Microeconomics Test #1

Front 1

Fundamental concept of
economics that indicates that there is less of a good freely available from nature than people would like.

Back 1

Scarcity

Front 2

The act of selecting among
alternatives.

Back 2

Choice

Front 3

An input used to produce
economic goods. Land, labor,
skills, natural resources, and capital are examples. Throughout history, people have struggled to transform available, but limited, resources into things they would like to have- economic goods.

Back 3

Resource

Front 4

Human-made resources (such
as tools, equipment, and
structures) used to produce
other goods and services.
They enhance our ability to
produce in the future.

Back 4

Capital

Front 5

A fact based on observable
phenomena that is not
influenced by differences in
personal opinion.

Back 5

Objective

Front 6

An opinionbased on personal
preferences and value
judgments.

Back 6

Subjective

Front 7

Allocatinga limited supply of
a good or resource among
people who would like to have more of it. When price performs the rationing function, the good or resource is allocated to those willing to give up the most Òother thingsÓ in order to get it.

Back 7

Rationing

Front 8

A set of definitions, postulates, and principles assembled in a manner that makes clear the "cause-and-effect" relationships.

Back 8

Economic Theory

Front 9

Thehighest valued alternative that must be sacrificed as a result of choosing an option

Back 9

Opportunity cost

Front 10

Choosingthe option that offers the greatest benefit at the least possible cost.

Back 10

Economizing behavior

Front 11

The subjective benefit or satisfaction a person expects from a choice or course of action.

Back 11

Utility

Front 12

Term used to describe the effects of a change in the current situation. For example, a producer's marginal cost is the cost of producing an additional unit of a product, given the producer's current facility
and production rate.

Back 12

Marginal

Front 13

The indirectimpact of an
event or policy that may not be easily and immediately observable. In the area of policy, these effects are often both unintended and overlooked.

Back 13

Secondary effects

Front 14

Developing a theory from
basic principles and testing it against events in the real world. Good theories are consistent with and help explain real-world events. Theories that are inconsistent with the
real world are invalid and must be rejected.

Back 14

Scientific thinking

Front 15

The scientific study of "what is" among economic relationships

Back 15

Positive economics

Front 16

Judgments about "what ought
to be" in economic matters.
Normative economic views
cannot be proven false because they are based on value judgments.

Back 16

Normative economics

Front 17

A Latin term meaning "other
things constant," used when
the effect of one change is being described, recognizing that if other things changed, they also could affect the result.
Economists often describe the effects of one change, knowing that in the real world, other things might change and also exert an effect.

Back 17

Ceteris paribus

Front 18

Erroneousview that what is
true for the individual (or the part) will also be true for the group (or the whole).

Back 18

Fallacy of composition

Front 19

The branch of economics that
focuses on how human behavior affects the conduct of affairs within narrowly defined units, such as individual households or business firms.

Back 19

Microeconomics

Front 20

The branch of economics that
focuses on how human behavior affects outcomes in highly aggregated markets, such as the markets for labor or consumer products.

Back 20

Macroeconomics

Front 21

The time, effort, and other
resources needed to search
out, negotiate, and complete
an exchange.

Back 21

Transaction costs

Front 22

A personwho buys and sells
goods or services or arranges trades. A middleman reduces transaction costs.

Back 22

Middleman

Front 23

The rights to use, control, and obtain the benefits from a good or service.

Back 23

Property rights

Front 24

Property rightsthat are
exclusively held by an owner
and protected against invasion by others. Private property can be transferred, sold, or mortgaged at the owner's discretion.

Back 24

Private-property rights

Front 25

A curvethat outlines all
possible combinations of total output that could be produced, assuming (1) a fixed amount of productive resources, (2) a given amount of technical knowledge, and (3) full and efficient use of those resources. The slope of the
curve indicates the amount
of one product that must be
given up to produce more of
the other.

Back 25

Production possibilities curve

Front 26

The successful introduction
and adoption of a new product or process; the economic application of inventions and marketing techniques.

Back 26

Innovation

Front 27

A person who introduces new products or improved technologies and decides which projects to undertake. A successful entrepreneur's actions will increase the value of resources and expand the size of the economic pie.

Back 27

Enterpreneur

Front 28

A method that breaks down
the production of a product
into a series of specific tasks, each performed by a different worker

Back 28

Division of labor

Front 29

A principlethat states that
individuals, firms, regions,
or nations can gain by specializing in the production of goods that they produce cheaply (at a low opportunity cost) and exchanging them for goods they cannot produce cheaply (at a high opportunity cost).

Back 29

Law of comparative advantage

Front 30

A method of organization in
which private parties make
their own plans and decisions with the guidance of unregulated market prices. The basic economic questions of consumption, production, and distribution are answered through these decentralized decisions.

Back 30

Market organization

Front 31

The purchase,construction,
or development of resources,
including physical assets, such as plants and machinery, and human assets, such as better education. Investment expands an economy's resources. The process of investment is sometimes called capital formation.

Back 31

Investment

Front 32

The technological knowledge
available in an economy at
any given time. The level of
technology determines the
amount of output we can
generate with our limited
resources.

Back 32

Technology

Front 33

The creation of a new product or process, often facilitated by the knowledge of engineering and science.

