microeconomics ch 1-4

economic model

A simplified version of reality used to analyze real-world economic situations.

macroeconomics

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

microeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

marginal analysis

Analysis that involves comparing marginal benefits and marginal costs

opportunity cost

The highest valued alternative that must be given up to engage in an activity

scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

trade off

The idea that because of scarcity, producing more of one good or service means producing less of another good or service.

circular flow model

A model that illustrates how participants in markets are linked.

comparative advantage

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

production possibilities frontier

A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

Market

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Product Market

A market for goods—such as computers—or services—such as medical treatment.

Factor Market

A market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

Factors of Production

The inputs used to make goods and services.

supply

The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.

demand

The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease

Market Equilibrium

A situation in which quantity demanded equals quantity supplied.

Competitive Market Equilibrium

A market equilibrium with many buyers and many sellers.

Surplus

A situation in which the quantity supplied is greater than the quantity demanded.