Principles of Microeconomics Review Session for Midterm Exam I

These flashcards cover key concepts and terms related to microeconomics as discussed in the review session for the midterm exam.

Scarcity

The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Sunk Cost

A cost that has already been incurred and cannot be recovered.

Marginal Cost

The cost added by producing one additional unit of a product or service.

Marginal Benefit

The additional satisfaction or utility gained from consuming one more unit of a good or service.

Incentives

Factors that motivate individuals to perform an action.

Normative Economics

An approach that expresses value judgments about economic policies and outcomes.

Positive Economics

An objective analysis of economic phenomena that is based on facts and cause-and-effect relationships.

Production Possibility Frontier (PPF)

A graph that shows the maximum possible output combinations of two goods that can be produced with available resources and technology.

Demand and Supply

The relationship between the quantity of a commodity that consumers are willing to buy and the quantity that producers are willing to sell.

Market Equilibrium

The point where the supply of goods matches demand.

Elasticity of Demand

A measure of how much the quantity demanded of a good changes in response to a change in price.

Inferior Good

A good whose demand decreases when consumer income rises.

Total Revenue

The total income generated from the sale of goods or services.

Elastic Demand

When the quantity demanded changes significantly due to price changes.

Inelastic Demand

When the quantity demanded changes only slightly due to price changes.

Price Elasticity of Demand Formula

E = (% change in quantity demanded) / (% change in price).