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Summer Economics Vocabulary Test 1
Summer Economics Vocabulary Test 1
98
Economics
Undergraduate 3
07/28/2009

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Term
Economics
Definition
the social science concerned with how individuals, institutions, and socitey make optimal choices under conditins of scarcity
Term
economic perspective
Definition
economic way of thinking
Term
opportunity costs
Definition
to obtain more of one thing, socity forgoes the opportunity of getting the next best thing
Term
Utility
Definition
pleasure, happiness, or satisfaction obtained from consuming a good or service
Term
marginal analysis
Definition
comparisons of marginal benefits and marginal costs
Term
economic principle
Definition
a statement about economic behavior or the economy that enables prediction of the probable effects of certain actions
Term
other-things-equal assumption
Definition
the assumption that factors other than those being considered do not change
Term
Microeconomics
Definition
the part of economics concerned with individual units such as a person, a household, a firm, or an industry
Term
Macroeconomics
Definition
examines either the economy as a whole or its basic subdivisions or aggregates, such as the government, household, and business sectors
Term
Aggregate
Definition
a collection of specific economic units treated as if they were one unit
Term
Positive economics
Definition
focuses on facts and cause-and-effect relationships. it includes description, theory development, and theory testing (theoretical economics)
Term
normative economics
Definition
incorporates value judgments about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal (policy economics)
Term
economizing problem
Definition
the need to make choices because economic wants exceed economic means
Term
Budget Line
Definition
a schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income
Term
economic resources
Definition
all natural, human , and manufactured resources that go into the production of goods and services
Term
land
Definition
includes all natural resources used in the production process, such as arable land, forests, mineral and oil deposits, and water resources
Term
labor
Definition
consists of physical and mental talents of individuals used in producing goods and services
Term
capital
Definition
includes all manufactured aids used in producing consumer goods and services
Term
investment
Definition
the purchase of capital
Term
entrepreneurial ability
Definition
the human resource that combines the other resources to produce a product, makes nonroutine decisions, innovates, and bears risks
Term
consumer goods
Definition
products that satisfy our wants directly, pizza
Term
Capital goods
Definition
products that satisfy our wants indirectly by making possible more efficient production of consumer goods; robots
Term
Production possibilities curve
Definition
displays the different combinations of goods and services that society can produce in a fully employed economy, assuming a fixed availablitiy of supplies of resources and constant technology
Term
law of increasing opportunity costs
Definition
as the production of a particular good increases, the opportunity cost of producing an additional unit rises
Term
economic growth
Definition
a larger total output
Term
economic system
Definition
a particular set of institutional arrangements and a coordinating mechanism-- to respond to the economizing problem
Term
command system
Definition
socialism or communisim; government owns most property resources and economic decision making occurs through a central economic plan
Term
market system
Definition
capitalism; characterized by private ownership and resouces and the use of markets and prices to coordinate and direct economic activity
Term
private property
Definition
private individuals and firms, not the government, own most of the property resouces (land and capital)
Term
Freedom of enterprise
Definition
ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets
Term
Freedom of choice
Definition
enables owners to employ or dispose of their property and money as they see fit
Term
self-interest
Definition
the motivating force of the various economic units as they express their free choices
Term
competition
Definition
freedom of choice exercised in pursuit of a monetary return
Term
specialization
Definition
the use of resources of an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services
Term
division of labor
Definition
specialization of workers
Term
barter
Definition
swapping goods for goods
Term
consumer sovereignty
Definition
determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy
Term
creative destruction
Definition
the creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business
Term
invisible hand
Definition
the tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promot the interests of society
Term
circular flow diagram
Definition
illustrates repetitive flows of goods and services, resources and money
Term
resource market
Definition
the place where resource or the services of resource suppliers arebought and sold
Term
demand schedule
Definition
shows the quantities of a product that will be purchased at various possible prices
Term
law of demand
Definition
other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls
Term
diminishing marginal utitlity
Definition
the principle that as a consumer increases the consumption of a good or serviece, the marginal utility obtained from each additional unit of the good or service decreases
Term
Determinants of Demand
Definition
factors that affect purchases
Term
normal goods
Definition
products whose demand varies directly with money income are called superior goods
Term
inferior goods
Definition
goods whose demand varies inversely with money income
Term
substitute good
Definition
one that can be used in place of another good
Term
complementary good
Definition
one that is used together with another good
Term
change in quantity demanded
Definition
a movement from one point to another point
Term
supply
Definition
a schedule or curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period
Term
law of supply
Definition
as price rises, the quantity supplied rises; as price falls, the quantity supplied falls
Term
supply curve
Definition
upward slope slope that reflects the law of supply
Term
determinants of supply
Definition
resouce prices, technology, taxes and subsidies, prices of other goods, producer expectations, and the number of sellers in the market
Term
equilibrium price
Definition
the price where the intentions of buyers and sellers match
Term
equilibrium quantity
Definition
the quantity demanded and quantity supplied at the equilibrium price in a competitive market
Term
surplus
Definition
excess supply
Term
shortage
Definition
excess demand
Term
productive efficiency
Definition
the production of any particular good in the least costly way
Term
allocative efficiency
Definition
the particular mix of goods and services most highly valued by society
Term
price ceiling
Definition
sets the maximum legal price a seller may charge for a product or service
Term
Price Floor
Definition
a minimum price fixed by the government
Term
plant
Definition
a physical establishment
Term
firm
Definition
an organization that employs resources to produce goods and services for profit and operates one or more plants
Term
industry
Definition
a group of firms that produce the sam, or similar, products
Term
sole proprietorship
Definition
a business owned and operated by one person
Term
partnership
Definition
two or more individuals agree to own and operate a business together
Term
corporation
Definition
a legal creation that can perfomr the functions of any other type of enterprise
Term
externality
Definition
occurs when some of the costs or the benefits of a good are passed on to or "spill over to" someone other than the immediate buyer or seller
Term
negative externalities
Definition
production or consumption costs inflicted on a third party without compensation
Term
positive externalities
Definition
benefits to other producers or consumers; compensated spillovers accruing to third parties or the community at large
Term
free-rider problem
Definition
people can ercieve benefits from a public good without having to pay for it
Term
quasi-public-goods
Definition
education, streets, police protection, sewage disposal
Term
price elasticity
Definition
the % change in quantity demanded would be higher than the % change in price
Term
elastic
Definition
>1; close to horizontal; when consumers are highly responsive to price changes
Term
inelastic
Definition
when consumers' responsiveness is only slight, or in rare cases non-existent
Term
perfectly inelastic
Definition
there is no response to a change in price
Term
total revenue
Definition
the total amount the seller recieves from the sale of a product in a particular time period
Term
Total utility
Definition
Total satisfaction from a specific quantity
Term
Marginal utility
Definition
Extra satisfaction from an additional unit
Term

