Microeconomics & Businesses Vocab

Question 1

Fixed Cost

Answer 1

Does NOT change in short run, no matter how much output is produced
ex. rent / mortgage / property taxes / insurance
(aka “overhead”)

Question 2

Long Run

Answer 2

Period of time during which all resources/costs can be changed

Question 3

Advertising

Answer 3

Specific way of convincing consumers to buy the good or service
Goal: make demand for product inelastic (to increase price & not lose much business)

Question 4

Plant

Answer 4

physical establishment used in process of making & distributing goods/services

Question 5

Marketing

Answer 5

process of anticipating, identifying, & satisfying customer demands profitably
Encompasses:
1. product research
2. consumer research
3. distribution (logistics)
4. advertising

Question 6

Durable Goods

Answer 6

things that are expected to have a life/use longer than a year
ex. car, furniture, TV, washing machines, computers

Question 7

Firm

Answer 7

business organization which owns & operates these plants [basically just a company]

Question 8

Stocks

Answer 8

shares of ownership in a company

*riskier to own (if company fails, price of stocks go down)

Question 9

Sole Proprietorship

Answer 9

Unincorporated business firm owned/operated by single individual (married couple law sees you as one)

Question 10

Marginal Revenue

Answer 10

Δ in Total Revenue / Marginal Product

Question 11

Limited Liability

Answer 11

personal assets are not a part of business (if something goes wrong with business and you owe money it doesn’t come from personal $$$)

Question 12

Marginal Product

Answer 12

amount by which TP changes w/ each additional resource

assuming all other resources remain the same

Question 13

Variable Cost

Answer 13

change as the output increases

ex. workers

Question 14

Bonds

Answer 14

lending money to company in exchange for interest & repayment

• borrow from financial institutions
• Less risky bc you get paid back

Question 15

Marginal Cost

Answer 15

Δ in Total Cost / Marginal Product

Question 16

Services

Answer 16

an intangible benefit or action which one values
*ex. entertainment, going to sporting event or concert, going to see a doctor/lawyer bc you’re paying for the service & ability s/he have to do that

*the more your service is valued, the more you get paid

Question 17

Short Run

Answer 17

Period of time in which at least one resource/cost is fixed

Question 18

Nondurable Goods

Answer 18

goods expected to have a use of less than a year

ex. food, clothes

Question 19

Industry

Answer 19

group of firms with same/similar goods/services

Question 20

Corporation

Answer 20

Legal entities, distinct & separate from individuals who own them

Question 21

Law of Diminishing Returns

Answer 21

States that as more units of one resource are added to all other resources, MP eventually declines
(This is the most important feature of production in the short term)

Question 22

Economies of Scale

Answer 22

Company’s Long Run average costs go down as production increases
Why: specialization of labor