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52 Cards in this Set
- Front
- Back
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Economics |
the study of how human beings coordinate their wants and needs given the decision making mechanisms, social customs, and political relations of a society |
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Marginal Cost |
the incremental cost of producing an extra unit of output |
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Marginal Benefit |
the incremental gain of consuming a good/service |
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Sunk Cost |
cost that cannot be recovered for the purpose of specific decision making process (standing in line at a grocery store for 10 minutes) |
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Opportunity Cost |
the value of the next best alternative that must be given up in order to satisfy a present desire |
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Economic Force |
a necessary reaction to scarcity |
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Market Force |
an economic force that is given relatively free rein by society to work through the market |
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Invisible Hand |
households and firms interact in markets as if guided by an invisible hand that leads them to desirable market outcomes that benefit society (households buy low, firms sell high) |
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Microeconomics |
the study of individual choice and how the choice is influenced by economic forces |
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Economic Policy |
actions or inactions taken by a government to influence economic behavior |
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Positive Economics |
the study of what is, and how the economy works |
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Normative Economics |
the study of what the goals of an economy should be |
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Production Possibility Model |
provides an understanding of why people specialize in what they do, and trade goods they need through specialization and trade |
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Efficiency |
produce a good as cheaply as possible |
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Market |
a place where a purchaser of a good interacts with the seller/producer and an exchange is made |
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Demand |
represents the range of quantities of a commodity that a buyer is willing and able to purchase at afferent prices in a specified time period |
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Normal Good |
Higher Income = More Purchased |
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Inferior Good |
Higher Income = Less Purchased |
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Law of Demand |
an inverse relationship between the price of a good and the quantity demanded of a good |
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Supply |
the range of quantities of a commodity that a seller is willing and able to offer for sale at different prices in a specified time period |
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Law of Supply |
there is a positive relationship between the price of a good and the quantity supplied |
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Price Ceiling |
price set below the equilibrium price by a regulation agency such that the price cannot rise above that value |
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Price Floor |
price set above the equilibrium price by a regulation agency such that price cannot fall below this value |
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Excise Tax |
a tax on a unit of a good purchased or sold |
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Elasticity of Demand |
the sensitivity of quantity demanded to changes in price |
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Total Revenue |
price x quantity |
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Income Elasticity of Demand |
the responsiveness of quantity demanded to changes in income |
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Cross-Price Elasticity |
measures the responsiveness of the quantity demanded of good A to the changes in the price of good B |
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Price Elasticity of Supply |
responsiveness to changes in price Es = 0, Perfectly inelastic Es = ∞, Perfectly Elastic |
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Budget Constraint |
illustrates the affordable combinations of goods given the consumer's income and the prices of both goods |
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Principle of Rational Choice |
we maximize utility when the marginal utilities per dollar spent on goods is equal
individuals always make prudent and logical decisions that provide them with the greatest benefit or satisfaction and that are in their highest self-interest |
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Indifference Curve |
Represents the alternative combinations of two goods that provide a consumer with the same utility (Steepness of the curve is based on preferences of the consumer) |
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Marginal Rate of Substitution |
the rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility. |
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Production |
the process of combining inputs to make goods and services |
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Firm |
an economic institution in which inputs/factors of production are transformed into goods and services |
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Long-Run |
time period in which all inputs can be varied in the production process |
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Short-Run |
time period during which at least one input is fixed |
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Law of Diminishing Marginal Productivity |
As more and more units of a variable factor are combined with a fixed factor, beyond a certain point, the marginal productivity of the variable factor begins to decline |
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Total Fixed Cost |
the component of total cost that doesn't change, regardless of the output (Land/Building Rent) |
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Total Variable Cost |
the component of total cost that changes with the desired level of output |
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Total Cost |
the cost incurred in producing the good in question
TC = TFC +TVC |
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Accounting Profit |
Total Revenue - Explicit Costs |
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Economic Profit |
Total Revenue - (Explicit Cost + Implicit Cost) |
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Normal Profit |
Accounting Profit - Economic Profit
Implicit Costs
Opportunity Costs |
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Economic Cost |
the cost to firm of utilizing economic resources, including an opportunity cost |
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Explicit Cost |
a direct payment made for the use of an input/resource |
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Implicit Cost |
the value of a resource even when no payment is made (Opportunity Cost) |
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Characteristics of Pure Competition |
1. Large number of buyers/sellers 2. Same product 3. Free to enter and exit 4. Symmetric Information 5. Buyers and Sellers are Price Takers 6. Profit-Maximizing Motive |
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Normal Profit |
the minimum profit necessary or required to keep this firm in operation |
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Economic Rent |
a payment in excess of an opportunity cost |
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Consumer Surplus |
difference between price consumer is willing to pay and actually pays |
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Producer Surplus |
difference in price producer is willing to sell at, and actually sells at |
