MICROECONOMICS EXAM 1
Terms
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- Business Cycle
- Fluctuations in economic activity. (employment and production)
- Economics
- study of how society manages it's scarce resources.
- Efficiency
- property of society getting the most it can from its scarce resources.
- Equity
- property of distributing prosperity fairly among the members of society.
- Externality
- impact of one persons actions on the well-being of a bystander.
- Incentive
- something that induces a person to act.
- Inflation
- increase in the overall level of prices in the economy.
- Marginal Changes
- small incremental adjustments to a plan of action
- Market Economy
- allocates resources through the decisions of many firms and households as they interact in markets for goods and services
- Market Failure
- a situation in which a market left on it's own fails to allocate resources efficiently.
- Market Power
- ability of a single economic actor to have a substantial influence on market prices.
- Opportunity Cost
- whatever must be given up to obtain some item.
- Productivity
- quantity of goods and services produced from each hour of a worker's time.
- Property Rights
- ability of an individual to own and exercise control over scarce resources.
- Rational People
- people who systematically and purposefully do the best they can to achieve their objectives.
- Scarcity
- limited nature of society's resources.
- Circular-Flow Diagram
- a visual model of the economy that shows how dollars flow through markets among households and firms.
- Macroeconomics
- Study of economy wide phenomena (inflation, unemployment, economic growth.)
- Microeconomics
- study of how households and firms make decisions and how they interact in markets.
- Normative Statements
- claims that attempt to prescribe how the world SHOULD be.
- Positive Statements
- claims that attempt to describe the world AS IT IS.
- Production Possibilities Frontier (PPF)
- graph that shows the combination of output that the economy can possibly produce given the available factors of production and the available production technology
- Absolute Advantage
- ability to produce a good using fewer inputs than another producer.
- Comparative Advantage
- the ability to produce a good at a lower opportunity cost than another producer.
- Exports
- goods produced domestically and sold abroad
- Imports
- goods produced abroad and sold domestically.
- Competitive Market
- many buyers and many sellers so that each has a negligible impact on the market price.
- Complements
- two goods for which an INCREASE in the price on one leads to a DECREASE in the demand of the other.
- Demand Curve
- a graph of the relationship between the price of a good and the quantity demanded.
- Demand Schedule
- table that shows the relationship between the price of a good and the quantity demanded.
- Equilibrium
- a situation in which the market price has reached the level at which quantity supplied EQUALS quantity demanded.
- Equilibrium Price
- the price that balances quantity supplied and quantity demanded
- Equilibrium Quantity
- quantity supplied and the quantity demanded at the equilibrium price.
- Inferior Good
- a good for which, other things are equal, an INCREASE in income leads to a DECREASE in demand.
- Law of Demand
- the claim that, other things equal, the quantity demanded of a good FALLS when the price RISES.
- Law of Supply
- the quantity supplied of a good RISES when the price of a good rises.
- Law of Supply and Demand
- price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance.
- Market
- a group of buyers and sellers of a good or service.
- Normal Good
- an INCREASE in income leads to INCREASE in demand.
- Quantity Supplied
- amount that sellers are willing and able to sell.
- Shortage
- situation where quantity demanded is greater than quantity supplied.
- Substitutes
- two goods for which an INCREASE in the price of one leads to an INCREASE in the demand for another.
- Supply Curve
- a graph of the relationship between the price of a good and the quantity supplied.
- Supply Schedule
- table that shows the relationship between the price of a good and the quantity supplied.
- Surplus
- situation in which quantity supplied is greater than quantity demanded