Midterm Definitions Review Flashcards
Ceteris paribus
“Other things being equal”, changing one factor at a time and holding other relevant factors constant to investigate the effects of the factor.
Economics
The social science that studies the choices that we make as we cope with scarcity and the incentives that influence and reconcile our choices.
Goods and services
The objects and acts that people value and produce to satisfy human wants.
Incentive
A reward or penalty that encourages or discourages an action.
Macroeconomics
The study of the aggregate(or total) effects on the national economy and the global economy of the choices that individuals, businesses, and governments make.
Microeconomics
The study of choices that individuals and businesses make and the way these choices interact and are influenced by governments.
Margin
A choice that is made by comparing all the relevant alternatives systematically and incrementally.
Marginal Benefit
The benefit that raises from a one-unit increase; what you are willing to give up.
Marginal Cost
The cost of a one-unit increase in an activity.
Opportunity Cost
The best thing that you must give up to get something- the highest valued alternative forgone.
Sunk Cost
A previously incurred and irreversible cost
Rational Choice
When we take those actions for which marginal benefit exceeds or equals marginal cost.
Scarcity
The condition that arises because wants exceed the ability of resources to satisfy them.
Self-Interest
The choices that are the best for the individual who makes them.
Social-Interest
The choices that are best for society as a whole.
Capital
Tools, instruments, machines, buildings, and other items that have been produced in the past and that businesses now use to produce goods and services(not money, not stocks, not bonds!).
Capital Goods
Goods that are bought by businesses to increase their productive resources(ex: cranes and trucks)
Circular Flow Model
Shows the circular flow of expenditures and incomes that result from decision makers’ choices and the way those choices interact in markets to determine what, how, and for whom.
Consumption goods and services
Goods and services that are bought by individuals and used to provide personal enjoyment and contribute to a person’s quality of life.
Entrepreneurship
The human resource that organizes labor, land and capital
Export goods and services
Goods and services that are produced in one country and sold in other countries.
Factor Markets
Markets in which factors of production are bought and sold
Factors of Production
The productive resources used to produce goods and services: land, labor, capital, entrepreneurship
Functional distribution of income
The % distribution of income among the factors of production
Goods markets
Markets in which goods and services are bought and sold
Government goods and services
Goods and services that are bought by governments(maybe military?).
Firms
Institutions that organize production of goods and services
Households
Individuals or people living together as decision making units
Human capital
The knowledge and skill that people obtain from education, on the job training, and work experience
Interest
Income paid for the use of capital
Labor
The work time and work effort that people devote to producing goods and services
Land
All the “gifts of nature” that we use to produce goods and services- natural resources.
Market
Any arrangement that brings buyers and sellers together and enables them to get into and do business with each other.
National debt
The total amount that the government has borrowed to make expenditures that exceed tax revenue.
Personal distribution of income
The % distribution among individuals
Profit and loss
Income earned by an entrepreneur for running a business
Rent
Income paid for the use of land
Wages
Income paid for the services of labor
Absolute advantage
When one person is more productive than another in several(or all) activities
Allocative efficiency
A situation in which the quantities of goods and services produced are those that people value most highly.
It is possible to produce more of one good or service without producing less of something else.
Two conditions: 1) producing on PPF 2) producing at highest valued point on PPF
Comparative advantage
The ability of a person to perform an activity or produce a good or service at a lower opportunity cost than someone else.
Economic growth
A sustained expansion of production possibilities
Free lunch
A gift- getting something without giving up something else
Production efficiency
Occurs on all points of a PPF curve(not below)
Production Possibilities Frontier(PPF)
The boundary between the combinations of goods and services that can be produced and the combinations that can’t be produced. given the available factors of production and the state of technology.
Good for illustrating scarcity and its consequences.
Tradeoff
An exchange- giving up something to get something.
Quantity Demanded
The amount of any good, service, or resource that people are willing and able to buy during a specified period at a specified price.
Demand
The relationship between the quantity demanded and the price of a good when all other influences on buying plans remain the same.
Demand Schedule
A list of all the quantities demanded at each different price when all the other influences on buying plans remain the same.
Demand Curve
A graph of the relationship between the quantity demanded of a good and its price when all the other influences on buying plans remain the same.
Market Demand
The sum of the demands of all the buyers in the market.
