Key terms Flashcards
Oligopoly
a market characterized by a small number of firms who realize they are interdependent in their pricing and output policies
Monopoly
power of being the only seller
Monopsony
power of being the only buyer; not a price taker
Risk
anything that affects the outcome of your choices that can associated with a probability
Supply
the quantity supplied at certain prices; different than quantity
Demand
attitude of those in the market buying
Firm
business or organization (owned by an individual)
Factor markets
the exchange of inputs we produce
Product markets
the exchange of goods and services
Market power
a condition in which an individual or firm has an unfair advantage (decreases efficiency)
Equal access to information
limits market power
Pareto Optimality
a situation where there is no way to make someone better off without making someone worse off (highest efficiency)
Elasticity
amount that demand responds to market conditions
Inelastic
insignificant change in demand regardless of market conditions
Necessity
a good for which there are no substitutes; more inelastic; e.g healthcare, gasoline
Luxury
more elastic
Unitary elasticity
percentage change in quantity and price are equal
Microeconomics
focuses on individual decision-making units and how they interact.
Macroeconomics
explores the economy as a whole
Total revenue
price X quantity
Scarcity
the fixed amount of goods or services available
Price sensitive
significantly elastic demand in which demand is more dependent on price
Shift variables
factors that alter changes in demand
Traditional economy
an economic system in which traditions, customs, and beliefs help shape the goods and services the economy produces, as well as the rule and manner of their distribution also referred to as a subsistence economy, a traditional economy is defined by bartering and trading
Price of related goods
a variable that is impacted by complements and substitutes (related goods)
Complements
items that are often consumed together (e.g. french fries & ketchup)
Command economy
an economic system in which the means of production are publicly owned and economic activity is directed by a central government or portion of the government
Substitutes
goods that can replace the utility of another good (e.g. Pepsi & Coke)
Market economy
an economic system in which the forces of supply and demand determine what goods and services are produced
Cross price elasticity
how much a quantity demand change in one good impacts the price of another good
Mixed economy
an economy which practiced characteristics of both command and market economies; supply and demand largely influence the economy, but there is government intervention to meet certain economic goals
Opportunity cost
the cost of choosing; what you give up by choosing one option
income elasticity (of demand
how much the quantity demanded of a good of services changes as a result of income
Goods
objects that can fulfill human wants/needs, provide utility
Normal goods
any good in which demand increases as income increases
Services
economic activity that is intangible; provides utility, but cannot be stored
Inferior goods
any good in which demand decreases as income increases
Endowment
natural and human resources from which all goods and services must be produced
-finite, but not fixed (scarcity)
Utility
satisfaction; economists assume maximizing this drives individual choice; measured in utils
Profit motive
the tendency of people to engage in activities that will lead to monetary gain
Consumer sovereignty
the economic power of the individual in a free market
Government regulation
requirements the government places on private firms and individuals to achieve the government’s goals
