Colander Microeconomics Chapters 1-5 Key Terms

abduction

a method of analysis that uses a combination of inductive methods and deductive methods

art of economics

the application of the knowledge learned in positive economics to the achievement of the goals one has determined in normative economics

deduction

a method of reasoning in which one deduces a theory based on a set of almost self-evident principles; also, the fall in the price level

economic decision rule

if the marginal benefits of doing something exceed the marginal costs, do it; if the marginal costs of doing something exceed the marginal benefits, don't do it

economic force

the necessary reaction to scarcity

economic model

a framework that places the generalized insights of a theory in a more specific contextual setting

economic policy

an action (or inaction) taken by government to influence economic actions

economic principle

a commonly held economic insight stated as a law or general assumption

economics

the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society

efficiency

achieving a goal as cheaply as possible; also, using as few inputs as possible

experimental economics

a branch of economics that studies the economy through controlled laboratory experiments

induction

a method of reasoning in which one develops general principles by looking for patterns in the data

invisible hand

the price mechanism; the rise and fall of prices that guides out actions in a market

invisible hand theorem

a market economy, through the price mechanism, will tend to allocate resources inefficiently

macroeconomics

the study of the economy as a whole, which includes inflation, unemployment, business cycles and growth

marginal benefit

additional benefit above and beyond the benefits already derived

marginal cost

additional cost over and above the costs already incurred; also, increase (decrease) in total cost from increasing (or decreasing) the level of output by one unit; also, the change in total cost associated with a change in quantity

market force

an economic force that is given relatively free rein by society to work through the market

microeconomics

the study of individual choice, and how that choice in influenced by economic forces

natural experiment

a naturally occurring event that approximates a controlled experiment where something has changed in one place but has not changed somewhere else; that is, an event created by nature that can serve as an experiment

normative economics

the study of what the goals of the economy should be

opportunity cost

the benefit you might have gained from choosing the next-best alternative

positive economics

the study of what is, and how the economy works

precepts

policy rules that conclude that a particular course of action is preferable

scarcity

the goods available are too few to satisfy individuals' desires

sunk cost

cost that has already been incurred and cannot be recovered

theorems

propositions that are logically true based on the assumptions in a model

comparative advantage

the ability to be better suited to the production of one good than to the production of another good

efficiency

achieving a goal as cheaply as possible; also, using as few inputs as possible

globalization

the increasing integration of economies, cultures, and institutions across the world

inefficiency

getting less output from inputs that, if devoted to some other activity, would produce more output

input

what is put into a production process to achieve an output

laissez-faire

an economic policy of leaving coordination of individuals actions to the market

law of one price

the wages of workers in one country will not differ significantly from the wages of (equal) workers in another institutionally similar country

output

a result of a productive activity

outsourcing

the relocation of production once done in the United States to foreign countries

principle of increasing marginal opportunity cost

in order to get more of something, one must give up ever increasing quantities of something else

production possibility curve (PPC)

a curve measuring the maximum combination of outputs that can be obtained from a given number of inputs

production possibility table

a table that lists a choice's opportunity costs by summarizing what alternative outputs can be achieved with given inputs

productive efficiency

achieving as much output as possible from a given amount of inputs or resources

business

a private producing unit in our society

capitalism

an economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists

consumer sovereignty

the principle that the consumer's wishes determine what's produced

corporation

a business that is treated as a person, legally owned by its stockholders; its stockholders are not liable for the actions of the corporate "person"

demerit good or activity

a good or activity that government believes is bad for people even though they choose to use the good or engage in the activity

e-commerce

buying and selling over the Internet

entrepreneurship

the ability to organize and get something done; also, labor services that involve high degrees of organizational skills, concern, oversight responsibility, and creativity

feudalism

an economic system in which traditions rule

global corporation

a corporation with substantial operations on both the production and sales sides in more than one country

households

groups of individuals living together and making joint decisions

institutions

the formal and informal rules that constrain human behavior

limited liability

the liability of a stockholder (owner) in a corporation; it is limited to the amount the stockholder has invested in the company

macroeconomic externality

an externality that affects the levels of unemployment, inflation, or growth in the economy as a whole

market economy

an economic system based on private property and the market in which, in principle, individuals decide how, what, and for whom to produce

market failure

a situation in which the invisible hand pushes in such a way that the individual decisions do not lead to socially desirable outcomes

mercantilism

an economic system in which government determines the what, how, and for whom decisions by doling out the rights to undertake certain economic activities

merit good or activity

a good or activity that government believes is good for you, even though you may not choose to consume the good or engage in the activity

monopoly power

the ability of individuals or firms currently in business to prevent other individuals or firms from entering the same kind of business

partnership

a business with two or more owners

private good

a good that, when consumed by one individual, cannot be consumed by another individual

private property right

control a private individual or firm has over an asset

profit

what's left over from total revenues after all the appropriate costs have been subtracted; that is, total revenue - total cost; also, a return on entrepreneurial activity and risk taking

public good

a good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual; that is, a good that is nonexclusive and nonrival

socialism

an economic system based on individuals' goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce

sole proprietorship

a business that has only one owner

stock

a financial asset that conveys ownership rights in a corporation; also, certificate of ownership in a company

demand

a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant

demand curve

the graphic representation of the relationship between price and quantity demanded

equilibrium

a concept in which opposing dynamic forces cancel each other out

equilibrium price

the price toward which the invisible hand drives the market

equilibrium quantity

the amount bought and sold at the equilibrium price

excess demand

situation when quantity demanded is greater than quantity supplied

excess supply

situation when quantity supplied is greater than quantity demanded

fallacy of composition

the false assumption that what is true for a part will also be true for the whole

law of demand

quantity demanded rises as price falls, other things constant; also can be stated as quantity demanded falls as price rises, other things constant

law of supply

quantity supplied rises as price rises, other things constant; also can be stated as quantity supplied falls as price falls, other things constant

market demand curve

the horizontal sum of all individual demand curves

market supply curve

the horizontal sum of all individual supply curves

movement along a demand curve

the graphical representation of the effect of a change in price on the quantity supplied

movement along a supply curve

the graphical representation of the effect of a change in price on the quantity supplied

quantity demanded

a specific amount that will be demanded per unit of time at a specific price, other things constant

quantity supplied

a specific amount that will be supplied at a specific price, other things constant

shift in demand

the graphical representation of the effect of anything other than price on demand

shift in supply

the graphical representation of the effect of anything other than price on supply

supply

a schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant

supply curve

a graphical representation of the relationship between supply and quantity supplied

euro

the currency used by 16 members of the European Union

exchange rate

the price of one country's currency in terms of another currency

excise tax

a tax that is levied on a specific good

minimum wage law

a law specifying the lowest wage a firm can legally pay an employee

price ceiling

a government-imposed limit on how high a price can be charged; in other words, a government set price below the market equilibrium price

price floor

a government-imposed limit on how low a price can be charged; in other words, a government-set price above equilibrium price

rent control

a price ceiling on rents, set by government

tariff

an excise tax on a imported (internationally traded) good

third-party-payer market

a market in which the person who receives the good differs from the person paying for the good

bar graph

a graph where the area under each point is filled in to look like a bar

coordinate system

a two-dimensional space where one point represents two numbers

direct relationship

a relationship in which when one

variable goes the other goes up too

graph

pictures of points in a coordinate system in which points denote relationships between numbers.

interpolation assumption

the assumption that the relationship between variables is the same between points as it is at the points