Econ 201 Midterm Vocabulary

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scarcity

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the limited nature of society's resources

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economics

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the study of how society manages its scarce resources

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efficiency

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the property of society getting the most it can from its scarce resources

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equity

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the property of distributing economic prosperity fairly among members of society

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opportunity cost

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whatever must be given up to obtain some item

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rational people

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people who systematically and purposefully do the best they can to achieve their objectives

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marginal changes

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small incremental adjustments to a plan of action

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incentive

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something that involves a person to act

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sunk cost

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cost already spent, can't be returned, irrelevant

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property rights

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the ability of an individual to own and exercise control over scarce resources

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market economy

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an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

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market failure

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a situation in which a market left of its own fails to allocate its own resources efficiently

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externality

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the impact of one person's actions on the well-being of a bystander

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productivity

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quantity of goods and services produces from each hour of a worker's time

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inflation

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an increase in the overall level of prices in the economy

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business cycle

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the irregular and largely unpredictable fluctuations in economic activity as measured by the production of goods and services or the number of people employed

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circular flow diagram

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a visual model of the economy that shows how dollars flow through markets among households and firms

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production possibilities frontier

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a graph that shows the combinations of output that the economy can possibly
produce a given the available factors of production and the available production technology

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microeconomics

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the study of how households and firms make decisions and how they interact in markets

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macroeconomics

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the study of how economy wide phenomena including inflation, unemployment and economic growth

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positive statements

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claims that attempt to describe the world as it is

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normative statements

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claims that attempt to prescribe how the world should be

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absolute advantage

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the comparison mong producers of a good according to their productivity

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comparative advantage

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the comparison among producers of a good according to their opportunity cost

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market

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a group of buyers and sellers of a particular good or service

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competitive market

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a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

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quantity demanded

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the amount of good that buyers are willing and able to purchase

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demand schedule

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

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demand curve

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a graph of the relationship between the price of a good and the quantity demanded

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market demand

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the sum of all the individual demands for particular good or service

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normal good

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a good for which, other things equal, an increase in income leads to an increase in demand

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inferior good

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a good for which, other things equal, an increase in income leads to a decrease in demand

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substitutes

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two goods for which an increase in price of one leads to an increase in the demand for the other

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complememts

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two goods for which an increase in the price of one leads to a decrease in the demand for the other

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quantity supplied

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the amount of a good that sellers are willing and able to sell

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Law of Supply

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the claim that , other things equal, the quantity supplied of a good rises when the price of a good rises

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supply schedule

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a table that shows the relationship between the price of a good and the quantity supplied

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supply curve

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a graph of the relationship between the price of a good and the quantity supplied

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market supply

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the sum of supplies of all sellers

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equilibrium

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a situation in which the price has reached the level where quantity supplied equals quantity demanded

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equilibrium price

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the price that balances quantity supplied and the quantity demanded

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equilibrium quantity

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the quantity supplied and the quantity demanded at the equilibrium price

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surplus

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quantity supplied is greater than quantity demanded

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shortage

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quantity demanded is greater than quantity supplied

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Law of Supply and Demand

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the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded into balance

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elasticity

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a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants

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price elasticity of demand

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a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage changed in quantity demanded divided by the percentage change in price

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total revenue (in a market)

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the amount paid by buyers and received by sellers of a good computed as the price of the good times the quantity sold

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income elasticity of demand

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a measure of how ,ice the quantity demanded of a good responds to a change in consumer's income

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cross-posted elasticity of demand

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a measure of how much the quantity demanded of one good responds to a change in the price of another good

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price elasticity of supply

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a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

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price ceiling

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a legal maximum of the price at which a good can be sold

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price floor

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a legal minimum on the price at which a good can be sold

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tax incidence

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the manner in which the burden of a tax is shared among participants in a market

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welfare economics

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the study of how the allocation of resources affects economic well-being

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willingness to pay

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the maximum amount that a buyer will pay for a good

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consumer surplus

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a buyer's willingness to pay minus the amount the buyer actually pays

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cost

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the value of everything a seller must give up to produce a good (producer's opportunity cost)

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producer surplus

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the amount a seller is paid for a good minus the seller's cost

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deadweight loss

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the fall in the total surplus that results when a tax distorts a market outcome