Spenser Micro Economics

Front 1

Scarcity

Back 1

a situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants

Front 2

The Factors of Production

Back 2

Land, Labor, Physical Capital, Human Capital, and Entrepreneurship

Front 3

Economic Goods

Back 3

Goods that are scarce, for the quantity demanded exceeds the quantity supplied

Front 4

Opportunity Costs

Back 4

the highest-valued, next best alternative that must be sacrificed to obtain something or to satisfy a want

Front 5

Production Possibilities Curve

Back 5

a curve representing all possible combinations of maximum outputs

Front 6

Efficiency

Back 6

when the outputs are producing the maximum level of output

Front 7

Inefficient Point

Back 7

Not generating the maximum physical output

Front 8

Law of Increasing Relative Cost

Back 8

the fact that the opportunity cost of additional units of a good generally increases as society attempts to produce more of that good

Front 9

Comparative Advantage

Back 9

the ability to produce a good or service at a lower opportunity cost compared to other producers

Front 10

Absolute Advantage

Back 10

the ability to produce one or more units of a good or service using a given quantity of labor or resource inputs

Front 11

Demand

Back 11

a schedule showing how much of a good or service people will purchase at any price during a specified period, other things being constant

Front 12

Law of Demand

Back 12

Inverse Relationship for the price of the item and the quantity demanded. EX. if price is high people buy less.

Front 13

Market Demand

Back 13

the demand of all consumers in the marketplace for a particular good or service

Front 14

The Determinants of Demand

Back 14

Income, Tastes and Preferences, Substitutes and Complements, Expectations and Market Size

Front 15

Normal Goods

Back 15

goods for which demand rises as income rises. Most goods are normal goods.

Front 16

Inferior Goods

Back 16

goods for which demand falls as income rises

Front 17

Substitutes

Back 17

two goods are substitutes when a change in the price of one causes a shift in demand for the other. EX. Coke and Pepsi

Front 18

Complements

Back 18

two goods that complement each other. EX. Milk and Cereal

Front 19

Supply

Back 19

a schedule showing the relationship between price and quantity supplied for a specified period of time

Front 20

Law of Supply

Back 20

the observation that the higher the price of a good, the more of that good sellers will have high quantity of

Front 21

Determinants of Supply

Back 21

Costs of Inputs Used to Produce the Product, Technology and Productivity, Taxes and Subsidies, Price Expectations, and the Number of Firms in the Industry

Front 22

Equilibrium Price

Back 22

the price that clears the market, at which quantity demanded equals quantity supplied

Front 23

Surpluses

Back 23

a situation in which quantity supplied is greater than quantity demanded at a price above the market clearing price

Front 24

Shortage

Back 24

a situation in which demand is greater than the quantity supplied at a price below the market clearing price

Front 25

Price Controls

Back 25

government-mandated price that may be charged for goods or services

Front 26

Price Ceiling

Back 26

a legal maximum price that may be charged for a particular good or service

Front 27

Price Floor

Back 27

a legal minimum price below which a good or service may not be sold.

Front 28

Externality

Back 28

a consequence of an economic activity that spills to affect third parties. Pollution is a exterality

Front 29

Antitrust Legislation

Back 29

laws that restrict the formation of monopolies and regulate certain anticompetitive business practices

Front 30

Merit Goods

Back 30

a good that has been deemed socially desirable through the political process

Front 31

Demerit Goods

Back 31

a good that has been deemed socially undesirable through the political process. EX. Heroin

Front 32

Marginal Utility

Back 32

the change in total utility due to a one-unit change in the quantity of a good or service consumed

Front 33

Diminishing Marginal Utility

Back 33

the principle that as more of any good or service is consumed, its extra benefit declines

Front 34

Substitution Effect

Back 34

the tendency of people to substitute cheaper commodities for more expensive commodities

Front 35

Elastic Demand

Back 35

If a price is lowered total revenues will rise, if price is raised total revenue will fall