Change in Demand
A change in the quantity that people plan to buy when any influence on buying plans other than the price of a good changes.
Substitute
A good that can be consumed in place of another good.
Complement
A good that is consumed with another good.
Normal Good
A good for which demand increases when income increases and demand decreases when income decreases.
Inferior Good
A good for which demand decreases when income increases and demand increases when income decreases.
Change in the quantity demanded
A change in the quantity of a good that people plan to buy that results form a change in the price of the good with all the other influences on buying plans remaining the same.
Quantity Supplied
The amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price.
Supply Schedule
A list of the quantities supplied at each different price when all the other influences on selling plans remain the same.
Supply Curve
A graph of the relationship between the quantity supplied of a good and its price when all the other influences on selling plans remain the same.
Market Supply
The sum of the supplies of all the sellers in the market.
Change in Supply
A change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes.
Change in the Quantity Supplied
A change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good.
Market Equilibrium
When the quantity demanded equals the quantity supplied- buyers’ and sellers’ plans are in balance.
Equilibrium Price
The price at which the quantity demanded equals the quantity supplied.
Equilibrium Quantity
The quantity bought and sold at the equilibrium price.
Shortage or Excess Demand
A situation in which the quantity demanded exceeds the quantity supplied.
Surplus or Excess Supply
A situation in which the quantity supplied exceeds the quantity demanded.
Law of Market Forces
When equilibrium is disturbed, market forces restore it.
The Law of Market Forces states: “When there is a shortage, the price rises; when there is a surplus, the price falls”.
Average Fixed Cost
Total fixed cost per unit of output
AFC = TFC/Q
Average Product
Total product divided by the quantity of an input. The average product of labor is the total product divided by the quantity of labor employed
AP = TP/Q
Average Total Cost
Total cost per unit of output, which equals average fixed cost plus average variable cost
ATC = AFC + AVC
Average Variable Cost
Total Variable cost per unit of output
AVC = TVC/Q
Constant Returns to Scale
A condition in which, when a firm increases its plant size and labor employed by the same percentage, its output increases by the same percentage and its average total cost remains constant.
Decreasing Marginal Returns
When the marginal product of an additional worker is less than the marginal product of the previous worker.
Diseconomies of Scale
A condition in which, when a firm increases its plant size and labor employed by the same percentage, its output increases by a smaller percentage and its average total cost increases.
Economic Depreciation
An opportunity cost of a firm using capital that it owns- measured as the change in the market value of capital over a given period.
Economic profit
A firm’s total revenue minus total cost
Economies of Scale
A condition in which, when a firm increases its plant size and labor employed by the same percentage, its output increases by a larger percentage and its average total cost decreases.
Explicit costs
Costs paid in money
Implicit costs
An opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment
Increasing Marginal Returns
When the marginal product of an additional worker exceeds the marginal product of the previous worker
Law of Decreasing Marginal Returns
As a firm uses more of a variable input, with a given quantity of fixed inputs, the marginal product of the variable input eventually decreases.
Long Run
The time frame in which the quantities of all resources can be varied
Long-run average cost curve
A curve that shows the lowest average cost at which it is possible to produce each output when the firm has had sufficient time to change both its plant size and labor employed.
Marginal Cost
The change in total cost that results from a one-unit increase in output
If output isn’t changing by one unit, use:
𝚫TC/𝚫Q
Marginal Product
The change in total product that results from a one-unit increase in the quantity of labor employed
Normal Profit
The return to entrepreneurship. Normal profit is part of a firm’s opportunity cost because it is the cost of not running another firm
Short Run
The time frame in which the quantities of some resources are fixed. In the short run, a firm can usually change the quantity of labor it uses but not its technology and quantity of capital.
Total Cost
The cost of all the factors of production used by a firm
Total Fixed Cost
The cost of the firm’s fixed factors of production(machinery that’s rented and whatnot).
Total Product
The total quantity of a good produced in a given period
Total Variable Cost
The cost of the firm’s variable factor of production- the cost of labor.
Marginal Revenue
The change in total revenue that results from a one-unit increase in the quantity sold
Monopolistic Competition
A market in which a large number of firms compete by making similar but slightly different products.