 

nLaw of diminishing marginal utility
Definition

 

nExplains downward sloping demand
Term
Optimum Achieved
Definition
 Money income is allocated so that the last dollar spent on each product yields the same extra or marginal utility
Term
Opportunity cost = economic cost
Definition
the value of the best alternative use of a resource
Term
Explicit costs
Definition
are the monetary payments a firm must make to an outsider to obtain a resource
Term
Implicit costs
Definition
are the monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market
Term
Normal profit
Definition
a payment that must be made by a firm to obtain and retain entrepreneurial ability. It is an implicit cost
Term
Short run
Definition
a time period in which producers are able to change the quantities of some but not all of the resources they employ
Term
Long run
Definition
a time period sufficiently long to enable producers to change the quantities of all the resources they employ
Term
Average product (AP)
Definition
output per unit of input
Term
Marginal product (MP)
Definition
is the extra output or added product associated with adding a unit of a variable resource to the production process
Term
Total product (TP):
Definition
total output of a good or service produced by a firm
Term
law of diminishing returns states
Definition

 

nas successive units of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decline.
nassumes that technology is fixed and thus the way you produce does not change.
Term
Fixed costs
Definition
do not change in total when the firm changes its output
Term
Variable costs
Definition
increase or decrease with a firm’s output
Term
Total cost
Definition
the sum of fixed cost and variable cost
Term
Average fixed cost (AFC)
Definition
 a firm’s total fixed cost divided by output
Term
Average variable cost (AVC)
Definition
a firm’s total variable cost divided by output
Term
Average total cost (ATC)
Definition
a firm’s total cost divided by output
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