Term
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Definition
| The study oh how individuals and societies choose to use the scarce resources that nature and previous generations have provided |
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Definition
| The best alternative that we forgo, or give up, when we make a choice or a decision |
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Definition
| The process of analyzing the additional or incremental costs or benefits arising from a choice or decision |
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| Costs that cannot be avoided because they have already been incurred |
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Definition
| A market in which profit opportunities are eliminated almost instantaneously |
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Definition
| The period in England during the late 18th and early 19th centuries in which new manufacturing technologies and improved transportation gave rise to the modern factory system and a massive movement of the population from the countryside to the cities |
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| The branch of economics that examines the functioning individual industries and the behavior of individual decision-making units-that is, firms and households. |
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| The branch of economics that examines the economic behavior of aggregates-income,employment, output, and so on-on a national scale. |
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| The compilation of data that describe phenomena and facts |
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Definition
| A statement or set of related statements about cause and effect, action and reaction. |
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| A formal statement of theory, usually a mathematical statement of a presumed relationship between two or more variables. |
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| A measure that can change from time to time or from observation to observation. |
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Definition
| The principle that irrelevant detail should be cut away. |
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Term
| ceteris paribus, or all else equal |
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Definition
| A device used to analyze the relationship between two variables while the values of other variables are held unchanged. |
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Term
| post hoc, ergo propter hoc |
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Definition
| Literally, "after this (in time), therefore because of this." A common error made in thinking about causation: If event A happens before Event B, it is not necessarily true that A caused B. |
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| The erroneous belief that what is true for a part is necessarily true for the whole. |
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| The collection and use of data to test economic theories. |
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Definition
| In economics, allocative efficiency. An efficient economy is one that produces what people want at the least possible cost. |
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Definition
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Definition
| An increase in the total output of an economy |
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| A condition in which national output is growing steadily, with low inflation and full employment of resources |
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| Things that are produced then used in the production of other goods and services |
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Definition
| The inputs into the process of production. |
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Term
| 3 Key factors of production |
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Definition
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Term
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Definition
| the process that transforms scarce resources into useful goods and services. |
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Term
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Definition
| Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants. |
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Definition
| Goods and services of value to households. |
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| Theory of Comparative Advantage |
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Definition
| Ricardo's theory that specialization and free trade will benefit all trading parties, even those that may be "absolutely" more efficient producers |
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Term
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Definition
| When in the production of a good or service if he or she can produce that product using fewer resources. |
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Term
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Definition
| When in the production of a good or service if he or she can produce that product at a lower opportunity cost. |
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Definition
| Goods produced for present consumption. i.e. food, clothing, toys |
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Definition
| The process of using resources to produce new capital. i.e. purchase or putting in places of buildings, equipment, roads and houses. |
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Term
| Production Possibility Frontier (ppf) |
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Definition
| A graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently. |
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Term
| Marginal Rate of Transformation (MRT) |
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Definition
| The slope of the production possibility frontier. |
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Term
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Definition
| An increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources. |
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Definition
| An economy in which a central government either directly or indirectly sets output targets, incomes, and prices. |
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Term
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Definition
| French: "Allow to do" An economy in which individual people and firms pursue their own self-interest without any central direction or regulation. |
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Definition
| The institution through which buyers and sellers interact and engage in exchange. |
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Definition
| The idea that consumers ultimately dictate what will be produced by choosing what to purchase. |
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Definition
| The freedom of individuals to start and operate private businesses in search of profits. |
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Definition
| An organization that transforms resources into products. Primary producing units. |
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Definition
| A person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business. |
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Definition
| The consuming units in an economy. |
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Term
| Product or output markets |
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Definition
| The markets in which goods and services are exchanged. |
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Term
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Definition
| The markets in which the resources used to produce goods and services are exchanged. |
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Definition
| The input/factor market in which households supply work for wages to firms that demand labor. |
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Term
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Definition
| The input/factor market in which households supply their savings, for interest or for claims for future profits, to firms that demand funds to buy capital goods. |
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Definition
| The input/factor market in which households supply land or other real property in exchange for rent. |
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Term
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Definition
| The inputs into the production process. Land, Labor, and Capital are the 3 key factors. |
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Term
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Definition
| The amount of a product that a household would buy in a given period if it could buy all it wanted at the current market price. |
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Definition
| A table showing how much of a given product a household would be willing to buy at different prices. |
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Term
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Definition
