity demanded of it. |
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Law of Supply |
Other things remaining the same, the higher the price of a good, the greater is the quantity supplied of it; the lower the price of a good, the smaller is the quantity supplied. |
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Money Price |
The number of dollars that must be given up in exchange for a good or service. |
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Normal Good |
A good for which demand increases as income increases. |
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Quantity Demanded |
The amount of a good or service that consumers plan to buy during a given time period at a particular price. |
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Quantity Supplied |
The amount of a good or service that producers plan to sell during a given time period at a particular price. |
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Relative Price |
The ratio of the price of one good or service to the price of another good or service. A relative price is an opportunity cost. |
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Substitute |
A good that can be used in place of another good. |
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Supply |
The entire relationship between the price of a good and the quantity supplied of it when all other influences on producers’ planned sales remain the same. It is described by a supply schedule and illustrated by a supply curve. |
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Supply |
The entire relationship between the price of a good and the quantity supplied of it when all other influences on producers’ planned sales remain the same. It is described by a supply schedule and illustrated by a supply curve. |
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Supply Curve |
A curve that shows the relationship between the quantity supplied of a good and it’s price when all other influences on producers’ planned sales remain the same. |
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Cross elasticity of Demand |
The responsiveness of the demand for a good to a change in the price of a substitute or compliment, other things remaining the same. |
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Elastic Demand |
Demand with a price elasticity greater than 1; other things remaining the same, the percentage change in the quantity demanded exceeds the percentage change in price. |
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Elasticity of Supply |
The responsiveness of the quantity supplied of a good to a change in its price, other things remaining the same. |
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Elasticity of Supply |
The responsiveness of the quantity supplied of a good to a change in its price, other things remaining the same. |
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Income elasticity of demand |
The responsiveness of demand to a change in income, other things remaining the same. |
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Elasticity of Supply |
The responsiveness of the quantity supplied of a good to a change in its price, other things remaining the same. |
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Income elasticity of demand |
The responsiveness of demand to a change in income, other things remaining the same. |
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Inelastic Demand |
A demand with a price elasticity between 0 and 1; the percentage change in the quantity demanded is less than the percentage change in price. |
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Perfectly elastic demand |
Demand with an infinite price elasticity; the quantity changes by an infinitely large percentage in response to a tiny price change. |
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Perfectly inelastic demand |
Demand with a price elasticity of zero; the quantity demanded remains constant when the price changes. |
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Perfectly inelastic demand |
Demand with a price elasticity of zero; the quantity demanded remains constant when the price changes. |
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Price elasticity of demand |
A units free measure of the responsiveness of the quantity demanded of a good to change in its price, when all other influences on buyers’ plans remain the same. |
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Total revenue |
The value of a firm’s sales. Calculated as the price of the good multiplied by the quantity sold. |
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Total revenue |
The value of a firm’s sales. Calculated as the price of the good multiplied by the quantity sold. |
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Total revenue test |
A method of estimating the price elasticity of demand by observing the change in total revenue that results from a change in the price, when all other influences on the quantity sold remain the same. |
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Unit elastic demand |
Demand with a price elasticity of 1; the percentage change in the quantity demanded equals the percentage change in price. |
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Command system |
Allocated resources by the order (command) of someone in authority. |
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Command system |
Allocated resources by the order (command) of someone in authority. |
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Consumer Surplus |
The excess of the benefit received from a good over the amount paid for it. Calculated as marginal benefit (or value) of a good minus its price, summed over the quantity bought. |
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Producer surplus |
The excess of the amount received from the sale of a good or service over the cost of producing it. Calculated as price received minus marginal cost, summed over quantity sold. |
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Total surplus |
The sum of consumer surplus and producer surplus. |
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Market failure |
When a market is inefficient as a result of underproduction or overproduction. |
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Market failure |
When a market is inefficient as a result of underproduction or overproduction. |
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Dead-weight loss |
The decrease in total surplus that results from an inefficient level of production. |
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Transactions costs |
The costs of services that enable a market to bring buyers and sellers together. |
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Big tradeoff |
A Tradeoff between efficiency and fairness. |
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Symmetry principle |
The requirement that people in similar situations be treated similarly. |
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Price ceiling or price cap |
A government regulation that makes it illegal to charge a price higher than a specified level. |
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Rent ceiling |
A price ceiling applied to a housing market. |
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Black market |
An illegal market in which the equilibrium price exceeds the price ceiling. |
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Price floor |
A government regulation that makes it illegal to charge a price lower than a specified level. |
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Tax incidence |
The division of the burden of a tax between buyers and sellers. |
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Tax incidence |
The division of the burden of a tax between buyers and sellers. |
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Production quota |
An upper limit to the quantity of a good that may be produced in a specified period. |
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Subsidy |
A payment made by the government to a producer. |
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Average fixed cost |
Total fixed cost per unit of output. |
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Average fixed cost |
Total fixed cost per unit of output. |
