Microeconomics terms

Question 1

demand

Answer 1

indication of various quantities of a good the consumer is willing and able to buy at different possible prices during a particular time period, ceteris paribus

Question 2

supply

Answer 2

indication of various quantities of a good the producer is willing and able to produce and supply to the market at different possible prices during a particular time period, ceteris paribus

Question 3

law of demand

Answer 3

There is a negative relationship between the price of a good and its quantity demanded over a particular time period, ceteris paribus

Question 4

law of supply

Answer 4

There is a positive relationship between the price of a good and its quantity supplied over a particular time period, ceteris paribus

Question 5

marginal cost

Answer 5

the additional cost of producing one more unit of output

Question 6

market equilibrium

Answer 6

the situation, when the quantity demanded is equal to the quantity supplied

Question 7

signal

Answer 7

price communicates information to the decision-maker about the existence of excess in supply or demand

Question 8

incentive

Answer 8

price motivates decision-maker to respond to the information signaled

Question 9

allocative efficiency

Answer 9

refers to producing quantity of goods most wanted by socienty

Question 10

nudge

Answer 10

method of influencing consumers’ choice in the desired way by manipulating the context in which is the decision made

Question 11

price elasticity of demand

Answer 11

a measure of responsiveness of the quantity of a good demanded to changes in its price

Question 12

income elasticity of demand

Answer 12

a measure of responsiveness of demand to changes in income (including demand curve shifts)

Question 13

price elasticity of supply

Answer 13

a measure of responsiveness of the quantity of a good supplied to changes in its price

Question 14

price controls

Answer 14

the setting of minimum or maximum prices by the government so that prices are not able to adjust to the equilibrium level determined by demand and supply

Question 15

price ceiling

Answer 15

maximum price set below the equilibrium price to make goods more affordable

Question 16

price floor

Answer 16

minimum price set above the equilibrium to provide income support to farmers or low skilled workers

Question 17

welfare loss

Answer 17

welfare benefits lost due to society not allocating resources efficiently

Question 18

indirect taxes

Answer 18

taxes paid to the government by the producers (but paid by both consumers and producers)

Question 19

direct taxes

Answer 19

taxes paid directly to the government by taxpayers

Question 20

subsidy

Answer 20

financial assistance by the government to firms to increase their level of output and lower prices for consumers

Question 21

rivalrous

Answer 21

its consumption by one person reduces its availability for someone else

Question 22

excludable

Answer 22

it is possible to exclude someone from using the good

Question 23

common-pool resources

Answer 23

rivalrous but non-excludable goods

Question 24

market failure

Answer 24

failure of the market to allocate resources efficiently

Question 25

allocative inefficiency

Answer 25

too much or too little of the goods are produced or consumed from the point of view of what is socially most desirable

Question 26

externality

Answer 26

occurs when the actions of consumer or producer give rise to negative or positive side effects on other people who are not part of these actions

Question 27

marginal private costs

Answer 27

costs to a producer of producing one more unit of good

Question 28

marginal social costs

Answer 28

costs to society of producing one more unit of good

Question 29

marginal private benefit

Answer 29

benefit to consumer from consuming one more unit of good

Question 30

marginal social benefit

Answer 30

benefit to society from consuming one more unit of good

Question 31

negative production externalities

Answer 31

external costs created by producers

Question 32

negative consumption externalities

Answer 32

external costs created by consumers

Question 33

positive production externalities

Answer 33

external benefits created by producers

Question 34

positive consumption externalities

Answer 34

external benefits created by consumers

Question 35

public good

Answer 35

non-rivalrous and non-excludable

Question 36

quasi-public good

Answer 36

non-rivalrous but excludable

Question 37

private good

Answer 37

rivalrous and exludable

Question 38

asymetric information

Answer 38

situation where buyers or sellers do not have equall access to information

Question 39

adverse selection

Answer 39

situation, where one party in a transaction has more information about the quality of the product sold than the other party

Question 40

moral hazard

Answer 40

situation where one party takes risks but does not face the full costs of these risks because the costs are borne by the other party

Question 41

market power

Answer 41

the extent to which each individual firm in the industry is able to control the price at which it sells its products

Question 42

barriers to entry

Answer 42

anything that can prevent a firm from entering an industry

Question 43

economies of scale

Answer 43

a decrease in the average costs that occurs as a firm increases its output by varying its inputs

Question 44

natural monopoly

Answer 44

a single firm that can produce for an entire market at a lower average price than two or more firms (due to economies of scale)

Question 45

game theory

Answer 45

mathematical technique analyzing the behavior of decision-makers who are dependent on each other, and who display strategic behavior

Question 46

prisoner's dilemma

Answer 46

a firm can become worse of by trying to increase its profit, this is illustrated at the Nash equilibrium of the payoff matrix

Question 47

collusion

Answer 47

agreement among firms to fix prices or divide the market between them to limit competition and maximize profit

Question 48

inferior good

Answer 48

good, for which demand varies inversely with the income

Question 49

short run

Answer 49

time period during which at least one intput is fixed and cannot be changed

Question 50

long run

Answer 50

time period during when all inputs can be changed

Question 51

merit good

Answer 51

a good that is desirable for the consumers but is underprovided by the market

Question 52

scarcity

Answer 52

condition of having unlimited wants/desires and limited resources

Question 53

opportunity cost

Answer 53

cost of any activity measured in terms of the value of the next best alternative foregone

Question 54

sustainability

Answer 54

a situation in which the consumption needs of present generation are met without reducing ability to meet needs of future generations