| A graph illustrating how much of a given product a household would be willing to buy at different prices. |
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Term
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Definition
| The negative relationship between price and quantity demanded: As price rises, quantity demanded decreases and vice versa. |
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Term
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Definition
| The sum of all a household's wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. It is a flow measure. |
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Term
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Definition
| The total value of what a household owns minus what it owes. It is a stock measure. |
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Definition
| Goods for which the demand goes up when income is higher and for which demand goes down when income is lower. |
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Term
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Definition
| Goods for which demand tends to fall when income rises. |
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Term
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Definition
| goods that can serve as replacements for one another; when the prices of one increases, demand for the other increases. |
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Term
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Definition
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Term
| Complements, Complementary goods |
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Definition
| Goods that "go together"; a decrease in the prices of one results in an increase in demand for the other and vice versa. |
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Term
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Definition
| The change that takes place in a demand curve corresponding to a new relationship between quantity demanded of a good and price of that good. The shift is brought about by a change in the original conditions. |
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Term
| Movement along a demand curve |
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Definition
| The change in quantity demanded brought about by a change in price |
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Term
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Definition
| The sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service. |
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Term
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Definition
| The amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period. |
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Term
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Definition
| The difference between revenues and costs. |
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Term
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Definition
| A table showing how much of a product firms will sell at alternative prices. |
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Term
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Definition
| The positive relationship between price and quantity of a good supplied: an increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied. |
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Term
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Definition
| A graph illustrating how much of a product a firm will sell at different prices. |
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Term
| Movement along a supply curve |
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Definition
| The change in quantity supplied brought about by a change in price. |
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Term
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Definition
| The change that takes place in a supply curve corresponding to a new relationship between quantity supplied of a good and the price of that good. The shift is brought about by a change in the original conditions. |
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Term
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Definition
| The sum of all that is supplied each period by all producers of a single product. |
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Term
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Definition
| The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change. |
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Term
| excess demand or shortage |
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Definition
| The condition that exists when quantity demanded exceeds quantity supplied at the current price. |
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Term
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Definition
| the condition that exists when quantity supplied exceeds quantity demanded at the current price |
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Term
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Definition
| The process by which the market system allocates good and services to consumers when quantity demanded exceeds quantity supplied. |
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Term
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Definition
| A maximum price that sellers may charge for a good, usually set by government. |
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Term
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Definition
| Waiting in line as a means of distributing goods and services: a nonprice rationing mechanism. |
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Term
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Definition
| Those who receive special treatment from dealers during situations of excess demand |
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Term
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Definition
| Tickets or coupons that entitle individuals to purchase a certain amount of a given product per month |
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Term
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Definition
| A market in which illegal trading takes place at market-determined prices. |
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Term
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Definition
| A minimum price below which exchange is not permitted. |
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Term
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Definition
| A price floor set for the price of labor. |
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Term
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Definition
| The difference between the maximum amount a person is willing to pay for a good and its current market price |
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Term
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Definition
| the difference between the current market price and the full cost of production for the firm |
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Term
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Definition
| the total loss of producer and consumer surplus from underproduction or overproduction |
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Term
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Definition
| A general concept used to quantify the response in one variable when another variable changes |
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Term
| Price elasticity of demand |
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Definition
| the ratio of the percentage of change in quantity demanded to the percentage of change in price; measures the responsiveness of quantity demanded to changes in prices. |
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Term
| perfectly inelastic demand |
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Definition
| demand in which quantity demanded does not respond at all to a change in price |
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Term
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Definition
| demand in which quantity drops to zero at the slightest increase in price |
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Term
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Definition
| a demand relationship in which the percentage change in quantity demanded is larger than the percentage change in price in absolute value (a demand elasticity with an absolute value>1) |
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Term
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Definition
| demand that responds somewhat, but not a great deal, to changes in price. Inelastic demand has a numerical value between zero and -1. |
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Term
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Definition
| a demand relationship in which the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value. demand elasticity of -1. |
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Term
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Definition
%Change q demanded= Q2-Q1 over
(Q1+Q2)/2
whole thing *100. |
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Term
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Definition
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Term
