Microeconomics

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Definition of Equity

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the property of distributing economic prosperity fairly among the members of society.

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efficiency

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ther property of society getting the most it can from its scarce resources

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economics

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the study of how society manages its scarce resources

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scarcity

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the limited nature of society's resources

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opportunity cost

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whatever must be given up to obtain some item

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marginal changes

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small incremental adjustments to a plan of action

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market economy

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an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

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market failure

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a situation in which a market left on its own fails to allocate resources efficiently

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externality

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the impact of one person's actions on the well-being of a bystander

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market power

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the ability of a single economic factor(or small group of factors) to have a substantial influence on market prices

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productivity

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the quatnity of goods and services produced from each hour of a worker's time

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inflation

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an increase in the overall level of prices in the economy

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Phillips curve

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a curve that shows the short-run tradeoff between inflation and unemployment

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business cycle

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fluctuations in economic activity, such as employment and production

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circular-flow diagram

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a visual model of the economy that shows how dollars flow through markets among households and firms

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production possibilities frontier

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a graph that shows the combinations of output that the economy can possibly produce given the available factors of prduction and the available production technology

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microeconomics

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the study of how households and firms make decisions and how they interact in markets

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macroeconomics

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the study of economy-wide phenomena, including inflation, unemployment, and economic growth

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positive statements

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claims that attempt to describe the world as it is

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normative statements

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clamis that attempt to prescribe how the world should be

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absolute advantage

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the comparison among producers of a good according to their productivity

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comparitive advantage

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the comparison among producers of a godo according to their opportunity cost

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imports

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goods produced abraod and sold domestically

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exports

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goods produced domestically and sold abroad

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market

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a group of buyers and sellers of a particluar good or service

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competitive market

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a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

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quantity demanded

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the amount of a good that buyers are willing and able to purchase

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law of demand

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the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

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demand schedule

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a table that shows the relationship between the price of a good and the quantity demanded

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demand curve

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a graph of the relationship between the price of a good and the quantity demanded

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normal good

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a good for which other things equal, an increase in income leads to an increase in demand

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inferior good

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a good for which other things equal, an increase in income leads to a decrease in demand

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substitutes

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two goods for which an increase in the price of one leads to an increase in the demand for the other

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complements

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two goods for which an increase in the price of one leads to a decrease in the demand for the other

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quantity supplied

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the amount of a good that sellers are willing and able to sell

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law of supply

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the claim that other things equal, the quantity supplied of a good rises when the price of the good rises

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supply schedule

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a table that shows the relationship between the price of a good and the quantity supplied

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supply curve

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a graph of the relationship between the price of a good and the quantity supplied

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equilibrium

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a situation in which the price has reached the level where quantity supplied equals quantity demanded

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equilibrium price

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the price that balnces quantity supplied and quantity demanded

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equilibrium quantity

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the quantity supplied and the quantity demanded at the equilibrium price

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surplus

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a situation which the quantiy supplied is greater than quantity demanded

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shortage

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a situation in which quantity demanded is greater than quantity supplied

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law of supply and demand

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the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

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elasticity

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a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants

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price elasticity of demand

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a measure of how much the quantity demanded of a good responds to a change in the price of that good computed as teh percentage change in quantity demanded divided by the percentage change in price

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total revenue

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the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold

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income elasticity of demand

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a measure of how much teh quantity demanded of a good responds to a change in consumers income, computed as the percentage change in quantity demanded divided by the percentage change in income

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cross-price elasticity of demand

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a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of ther first good divided bye ther percentage change in the rpice of the second good

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price elasticity of supply

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a measure of how mucht eh quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in the quantity supplied divided by the percentage change in price

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price ceiling

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a legal maximum on the rpice at which a good can be sold

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price floor

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a legal minimum on the price at which a good can be sold

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tax incidence

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the manner in which the burden of tax is shared among participants in the market