Midterm Microeconomics

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BLACK MARKET

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A market that operates outside the legal system in which either illegal goods are sold or legal goods are sold at illegal prices or terms.

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CHOICE

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The act of of selecting among alternatives.

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COMPLEMENTS

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Products that are usually consumed jointly, (for example, bread, butter, hot dogs and buns). A decrease in the price of one will cause an increase in demand for the other.

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CORPORATION

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A business firm owned by shareholders who posses ownership rights to the firm's profits, but whose liability is limited to the amount of their investment in the firm.

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ECONOMIC EFFICIENCY

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A situation that occurs when 1. all activities generating more benefit than cost are undertaken, and 2. no activities are undertaken for which the cost exceeds the benefit.

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ECONOMIC PROFIT

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The difference between the firms total revenues and its total costs, including both the explicit and and implicit cost components.

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ECONOMIC THEORY

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A set of definitions, postulates, and principles assembled in a manner that makes clear the "cause and effect"relationship.

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ECONOMIES OF SCALE

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Reduction in the firm's per-unit costs associated with the use of large plants to produce a large volume of output.

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ECONOMIZING BEHAVIOR

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Choosing the option that that offers the greatest benefit at the least possible cost.

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ENTREPRENEUER

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A person that introduces new products or improved technologies and decides which projects to undertake.

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EQUILIBRIUM

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A state in which the conflicting forces of supply and demand are in balance. When a market is in equilibrium, the decisions of the consumers and producers are brought into harmony with one another, and the quantity supplied will equal the quantity demanded.

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INCOME EFFECT

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The part of an increase (decrease) in amount consumed that is the result of the consumer's real income being expanded (contracted) by a reduction (rise) in the price of a good.

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Innovation

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The successful introduction and adoption of a new product or process; the economic application of inventions and marketing techniques.

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INVENTION

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The creation of a new product or process, often facilitated by the knowledge of engineering and science.

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Law of Comparative Advantage

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A principle that states that individuals, firms, regions, or nations can gain by specializing in the production of goods that they produce cheaply (at a low opportunity cost) and exchanging them for goods they cannot produce cheaply (at a high opportunity cost).

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Law of Demand

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A principle that states there is an inverse relationship between the price of a good and the quantity of it buyers are willing to purchase. As the price of a good increases, consumers will wish to purchase less of it. As the price of it decreases, consumers will buy more.

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Law of Diminishing Marginal Utility

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The basic economic principle that as the consumption of a product increases, the marginal utility derived from consuming more of it (per unit of time) will eventually decline.

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Law of Supply

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A principle that states there is a direct relationship between the price of a good and the quantity of it produceers are willing to supply. As the price of a good increases, producers will wish to supply more of it. As the price decreases, producers will wish to supply less.

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Long Run (in production)

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A time period long enough to allow the firm to vary all of its factors pf production.

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Macroeconomics

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The branch of economics that focuses on how human behavior affects outcomes in highly aggregated markets, such as the markets for labor or consumer productucts.

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Marginal

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Term used to decribe the effects of a change in the cost of producing an unit of a product, given the producer's current facility and production rate.

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Market Failure

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A situation in which the structure of incentives is such that markets will encourage individuals to undertake activities that are inconsistent with economic efficiency.

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Microeconomics

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The branch of economics that focuses on how human behavior affects the conduct of affairs within narrowly defined units, such as individual house holds or business firms.

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Middlemen

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A person who buys and sells goods and services or arranges trades. A middleman reduces transaction costs.

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Normative Economics

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Judgements about "what ought to be" in economic matters. Normative economic views cannot be proved false because they are based on value judgements.

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Opportunity Cost

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The higher valued alternative that must be sacrifices a result of choosing an option.

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Partnership

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A business firm owned by two or more individuals who possess ownership rights to the firm's profits and are personally liable for the debts of the firm.

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Pork Barrel-Legislation

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A package of spending projects benefiting local areas financed through the federal government. The costs of the projects typically exceed the benefits in total, but the projects are intensely desired by the residents of a particular district who get the benefits without having to pay much of the costs.

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Positive Economics

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The scientific study of "what is" among economic relationships.

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Price Ceiling

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A legally established maximum price sellers can charge for a good resource.

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Price Controls

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Government mandated prices that are generally in the form of maximum or minimum legal prices.

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Private Property Rights

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Property Rights that are exclusively held by an owner and protected against invasion by others. Private can be transferred, sold, or mortgaged at the owners discretion.

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Production Possibilities Curve

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A curve that outlines all possible combinations of total output that could be produced, assuming 1. a fixed amount of production resources, 2. given amount of technical knowledge and 3. full and efficient use of those resources. The slope of the curve indicates the amount of one product that must be given up to produce more of the other.

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Profit

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An excess of sales revenue relative to the opportunity cost of production. The cost component includes the opportunity cost of all resources, including those owned by the firm. Therefore, profit accrues only when the value of the good is produced greater than the value of the resourcesused for its production.

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Property Rights

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The rights to use, control and obtain the benefits from a good or resource.

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Proprietorship

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A business firm owned by an individual who possesses the ownership right to the firm's profits and is personally liable for the firm's debts.

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Public Goods

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Goods for which rivalry among consumers is absent and exclusion of nonpaying customers is difficult.

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Rationing

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Allocating a limited supply of a god or resource among people who would like to have more of it. When price performs the rationing function, the good or resource is allocated to those willing to give up the most "other things" in order to get it.

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Resource

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An input used to to produce economic goods. Land, labor, skills, natural resources, and human made tools and equipment provide examples. Throughout history, people have struggled to transform available, but limited resources, into things they would like to have -economic goods.

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Resource Market

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A highly aggregated market encompassing all resources )labor, physical, capital) contributing to the production of current output. The labor market is the largest component of this market.

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Scarcity

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Fundamental concept of economics that indicates that there is less of a good freely available from nature than people would like.

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Secondary Effects

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The indirect impact of an event or policy that may not be easily and immediately observable. In the area of policy, these effects are often both unintended and overlooked.

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Shirking

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Working at less than the expected rate of productivity, which reduces output. Shirking is more likely when workers are not monitored, so that the cost of lower output falls on others.

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Shortsightedness Effect

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The mis allocation of resources that results because public sector action is biased 1. in favor of proposals, yielding clearly defined benefits in exchange for difficul to identitfy future costs and 2. against proposals with clearly identifiable current costs that yield less concrete and less obvious future benefits.

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Substitutes

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Products that serve similar purposes. An increase in the price of one will increase in the demand for the other. Ex. Hamburger and Tacos. Play station and Xbox

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Sunk Cost

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Costs that have already been incurred as a result of past decisions. They are sometimes referred to as historical costs.

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Tax Base

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The level or quantity of an economic activity that is taxed. Higher tax rates reduce the level of the tax base because they make the activity lass attractive.

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Transaction Cost

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The time, effort, and other resources needed to search out, negotiate, and complete an exchange

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Utility

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The subjective benefit or satisfaction a person expects from a choice or course of action