Econ 1010- Midterm 1

Scarcity

Our inability to satisfy all our wants.

Incentive

A reward that encourages an action or a penalty that discourages action.

Economics

The social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.

Microeconomics

The study of choices that individuals and businesses make, and the way those choices interact in markets.

Macroeconomics

The study of the performance of the national and global economies.

Factors of Production

The resources used to produce goods and services, divided into four categories: Land, Labour, Capital, and Entrepreneurship.

Human Capital

The knowledge and skill people obtain from education, on-the-job training, and work experience.

Opportunity Cost

The next best alternative that must be given up to get something.

Marginal Cost

The opportunity cost from pursuing an incremental increase in an activity.

Marginal Benefit

The benefit from pursuing a small increase in an activity.

Efficiency

When it is not possible to make someone better off without making someone else worse off.

Equity

Fairness in the distribution of resources, which can have various definitions.

Rational Choice

A choice that compares the costs and benefits to achieve the greatest benefit over cost.

Consumer Demand

The relationship between the price of a good and the quantity demanded by consumers.

Law of Demand

Higher prices of a good create smaller quantity demanded, and lower prices create larger quantity demanded.

Substitutes

Goods that can be used in place of one another.

Complements

Goods that are used together with other goods.

Demand Curve

A graph showing the relationship between the quantity demanded of a good and its price.

Change in Demand

A shift in the demand curve due to changes in factors other than the price.

Production Possibility Frontier (PPF)

The boundary between combinations of goods and services that can be produced and those that cannot.

Product Efficiency

The condition when we cannot produce more of one good without producing less of another good.

Economic Growth

The expansion of production possibilities and an increase in the standard of living.

Positive Statement

A statement that can be tested and checked against facts.

Normative Statement

A statement that expresses an opinion and cannot be tested.

Allocative Efficiency

When we cannot produce more of a good without giving up some other good that we value more highly.

Supply

The total amount of a good or service available for purchase at various prices.

Law of Supply

An increase in price results in an increase in the quantity supplied, and a decrease in price results in a decrease in the quantity supplied.

Market Equilibrium

The point where the supply and demand curves intersect, representing a balance between the quantity supplied and the quantity demanded.

Surplus

A situation where the quantity supplied exceeds the quantity demanded at a given price.

Shortage

A situation where the quantity demanded exceeds the quantity supplied at a given price.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to changes in price.

Price Ceiling

A government-imposed limit on how high a price can be charged for a product.

Price Floor

A government-imposed minimum price for a product.

Consumer Surplus

The difference between what consumers are willing to pay for a good versus what they actually pay.

Producer Surplus

The difference between what producers are willing to accept for a good versus what they actually receive.

Normal Goods

Goods whose demand increases when consumer incomes rise and decreases when incomes fall.

Utility

The satisfaction or pleasure derived from consuming a good or service.

Demand Elasticity

A measure of the responsiveness of quantity demanded to a change in price.

Price Elasticity of Demand

The percentage change in quantity demanded resulting from a one percent change in price.

Total Revenue

The total amount of money a firm receives from sales of its product, calculated as price times quantity sold.

Deadweight Loss

The loss of economic efficiency when the equilibrium outcome is not achievable or not achieved.

Market Structure

The organizational and other characteristics of a market which influence the nature of competition and pricing.