Monopoly
A market for a good or service that has no close substitutes and in which there is one supplier that is protected from competition by a barrier preventing the entry of new firms.
Oligopoly
A market in which a small number of firms compete
Perfect Competition
A market in which there are many firms, each selling an identical product; many buyers; no restrictions on the entry of new firms into the industry; no advantage to established firms; and buyers are well informed about prices.
Price Taker
A firm that cannot influence the price of the good or service that it produces
Shut Down Point
The output and price at which the firm just covers its total variable cost.
Cross Elasticity of Demand
A measure of the responsiveness of the demand for a good to a change in the price of a substitute or complement when other things remain the same.
Elastic Demand
When the percentage change in the quantity demanded exceeds the percentage change in price.
Elastic Supply
When the percentage change in the quantity supplied exceeds the percentage change in price.
Income Elasticity of Demand
A measure of the responsiveness of the demand for a good to a change in income when other things remain the same.
Inelastic Demand
When the percentage change in the quantity demanded is less than the percentage change in price.
Inelastic Supply
When the percentage change in the quantity supplied is less than the percentage change in price.
Perfectly Elastic Demand
When the quantity demanded changes by a very large percentage in response to an almost zero percent change in price.
Perfectly Elastic Supply
When the quantity supplied changes by a very large percentage in response to an almost zero percentage change in price.
Perfectly Inelastic Demand
When the quantity demanded remains constant as the price changes.
Perfectly Inelastic Supply
When the quantity supplied remains the same as the price changes.
Price Elasticity of Demand
A measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buyers’ plans remain the same.
Price Elasticity of Supply
A measure of the responsiveness of the quantity supplied of a good changes to a change in its price when all other influences on sellers’ plans remain the same.
Total Revenue
The amount spend on a good and received by sellers and equals the price of the good multiplied by the quantity of the good sold.
Unit Elastic Demand
When the percentage change in the quantity demanded equals the percentage change in price.
Unit Elastic Supply
When the percentage change in the quantity supplied equals the percentage change in price.
Consumer Surplus
The marginal benefit from a good or service minus the price paid for it, summed over the quantity consumed.
Deadweight Loss
The decrease in total surplus that results from an inefficient underproduction or overproduction.
Producer Surplus
The price of a good minus that marginal cost of producing it, summed over the quantity produced.
Total Surplus
The sum of consumer surplus and producer surplus.
Transaction Costs
The opportunity costs of making trades in a market.
Black Market
An illegal market that operates alongside a government-regulated market.
Minimum Wage Law
A government regulation that makes hiring labor for less than a specified wage illegal.
Price Cap Regulation
A rule that specifies the highest price that a firm is permitted to set- a price ceiling.
Price Ceiling
A government regulation that places an upper limit on the price at which a particular good, service, or factor of production may be traded.
Price Floor
A government regulation that places a lower limit on the price at which a particular good, service, of factor of production may be traded.
Price Support
A price floor in an agricultural market maintained by a government guarantee to buy any surplus output at that price.
Rent Ceiling
A regulation that makes it illegal to charge more than a specified rent for housing.
Search Activity
The time spent looking for someone with whom to do business.
Subsidy
A payment by the government to producers to cover part of the cost of production.
Tax Incidence
The division of the burden of a tax between the buyer and the seller.
Excess Burden
The amount by which the burden of a tax exceeds the tax revenue received by the government- the dead-weight loss from a tax.
Budget Line
A line that describes the limits to consumption possibilities and that depends on a consumer’s budget and the prices of goods and services.
Diminishing Marginal Utility
The general tendency for marginal utility to decrease as the quantity of a good consumed increases.
Marginal Utility
The change in total utility that results from a one-unit increase in the quantity of a good consumed.
Marginal Utility Per Dollar
The marginal utility from a good relative to the price paid for the good.
Relative Price
The price of one good in terms of another good- an opportunity cost. It equals the price of one good divided by the price of another good.
Total Utility
The total benefit that a person gets from the consumption of a good or service. Total utility generally increases as the quantity consumed of a good increases.
Utility
The benefit or satisfaction that a person gets from the consumption of a good or service.
Utility-Maximizing Rule
The rule that leads to the greatest total utility from all the goods and services consumed. The rule is:
1) Allocate the entire available budget.
2) Make the marginal utility per dollar equal for all goods.