Back 33

Invention

Front 34

An economic system in which
productive resources are
owned privately and goods and resources are allocated
through market prices.

Back 34

Capitalism

Front 35

Themethod of organization
that relies on public-sector decision making (voting, political bargaining, lobbying, and so on) to resolve basic economic questions.

Back 35

Collective decision making

Front 36

A system of economicorgani-
zation in which (1) the ownership and control of the basic means of production rest with the state, and (2) resource allocation is determined by centralized planning rather than market forces.

Back 36

Socialism

Front 37

A principle that states there is an inverse relationship between the price of a good and the quantity of it buyers are
willing to purchase. As the
price of a good increases,
consumers will wish to purchase less of it. As the price decreases, consumers will wish to purchase more of it.

Back 37

Law of demand

Front 38

Products that servesimilar
purposes. An increase in
the price of one will cause
an increase in demand for the other (examples are hamburgers and tacos, butter and margarine, Microsoft Xbox and Sony Play-Station, Chevrolets and Fords).

Back 38

Substitutes

Front 39

The difference between the
maximum price consumers are
willing to pay and the price
they actually pay. It is the net gain derived by the buyers of the good.

Back 39

Consumer surplus

Front 40

Products thatare usually
consumed jointly (for example, bread and butter, hot dogs and hot dog buns). A decrease in the price of one will cause an increase in demand for the other.

Back 40

Complements

Front 41

The total economiccost of
producing a good or service.
The cost component includes
the opportunity cost of all
resources, including those
owned by the firm. The
opportunity cost is equal to
the value of the production of other goods sacrificed as the result of producing the good.

Back 41

Opportunity cost of production

Front 42

An excess of sales revenue
relative to the opportunity
cost of production. The cost
component includes the
opportunity cost of all resources, including those
owned by the firm. Therefore, profit accrues only when the value of the good produced is greater than the value of the
resources used for its
production.

Back 42

Profit

Front 43

A deficit of sales revenue
relative to the opportunity cost of production. Losses are a penalty imposed on those who produce goods even though they are valued less than the resources required for their production.

Back 43

Loss

Front 44

A principle that states there is a direct relationship between the price of a good and the quantity of it producers are willing to supply. As the price of a good increases, producers will wish to supply more of it. As the price decreases, producers will wish to supply less.

Back 44

Law of Supply

Front 45

The difference between the
minimum price suppliers are
willing to accept and the
price they actually receive.
It measures the net gains to
producers and resource suppliers from market exchange. It is not the same as profit.

Back 45

Producer surplus

Front 46

An abstract concept encompassing the forces of supply and demand, and the interaction of buyers and sellers with the potential for exchange to occur.

Back 46

Market

Front 47

A statein which the conflicting forces of supply and demand are in balance. When a market is in equilibrium, the decisions
of consumers and producers
are brought into harmony with one another, and the quantity supplied will equal the quantity demanded.

Back 47

Equilibrium

Front 48

A situation in which all of the potential gains from trade have been realized. An action is efficient only if it creates more benefit than cost. With well-defined property rights and competition, market equilibrium is efficient.

Back 48

Economic efficiency

Front 49

The tendency of market prices to direct individuals pursuing their own interests to engage in activities promoting the economic well-being of society.

Back 49

Invisible hand principle

Front 50

The market for inputs used to produce goods and services.

Back 50

Resource market

Front 51

A legally established maximum price sellers can charge for a good or resource.

Back 51

Price ceiling

Front 52

A condition in which the
amount of a good offered for
sale by producers is less than the amount demanded by buyers at the existing price. An increase in price would eliminate the shortage.

Back 52

Shortage

Front 53

A legally established minimum price buyers must pay for a good or resource.

Back 53

Price floor

Front 54

A condition in which the
amount of a good offered for
sale by producers is greater
than the amount that buyers
will purchase at the existing price. A decline in price would eliminate the surplus.

Back 54

Surplus

Front 55

Legislation requiring that workers be paid at least the stated minimum hourly rate of pay.

Back 55

Minimum wage

Front 56

A market that operates
outside the legal system,
where either illegal goods are sold or legal goods are sold at illegal prices or terms.

Back 56

Black market

Front 57

The way the burdenof a tax is distributed among economic units (consumers, producers, employees, employers, and so on). The actual tax burden does not always fall on those who are statutorily assigned to pay the tax.

Back 57

Tax incidence

Front 58

The level or quantity of an
economic activity that is taxed. Higher tax rates reduce the level of the tax base because they make the
activity less attractive.

Back 58

Tax base

Front 59

The per-unit amountof the
tax or the percentage rate at which the economic activity is taxed.

Back 59

Tax rate

Front 60

The loss of gainsfrom trade to buyers and sellers that occurs when a tax is imposed. The deadweight loss imposes a burden on both buyers and sellers over and above the actual payment of the tax.

Back 60

Deadweight loss

Front 61

Government-mandatedprices
that are generally imposed in the form of maximum or minimum legal prices.

Back 61

Price controls

Front 62

Another term for deadweight
loss. It reflects losses that occur when beneficial activities are forgone because they are taxed.

Back 62

Excess burden of taxation