Microecononmics: Explore and Apply Ch 1-3
Terms
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- economics
- Studies the allocation of limited resources in response to unlimited wants.
- Scarcity
- a situation in which there are too few resources to meet all human wants.
- the margin
- the cutoff point; decision making at the margin refers to deciding on one more or one less of something.
- microeconomics
- analyzes the individual components of the economy, such as the choices made by people, firms, and industries.
- markets
- make possible the voluntary exchange of resources, goods, and services; can take physical, electronic, and other forms.
- market prices
- serve as signals that guide the allocation of resources.
- macroeconomics
- analyzes economic aggregates, such as aggregate empolyment, output, growth, and inflation.
- command and control
- government decrees that direct economic activity.
- free markets
- the collective decisions of individual buyers and sellers that, taken together, determine what outputs are produced, how those outputs are produced, and who recieves the outputs; free markets depend on private property and free choice.
- mixed economies
- the mixture of free-market and command-and-control methods of resource allocation that characterize modern economies.
- equity
- fairness
- efficiency
- means that resources are used in ways that provide the most value; implies that no one can be mae better off without someone else becoming worse off.
- technological efficiency
- the greatest quantity of output for given inputs; likewise, for any given output, requires the least-cost production technique.
- allocative efficiency
- involves choosing the most valuable mix of outputs to produce.
- invisible hand
- the idea that self-interest and competition promote economic efficencey without any need for action by government.
- market failure
- situation in which the market outcome is inefficient
- normative
- having to do with behavioral norms, which are judgements as to what is good or bad.
- positive
- having to do with what is, was, or will be.
- models
- simplified versions of reality that emphasize features central to answering the quesitons we ask of them.
- opportunity costs
- the value of the best alternative opportunity forgone.
- land
- natural resouces in their natural states.
- labor
- the human capacity to do work.
- human capital
- acquired skills and ailities embodied within a person.
- capital
- anything that is produced in order to increase productivity in the future; includes human capital and physical capital.
- entrepreneuership
- personal initiative to combine resources in productive ways; involves risk.
- technology
- possible techniques of production.
- production possibilities frontier
- a model that shows the various combinations of two goods the economy is capable of producing.
- law of increasing cost
- the rise in the marginal opportunity cost of producing a good as more of that good is produced.
- economic growth
- the ability of the economy to produce more or better output.
- money
- a medium of exchange that removes the need for barter; also a measure of value and a way to store value over time.
- barter
- the exchange of goods and services directly for one another, without the use of money.
- circular flow
- a model of the economy that depicts how the flow of money facilitates a counterflow of resources, goods, and services in the input and output markets.
- output market
- the market where goods and services are bought and sold.
- input market
- the market where resources are bought and sold
- comparative advantage
- the ability to produce a good at a lower opportunity cost (other goods forgone) than others could do.
- absolute advantage
- the ability to produce a good with fewer resources than other producers.
- exports
- goods and services a country sells to other countires.
- imports
- goods and services a country buys from other countries.
- demand
- relates the quantity of a good that consumers would purchase at each of various possible prices, over some period of time, ceteris paribus.
- quantity demanded
- the quantity that consumers would purchase at a given price.
- ceteris paribus
- holding all else constant.
- law of demand
- as price falls, the quantity demanded increases.
- normal goods
- demand for these goods varies directly with income
- inferior goods
- demand for these goods varies inversely with income.
- substitutes
- something that takes the place of something else, such as one breand of cola for another.
- complements
- goods or services that go well with each other, cuch as cream and coffee.
- supply
- relates the quantity of a good that will be offered for sale at each of various possible prices, overs some period of time, ceteris paribus.
- quantity supplied
- the quantity that will be offered for sale at a given price.
- law of supply
- as price rises, the quantity supplied increases.
- market equilibrium
- a situation in which there is no tendency for either price or quantity to change.
- surplus
- the excess of quantity demanded , which occurs when price is above equilibrium.
- shortage
- the excess of quantity demanded over quantity supplied, which occurs when price is below equilibrium.