| Income elasticity of Demand |
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Definition
| %change in quantity demanded/%change in income |
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Term
| Cross-price elasticity of demand |
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Definition
| %change in quantity of Y demanded/ %change in price of X |
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Term
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Definition
| %change in quantity supplied/ %change in price |
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Term
| Elasticity of Labor Supply |
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Definition
| %change in quantity of labor supplied/ %change in the wage rate |
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Term
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Definition
| the limits imposed on household choices by income, wealth, and product prices. |
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Term
| Choice set or opportunity set |
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Definition
| the set of options that is defined and limited by a budget constraint |
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Term
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Definition
| the set of opportunities to purchase real goods and services available to a household as determined by prices and money income |
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Term
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Definition
| the satisfaction a product yields |
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Term
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Definition
| the additional satisfaction gained by the consumption or use of one more unit of a good or service |
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Term
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Definition
| the total amount of satisfaction obtained from consumption of a good or service |
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Term
| law of diminishing marginal utility |
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Definition
| the more of any one good consumed in a given period, the less satisfaction (utility) generated by consuming each additional (marginal) unit of the same good. |
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Term
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Definition
| equating the ratio of the marginal utility of a good to its price for all goods. |
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Term
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Definition
A paradox stating that 1. the things with the greatest value in use frequently have little or no value in exchange
2. the things with the greatest value in exchange frequently have little or not value in use |
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Term
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Definition
| a curve that shows the quantity of labor supplied at different wage rates. its shape depends on how households react to changes in the wage rate. |
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Term
| income effect of a wage increase |
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Definition
| an increase in income will lead to a higher demand for leisure and a lower labor supply |
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Term
| substitution effect of a wage increase |
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Definition
| an increase in income means that each hour of leisure is more forgone wages. means a lower quantity demanded of leisure and a higher quantity supplied of labor. |
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Term
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Definition
| the complex set of institutions in which suppliers capital and the demand for capital interact. |
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Term
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Definition
| the process by which inputs are combined, transformed and turned into outputs |
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Term
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Definition
| an organization that comes into being when a person or a group of people decides to produce a good or service to meet a perceived demand. |
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Definition
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Term
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Definition
| the amount received from the sale of the product (p*q) |
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Term
| total cost (total economic cost) |
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Definition
| the total of out of pocket costs and opportunity cost of all factors of production |
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Term
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Definition
| a rate of return on capital that is just sufficient to keep owners and investors satisfied. |
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Term
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Definition
the period of time for which two conditions hold:
1. the firm is operating under a fixed scale of production
2. firms can neither enter not exit an industry |
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Term
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Definition
| that period of time for which there are no fixed factors of production: firms can increase or decrease the scale of operation, and new firms can enter and existing firms can exit the industry |
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Term
| optimal method of production |
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Definition
| the production method that minimizes cost |
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Term
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Definition
| the quantitative relationship between inputs and outputs |
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Term
| labor-intensive technology |
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Definition
| technology that relies heavily on human labor instead of capital |
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Term
| capital-intensive technology |
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Definition
| technology that relies heavily on capital instead of human labor |
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Term
| production function or total product function |
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Definition
| a numerical or mathematical expression of a relationship between inputs and outputs. shows units of total product as a function of units of inputs. |
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Term
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Definition
| the additional output that can be produced by adding one more unit of a specific input. |
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Term
| law of diminishing returns |
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Definition
| when additional units of a variable input are added to fixed inputs, after a certain point, the marginal product of the variable input declines |
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Term
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Definition
the average amount produced by each unit of a variable factor of production
total product/total units of labor |
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Term
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Definition
| any cost that does not depend on the firms level of output. they are incurred even if the firm produces nothing. no fixed costs in the long run. |
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Term
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Definition
| a cost that depends on the level of production chosen |
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Term
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Definition
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Term
| Total Fixed Costs or overhead |
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Definition
| The total of all costs that do not change with output even if output is zero |
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Term
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Definition
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Term
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Definition
| the process of dividing total fixed costs by more units of output. AFC declines as q rises |
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Term
| Total Variable Costs (TVC) |
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Definition
| the total of all costs that vary with output in the short run |
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Term
| Total variable cost curve |
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Definition
| A graph that shows the relationship between TVC and the level of the firm's output |
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Term
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Definition
the increase in total cost that results from producing one more unit of output.