Front 36

Unit Elasticity of Demand

Back 36

change in price does not change total revenue

Front 37

Inelastic Demand

Back 37

If price raises total revenue will raise

Front 38

Three Common Forms of Business

Back 38

Proprietorship, Partnership, and Corporation

Front 39

Proprietorship

Back 39

a business owned by one individual who makes the business decisions, receives all the profits, and is legally responsible for all the debts of the firm

Front 40

Partnership

Back 40

a business owned by two or more joint owners, or partners, who share the responsibilities and the profits of the firms

Front 41

Firm

Back 41

an organization that brings together the factors of production

Front 42

What is the goal of a Firm?

Back 42

To maximize profits

Front 43

Explicit Costs

Back 43

costs that business managers must take account of because they must be paid; EX. wages, taxes and rent

Front 44

Implicit Costs

Back 44

expenses that managers do not have to pay out of pocket and hence do not normally explicitly calculate

Front 45

Production Function

Back 45

the relationship between inputs and maximum physical output

Front 46

Total Costs

Back 46

the sum of total fixed costs and total variable costs

Front 47

Fixed Costs

Back 47

costs that do not vary with the rate of production. EX. rent and Insurance

Front 48

Variable Costs

Back 48

costs that vary with the rate of production. EX. employee wages

Front 49

ATC

Back 49

Total Costs/Output

Front 50

Marginal Cost

Back 50

the change in total costs due to a one-unit change in production rate

Front 51

Marginal Cost Equation

Back 51

Change in total cost/Change in total output

Front 52

Increasing Range of Scale

Back 52

decreases in long-run average costs resulting form increases in output

Front 53

Constant Range of Scale

Back 53

no change in long-run average costs when output increases

Front 54

Decreasing Range of Scale

Back 54

Increases in long-run average costs that occur as output increases

Front 55

Perfect Competition

Back 55

a market structure in which the decisions of individual buyers and sellers have no effect on the market price

Front 56

Characteristics of a Perfectly Competitive Industry

Back 56

1) Large Numbers of Buyers and Sellers
2) Product sold by the firms is homogeneous
3) Everyone knows Everything
4) Any Firm can enter or leave the industry without serious impediments

Front 57

Monopolist

Back 57

the single supplier of a good or service for which there is no close substitute. the monopolist therefore constitues its entire industry

Front 58

Cartel

Back 58

an association of producers in an industry that agree to set common prices and output quotas to prevent competition

Front 59

Price Discrimination

Back 59

selling a given product at more than one price, with the price difference being unrelated to differences in marginal cost

Front 60

Three Conditions for Price Discrimination to Exist

Back 60

1) The firm must face a downward-sloping demand curve
2) The firm must be able to readily identify buyers or groups of buyers with predictability different elasticities of demand
3) The firm must be able to prevent resale of the product or service

Front 61

Monopolistic Competition

Back 61

a market situation in which a large number of firms produce similar but not identical products. Entry into the industry is relatively easy.

Front 62

Monopolistic Competition Features

Back 62

1) Significant numbers of sellers in a highly competitive market
2) Differentiated products
3) Sales promotion and advertising
4) Easy entry of new firms in the long run

Front 63

Oligopoly

Back 63

a market structure in which there are very few sellers. Each seller knows that the other sellers will react to its changes in prices, quantities, and qualities

Front 64

Characteristics of Oligopoly

Back 64

1) Small number of firms
2) Interdependence

Front 65

What is Wealth?

Back 65

Accumulation of Assets

Front 66

Thomas Munn

Back 66

Mercantilism

Front 67

Alfred Marshall

Back 67

Father of Micro Economics

Front 68

Adam Smith

Back 68

Wrote the Wealth of Nations

Front 69

John Maynard Kaynes

Back 69

member of the U.S. house of representatives

Front 70

10 year Treasury Bond

Back 70

10 Percent Yield

Front 71

Yield

Back 71

Interest

Front 72

Predatory Pricing

Back 72

illegal a company will intentionally lower its prices