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Test1 Microeconomics
Principles of Microeconomics
| Term | Definition |
|---|---|
| Economics | the social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of society. |
| Macroeconomics | the part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy. |
| Microeconomics | the part of economics concerned with decision making by individual units such as a household, a firm, or an industry and with individual markets, specific goods and services, and product and resource prices |
| Marginal cost/ Marginal benefit | the extra cost of producing when 1 more unit of output/the extra benefit of consuming 1 more unit of some good or service |
| self-interest | that which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain. |
| four factors of production | land, capital, labor, and entrepreneurial ability |
| opportunity cost/scarcity | the amount of other products that must be forgone or sacrificed to produce a unit of a product/restricts options and demand choices |
| creative destruction | the hypothesis that the creation of new products and production methods simultaneously destroys the market power of existing monopolies |
| command system | a method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities; command economy; communism |
| market system | an economy in which the private decisions of consumers, resource suppliers, and firms determine how resources are allocated; the market system |
| law of demand | the principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in price |
| law of supply | the principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease |
| demand curve | a curve illustrating demand |
| supply curve | a curve illustrating supply |
| determinants of demand | factors other than the price that determine the quantities demanded of a good or service |
| determinants of supply | factors other than price that determine the quantities supplied of a good or service |
| shortage | the amount by which the quantity demanded of a product exceeds the quantity supplied at a particular price |
| surplus | the amount by which the quantity supplied of a product exceeds the quantity demanded at a specific price |
| prospect theory | a behavioral economics theory of preferences having three main features: 1 people ecaluate options on the basis of whether they generate gains or losses relative to the status quo; 2 gains are subject to diminishing marginal utility, while losses are subj |
| endowment effect | the tendency people have to place higher values on items they own |
| law of diminishing marginal utility | the increase in consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases |
| complement goods | products and resources that are used together |
| substitute goods | products or services that can be used in place of each other |
| normal goods | a good or service whose consumption increases and falls when income decreases, price remaining constant |
| inferior goods | a good or service whose consumption declines as income rises, prices held constant |
| utility | the want-satisfying power of a good or service; the satisfaction or pleasure from a good or service |
| Price Elasticity of demand | the ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price |
| price elasticity of supply | the ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price |
| cross elasticity of demand | the ratio of the percentage change in quantity demanded of one good to the percentage change in the price of some other good |
| income elasticity of demand | the ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income |
| economic cost | a payment that must be made to obtain and retain the services of a resoource |
| explicit cost | the monetary payment a firm must make to an outsider to obtain a resource |
| implicit cost | the monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market |
| fixed cost | any cost that in total does not change when the firm changes its output |
| variable cost | a cost that in total increases when the firm increases its output and decreases its output and decreases when the firm reduces its output |
| economic profit | the total revenue of a firm less its economic costs; also called "pure profit" and "above-normal profit" |
| law of diminishing returns | as successive increments of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decrease |
| economies of scale | reductions in the average total cost of producing a product as the firm expands the size of plant(its output) in the long run |
| diseconomies of scale | increases in the average total cost of producing a product as the firm expands the size of its plant (its output) in the long run |
| pure competition | a market structure in which a very large number firms sells a standardized product, which the individual seller has no control over the product price, which there is no price competition |
| pure monopoly | a market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable |
| monopolistic competition | a market structure in which many firms sell a differentiated product, into which entry is relatively easy, which there is considerable non price competition |
| oligopoly | a market structure in which a few firms sell either a standardized or differentiated product, into which entry is difficult product, which entry is difficult |
| productive efficiency | the production of a good in the least costly way |
| allocative efficiency | the apportionment of resources among firms and industries to obtain the production of the products most wanted by society |
| X-efficiency | the production of output at higher average cost than is necessary for producing that level of output |
| four firm concentration ratio | the percentage of total industry sales accounted for by the top four firms in the industry |
| collusion | a situation which firms act together and in agreement to fix prices, divide a market, or otherwise restrict competition |
| cartels | a formal agreement among firms in an industry to set the price of a product and establish the outputs of individual firms or to divide the market for the product geographically |
Created by:
Corlandise32
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