change in TC/Change in q |
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Definition
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Definition
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Term
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Definition
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Term
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Definition
| an industry structure in which there are many firms, each small relative to the industry, producing identical products and in which no firm is large enough to have any control over prices. new competitors can freely enter and exit the market. |
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Term
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Definition
| undifferentiated products; products that are identical to, or indistinguishable from, one another. |
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Term
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Definition
| the additional revenue that a firm takes in when it increases output by one additional unit. perfect comp= P=MR. |
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Term
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Definition
| the situation in which a firm is earning exactly a normal rate of return |
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Term
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Definition
| the lowest point on the AVC curve. when price falls below the minimum point on AVC, total revenue is insufficient to cover variable costs and the firms will shut down and bear losses equal to fixed costs. |
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Term
| short run industry supply curve |
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Definition
| the sum of the marginal cost curves of all the firms in the industry |
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Term
| increasing returns to scale, or economies of scale |
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Definition
| an increase in a firm's scale of production that leads to lower costs per unit produced |
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Term
| constant returns to scale |
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Definition
| an increase in a firm's scale of production has no effect on costs per unit produced |
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Term
| decreasing returns to scale, or diseconomies of scale |
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Definition
| an increase in a firm's scale of production leads to higher costs per unit produced |
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Term
| long-run average cost curve (LRAC) |
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Definition
| the "envelope" of a series of short-run cost curves. shoes the average cost of producing the associated level of output at a point |
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Term
| minimum efficient scale (MES) |
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Definition
| the smallest size at which the LRAC is at its minimum |
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Term
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Definition
| the scale of plant that minimizes average cost |
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Term
| long-run competitive equilibrium |
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Definition
| when P=SRMC=SRAC=LRAC and profits are zero |
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Term
| partial equilibrium analysis |
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Definition
| the process of examining the equilibrium conditions in individual markets and for households and firms separately. |
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Term
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Definition
| the condition that exists when all markets in an economy are in simultaneous equilibrium |
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Term
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Definition
| the condition in which the economy is producing what people want at least possible cost |
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Term
| Pareto efficiency or Pareto optimality |
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Definition
| A condition in which no change is possible that will make some members of society better off without making some members of society worse off |
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Term
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Definition
| society gains value by producing more X |
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Term
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Definition
| Society gains value by producing less X |
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Term
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Definition
| occurs when resources are misallocated, or allocated inefficiently. the result is waste or lost value. |
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Term
| public goods, or social goods |
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Definition
| goods and services that bestow collective benefits on members of society. Generally, no one can be excluded from enjoying their benefits. |
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Term
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Definition
| A cost or benefit imposed or bestowed on an individual or a group that is outside, or external to, the transaction |
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Term
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Definition
| the absence of full-knowledge concerning product characteristics, available prices, and so on. |
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