Microeconomics Ch. 1-4, 6

Front 1

Scarcity

Back 1

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Front 2

Three Key Economic Ideas

Back 2

People are rational; People respond to economic incentives; optimal decisions are made at the margin

Front 3

Rational

Back 3

Using all available information to achieve your goals

Front 4

Economic Incentives

Back 4

As incentives change, so do the actions that people will take.

Front 5

*Optimal Decisions are made at the margin

Back 5

While some decisions are all-or-nothing, most decisions involve doing a little more or a little less of something.

Front 6

Opportunity cost

Back 6

The highest-valued alternative given up in order to engage in some activity.

Front 7

*Trade-off

Back 7

An increase in the production of one good requires the reduction in production of some other good.

Front 8

Centrally planned economy

Back 8

The government decides what to produce, how to produce it, and who receives the goods and services.

Front 9

Market economies

Back 9

The decisions of households and firms determine what is produced, how it is produced, and who receives the goods and services.

Front 10

Market

Back 10

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Front 11

Productive efficiency (promoted by market economy)

Back 11

where goods or services are produced at the lowest possible cost

Front 12

Allocative efficiency

Back 12

where production is consistent with consumer preferences: the marginal benefit of production is equal to its marginal cost

Front 13

Economic variables

Back 13

something measurable that can have different values, such as the incomes of doctors

Front 14

Positive analysis

Back 14

the study of "what is?"

Front 15

Normative analysis

Back 15

the study of"What ought to be?"

Front 16

Microeconomics

Back 16

how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

Front 17

Macroeconomics

Back 17

the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth

Front 18

Technology

Back 18

the processes a firm uses for turning inputs into outputs of goods and services

Front 19

Capital

Back 19

manufactured goods that are used to produce other goods and services

Front 20

Production Possibilities Frontier

Back 20

a curve that shows the maximum attainable combinations of two products that may be produced with available resources and current technology

Front 21

Increasing marginal opportunity costs

Back 21

quarter circle graph

Front 22

Economic growth

Back 22

the ability of the economy to increase the production of goods and services (shifts in the production possibilities frontier represent economic growth)

Front 23

Trade

Back 23

Both sides can benefit from trade, by specializing in what they are relatively good at

Front 24

Absolute advantage

Back 24

The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.

Front 25

Comparative advantage

Back 25

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

Front 26

*Trade

Back 26

The basis for trade is comparative advantage, not absolute advantage

Front 27

Factors of production

Back 27

labor, capital, natural resources, and entrepreneurial ability

Front 28

Circular-flow diagram

Back 28

a model that illustrates how participants in markets are linked

Front 29

Free market

Back 29

a market with few government restrictions on how a good or service can be produced or sold, or on how a factor of production can be employed

Front 30

Entrepreneur

Back 30

someone who brings together the factors of production to produce goods and services

Front 31

Governments must provide a sound legal environment

Back 31

Protection of private property, enforcement of contracts and property rights

Front 32

Demand schedule

Back 32

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

Front 33

ceteris paribus

Back 33

all else equal (the requirement that when analyzing the relationship between two variables-such as price and quantity demanded-other variables must be held constant)

Front 34

Understand difference between a change in quantity demanded and a change in demand

Back 34

1. movement along demand curve

2. shift of entire demand curve

Front 35

marginal benefit

Back 35

the additional benefit to a consumer from consuming one more unit of a good or service

Front 36

marginal cost

Back 36

the additional cost to a firm of producing one more unit of a good or service

Front 37

tax incidence

Back 37

the actual division of the burden of a tax between buyers and sellers in a market

Front 38

Total revenue

Back 38

the total amount of funds received by a seller of a good or service, calculated by multiplying the price per unit by the number of units sold

Front 39

cross-price elasticity of demand

Back 39

measures the strength of substitute or complement relationships between goods (percentage change in quantity demanded of one good/ percentage change in price of another good)

Front 40

income elasticity of demand

Back 40

measures the strength of the effect of income on quantity demanded (percentage change in quantity demanded/ percentage change in income) positive but less than 1, normal and a necessity; greater than 1, normal and a luxury

Front 41

price elasticity of supply

Back 41

percentage change in quantity supplied/ percentage change in price

Front 42

price elasticity of demand

Back 42

percentage change in quantity demanded/ percentage change in price (time period in question is critically important

Front 43

g

Back 43

g

Front 44

Equity

Back 44

The fair distribution of economic benefits