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Average product |
The average product of a factor of production. It equals total product divided by the quantity of the factor employed. |
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Average fixed cost |
Total fixed cost per unit of output. |
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Average product |
The average product of a factor of production. It equals total product divided by the quantity of the factor employed. |
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Average total cost |
Total cost per unit of output. |
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Average fixed cost |
Total fixed cost per unit of output. |
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Average product |
The average product of a factor of production. It equals total product divided by the quantity of the factor employed. |
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Average total cost |
Total cost per unit of output. |
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Average variable cost |
Total variable cost per unit of output. |
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Constant returns to scale |
Features of a firm’s technology that lead to constant long run average cost as output increases. When constant returns to scale are present, the LRAC curve is horizontal. |
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Diminishing marginal returns |
The tendency for the marginal product of an additional unit of a factor of production to be less than the marginal product of the previous unit of the factor. |
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Diseconomies of scale |
Features of a firm’s technology that make average total cost rise as output increases - the LRAC curve slopes upward. |
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Diseconomies of scale |
Features of a firm’s technology that make average total cost rise as output increases - the LRAC curve slopes upward. |
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Economic Depreciation |
The fall in the market value of a firm’s capital over a given period. |
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Diseconomies of scale |
Features of a firm’s technology that make average total cost rise as output increases - the LRAC curve slopes upward. |
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Economic Depreciation |
The fall in the market value of a firm’s capital over a given period. |
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Economic profit |
A firm’s total revenue minus its total cost, with total cost measured as the opportunity cost of production. |
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Diseconomies of scale |
Features of a firm’s technology that make average total cost rise as output increases - the LRAC curve slopes upward. |
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Economic Depreciation |
The fall in the market value of a firm’s capital over a given period. |
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Economic profit |
A firm’s total revenue minus its total cost, with total cost measured as the opportunity cost of production. |
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Economies of Scale |
Features of a firm’s technology that make average total cost fall as output increases — the LRAC curve slopes downward. |
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Implicit Rental Rate |
The firm’s opportunity cost of using its own capital |
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Implicit Rental Rate |
The firm’s opportunity cost of using its own capital |
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Law of diminishing returns |
As a firm uses more of a variable factor of production with a given quantity of the fixed factor of production, the marginal product of the variable factor of production eventually diminishes. |
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Long run |
The time frame in which the quantities of all factors of production can be varied. |
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Long run |
The time frame in which the quantities of all factors of production can be varied. |
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Long run average cost curve |
The relationship between the lowest attainable average total cost and output when the firm can change both the plant it uses and the quantity of labour it employs. |
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Minimum efficient scale |
The smallest quantity of output at which the long run average cost reaches its lowest level. |
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Short run |
The time frame in which the quantity of at least one factor of production is fixed and the quantities of the other factors can be varied. The fixed factor is usually capital — that is, the firm uses a given plant. |
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Sunk cost |
The past expenditure on a plant that has no resale value. |
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Total cost |
The cost of all the productive resources that a firm uses. |
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Total cost |
The cost of all the productive resources that a firm uses. |
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Total fixed cost |
The cost of the firm’s fixed inputs. |
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Total cost |
The cost of all the productive resources that a firm uses. |
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Total fixed cost |
The cost of the firm’s fixed inputs. |
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Total product |
The maximum output that a given quantity of labour can produce. |
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Total cost |
The cost of all the productive resources that a firm uses. |
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Total fixed cost |
The cost of the firm’s fixed inputs. |
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Total product |
The maximum output that a given quantity of labour can produce. |
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Total variable cost |
The cost of all the firm’s variable inputs. |
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Perfect competition |
A market in which there are many firms each selling an identical product; there are many buyers; there are no restrictions on entry into the industry; firms in the industry have no advantage over potential new entrants; and firms and buyers are well informed about the price of each firm’s product. |
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Perfect competition |
A market in which there are many firms each selling an identical product; there are many buyers; there are no restrictions on entry into the industry; firms in the industry have no advantage over potential new entrants; and firms and buyers are well informed about the price of each firm’s product. |
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Price taker |
A firm that cannot influence the price of the good or service it produces. |
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Short run market supply curve |
A curve that shows the quantity supplied in a market at each price when each firms plant and the number of firms remains the same. |
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Perfect competition |
A market in which there are many firms each selling an identical product; there are many buyers; there are no restrictions on entry into the industry; firms in the industry have no advantage over potential new entrants; and firms and buyers are well informed about the price of each firm’s product. |
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Price taker |
A firm that cannot influence the price of the good or service it produces. |
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Short run market supply curve |
A curve that shows the quantity supplied in a market at each price when each firms plant and the number of firms remains the same. |
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Shutdown point |
The price and quantity at which the firm is indifferent between producing the profit maximizing output and shutting down temporarily. The shutdown point occurs at the price and the quantity at which average variable cost is a minimum. |
