Microeconomics Chapters 1-4

Front 1

Scarcity

Back 1

unlimited wants exceed the limited resources available to fulfill those wants.

Front 2

economics

Back 2

The study of the choices people make to attain their goals, given their scarce resources.

Front 3

Economic Model

Back 3

A simplified version of reality used to analyze real-world economic situations.

Front 4

Market

Back 4

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Front 5

Three Economic Ideas

Back 5

1. People are rational2. People respond to economic incentives3. Optimal decisions are made at the margin

Front 6

Marginal Analysis

Back 6

Analysis that involves comparing marginal benefits and marginal costs.

Front 7

Trade Off

Back 7

The idea that, because of scarcity, producing more of one good or service means producing less of another good or service.

Front 8

Opportunity Cost

Back 8

The highest-valued alternative that must be given up to engage in an activity.

Front 9

3 Fundamental Economic Questions

Back 9

1. What goods and services will be produced?2. How will the goods and services be produced?3. Who will receive the goods and services produced?

Front 10

Production Efficiency

Back 10

A situation in which a good or service is produced at the lowest possible cost.

Front 11

Allocative Efficiency

Back 11

A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides marginal benefit to society equal to the marginal cost of producing it.

Front 12

Voluntary Exchange

Back 12

A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction.

Front 13

Equity

Back 13

The fair distribution of economic benefits.

Front 14

Positive Analysis

Back 14

Analysis concerned with what is.

Front 15

Normative Analysis

Back 15

Analysis concerned with what ought to be.

Front 16

Microeconomics

Back 16

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Front 17

Macroeconomics

Back 17

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

Front 18

Production Possibilities Frontier

Back 18

A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

Front 19

Economic Growth

Back 19

The ability of the economy to increase the production of goods and services.

Front 20

Trade

Back 20

The act of buying and selling.

Front 21

Absolute Advantage

Back 21

The ability of an individual, a firm, or a country to produce more of a good or service than competitors using the same amount of resources.

Front 22

Comparative Advantage

Back 22

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

Front 23

Product Market

Back 23

A market for goods- such as computers- or services- such as medical treatments.

Front 24

Factor Market

Back 24

A market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

Front 25

Factors of Production

Back 25

The inputs used to make goods and services.

Front 26

Free Market

Back 26

A market with few government restrictions on how a good or service can be produced or sold or how a factor of production can be employed.

Front 27

Entrepreneur

Back 27

Someone who operates a business, brining together the factors of production- labor, capital, and natural resources- to produce goods and services.

Front 28

Property Rights

Back 28

The right individuals or firms have to the exclusive use of their property, including the right to buy or sell it.

Front 29

Perfectly Competitive Market

Back 29

A market that meets the conditions of having (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

Front 30

Demand Schedule

Back 30

A table that shows the relationship between the price of a product and the quantity of the product demanded.

Front 31

Qty Demanded

Back 31

The amount of a good or service that a consumer is willing and able to purchase at a given price.

Front 32

Demand Curve

Back 32

A curve that shows the relationship between the price of a product and the quantity of the product demanded.

Front 33

Market Demand

Back 33

The demand by all the consumers of a given good or service.

Front 34

Law of Demand

Back 34

A rule that states, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.

Front 35

Substitution Effect

Back 35

The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes.

Front 36

Income Effect

Back 36

The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumer's power.

Front 37

Ceteris Paribus

Back 37

"All Else Equal"

The requirement that when analyzing the relationship between two variables--such as price and quantity demanded--other variables must be held constant.

Front 38

Values that SHIFT market demand

Back 38

-Income-Prices of related goods-Tastes-Population and demographics-Expected future prices

Front 39

Normal Good

Back 39

A good for which the demand increases as income rises and decreases as income falls.

Front 40

Inferior Good

Back 40

A good for which the demand increases as income falls and decreases as income rises.

Front 41

Substitutes

Back 41

Goods and services that can be used for the same purpose.

Front 42

Complements

Back 42

Goods and services that are used together.

Front 43

Demographics

Back 43

The characteristics of a population with respect to age, race, and gender.

Front 44

Qty Supplied

Back 44

The amount of a good or service that a firm is willing and able to supply at a given price.

Front 45

Supply Schedule

Back 45

A table that shows the relationship between the price of a product and the quantity of the product supplied.

Front 46

Supply Curve

Back 46

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

Front 47

Law of Supply

Back 47

A rule that states holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in quantity supplied.

Front 48

Variables that SHIFT market supply

Back 48

-Price of inputs-Technological change-Prices of related goods in production-Number of firms in the market-Expected future prices

Front 49

Technological Change

Back 49

A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs.

Front 50

Market Equilibrium

Back 50

A situation in which quantity demanded equals quantity supplied.

Front 51

Competitive Market Equilibrium

Back 51

A market equilibrium with many buyers and sellers.

Front 52

Surplus

Back 52

A situation in which the quantity supplied is greater than the quantity demanded.

Front 53

Shortage

Back 53

A situation in which the quantity demanded is greater than the quantity supplied.

Front 54

Black Market

Back 54

A market in which buying and selling take place at prices that violate government price regulations.

Front 55

Consumer Surplus

Back 55

The difference between the highest price a consumer is willing to pay for a good or service and the price the consumer actually pays.

Front 56

Dead-weight Loss

Back 56

The reduction in economic surplus resulting from a market not being in competitive equilibrium.

Front 57

Economic Efficiency

Back 57

A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

Front 58

Economic Surplus

Back 58

The sum of consumer surplus and producer surplus.

Front 59

Marginal Benefit

Back 59

-The additional benefit to a consumer from consuming one more unit of a good or service.-The demand curve is often referred to as the marginal benefit curve

Front 60

Marginal Cost

Back 60

-The additional cost to a firm of producing one more unit of a good or service.-The supply curve is often referred to as the marginal cost curve

Front 61

Price Ceiling

Back 61

A legally determined maximum price that sellers may charge.

Front 62

Price Floor

Back 62

A legally determined minimum price that sellers may receive.

Front 63

Producer Surplus

Back 63

The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.

Front 64

Tax Incidence

Back 64

The actual division of the burden of the tax between buyers and sellers in a market.