Unit 1 Microeconomics

Front 1

social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

Back 1

economics

Front 2

to obtain more of one thing, society forgoes the opportunity of getting the next best thing

Back 2

opportunity cost

Front 3

pleasure, happiness, and satisfaction obtained form consuming a good or service

Back 3

utility

Front 4

statement about economic behavior of the economy that enables prediction of the probable effects of certain actions

Back 4

economic principle

Front 5

assumption that factors other than those being considered do not change

Back 5

ceterus paribus (other-things-equal)

Front 6

collection of specific economic units treated as if they were one unit (ex. Consumers)

Back 6

aggregate

Front 7

Avoids value judgments, tries to establish scientific statements about economic behavior, and deals with what the economy is actually like

Back 7

positive economics

Front 8

incorporates value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal

Back 8

normative economics

Front 9

purchase of capital goods

Back 9

investment

Front 10

as production of a particular good increases, the opportunity cost of producing an additional unit rises

Back 10

law of increasing opportunity costs

Front 11

system in which the government owns most property resources and economic decision making occurs through a central economic plan

Back 11

command system

Front 12

system characterized by the private ownership of resources and the use of markets and prices to coordinate and direct economic activity

Back 12

market system

Front 13

places where buyers and sellers come together

Back 13

markets

Front 14

government’s role is limited to protecting private property and establishing an environment appropriate to the operation of the market system

Back 14

laissez-faire capitalism

Front 15

any item sellers generally accept and buyers generally use to pay for a good or service; money; a convenient means of exchanging goods and services without engaging in barter

Back 15

medium of exchange

Front 16

social invention to facilitate exchanges of goods and services

Back 16

money

Front 17

– determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy; consumers’ direction of production through their dollar votes

Back 17

consumer sovereignty

Front 18

consumers spending their income on the goods they are most willing and able to buy

Back 18

dollar votes

Front 19

creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business

Back 19

creative destruction

Front 20

tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promote the interest of society

Back 20

the "invisible hand"

Front 21

rule that as prices fall, quantity demanded rises; as prices rise, quantity demanded falls

Back 21

law of demand

Front 22

principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the goods or service decreases

Back 22

diminishing marginal utility

Front 23

says that a low price increases the purchasing power of a buyer’s income, enabling the buyer to purchase more of the product than before

Back 23

income effect

Front 24

says that at a lower price, buyers have the incentive to substitute what is now a less expensive product for similar products that are now relatively more expensive

Back 24

substitution effect

Front 25

products whose demand varies directly with money income; superior goods

Back 25

normal goods

Front 26

products whose demand varies inversely with money income; ex. Used clothing, 3rd-hand automobiles

Back 26

inferior goods

Front 27

movement from one point to another point on a fixed demand schedule or curve, caused by an increase/decrease in price of a given product

Back 27

changes in quantity demanded

Front 28

says that as price rises, the quantity supplied rises; as price falls, the quantity supplied falls

Back 28

law of supply

Front 29

price where the intentions of buyers and sellers match

Back 29

equilibrium price

Front 30

ability of competitive forces of supply an demand to establish a price at which selling and buying decisions are consistent

Back 30

rationing function of prices

Front 31

sets the maximum legal price a seller may charge for a product or service

Back 31

price ceiling

Front 32

maximum rent increases for existing tenants

Back 32

rent control

Front 33

minimum price fixed by the government

Back 33

price floor