Studied by 63 peopleceteris paribus
the other variables that aren't being talked about stay the same; when all else is equal
economic model
a simplified version of the economic environment, with all of the nonessential features eliminated
economics
the study of choices that are made when there is scarcity
entrepreneurship
effort to combine the other factors of production to produce and sell goods
factors of production
natural resources, labor, physical capital, human capital, and entrepreneurship
human capital
knowledge and skills a worker has that is required for their job, acquired through education and experience
labor
physical and mental effort used by people to produce goods
macroeconomics
the study of a nation's economics as a whole, focused on inflation, employment, and economic growth
microeconomics
the study of choices made by individuals, groups of people, businesses, and governments, and their effects on the economy
marginal change
how a small change in one variable affects another variable, and the effect of that change on decision making
natural resources
resources provided by nature, such as oil, water, mineral deposits; some use the term "land" instead
physical capital
the stock of equipment and infrastructure that is used to produce goods and services
normative analysis
type of economic analysis that predicts the consequences of actions by asking "what ought to be"
positive analysis
type of economic analysis that predicts the consequences of actions by asking "what is" or "what will be"
scarcity
the idea that resources are limited, but wants and needs are limitless
variable
a measure of something that can take on different values
marginal benefit
the additional benefit resulting from a small increase in an activity
marginal cost
the additional cost resulting from a small increase in an activity
nominal value
an amount of money at its face value
real value
an amount of money valued by the amount of goods it can buy
real-nominal principle
the amount of money people carry around depends on the price of the goods and services they buy
opportunity cost
the value of what you are missing out on by designating resources to a different area
production possibilities curve
curve that shows what is attainable based on available resources
absolute advantage
requiring less resources to provide the same good or service
centrally planned economy
an economy in which a planning authority decides what products to produce, how to produce them, and who gets the products
comparative advantage
having a lower opportunity cost to produce a good or service
export
a product produced in the home country and sold abroad
import
a product produced abroad and purchased in the home country
market economy
an economy in which the production of products and their prices are determined by an open market competition between businesses and firms
change in demand
when there is a change in the quantity consumers are willing to buy at a certain price point due to external variables, shifts the demand curve
change in quantity demanded
when there is a change in the quantity consumers are willing to purchase due to a change in the price, moves along the demand curve
change in quantity supplied
a change in the quantity a producer is willing and able to sell when the price changes
change in supply
when there is a change in the quantity suppliers are willing to produce and sell at a certain price point, shifts the supply curve
complements
two goods that are consumed together as a package, and a decrease in the price of one good decreases the cost of the entire package, causing consumers to buy more of both goods
demand schedule
table that shows the relationship between the price of a particular product and the quantity that an individual consumer is willing to buy
excess demand
at a certain market price, the quantity demanded exceeds the quantity supplied, meaning that consumers are willing to buy more than producers are willing to sell; a shortage
excess supply
the quantity supplied exceeds the quantity demanded, meaning that producers are willing to sell more than consumers are willing to buy; a surplus
individual demand curve
a graphical representation of the relationship between the price of a particular product and the quantity that an individual consumer is willing to buy
individual supply curve
a graphical representation of the relationship between the price of a particular product and the quantity that an individual producer is willing to sell
inferior good
consumers buy larger quantities of goods in this category when their income decreases
law of demand
all other factors being equal, as the price of a good or service increases, the quantity of goods or services that consumers demand will decrease, and vice versa
law of supply
all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa
market demand curve
shows the relationship between the price of the good and the quantity demanded by all consumers
market equilibrium
when the quantity of a product demanded equals the quantity supplied at the prevailing market price, no pressure to change the price
market supply curve
shows the relationship between the price of the good and the quantity that all producers together are willing to sell
minimum supply price
the lowest price at which a product is supplied, influenced by the marginal cost of producing the product
normal good
when income increases, a consumer buys a larger quantity, most goods fall into this category
perfectly competitive market
many buyers and sellers of a product, so no single buyer or seller can affect the market price
quantity demanded
how much of a particular product an individual consumer is willing and able to buy
quantity supplied
how much of a product a producer is willing and able to produce and sell
substitutes
two similar products, an increase in the price of the first good may cause some consumers to switch to the second good
supply schedule
table that shows the relationship between the price of a particular product and the quantity that an individual producer is willing to sell
cross-price elasticity of demand
the responsiveness of demand to changes in the prices of other goods, indicating how much more or less of a particular product is purchased as other prices change
elastic demand
price elasticity is greater than 1.0, examples include restaurant meals, air travel, and movies
income elasticity of demand
the responsiveness of demand to changes in income, equal to percent change in quantity demanded divided by percent change in income
inelastic demand
price elasticity is less that 1.0, examples include salt, eggs, coffee, and cigarettes
perfectly elastic demand
price elasticity is infinite and the demand curve is horizontal, meaning that only one price is possible
perfectly elastic supply
the percentage change in quantity supplied is infinite, meaning that if the price drops below a certain point, the quantity supplied would go to zero
perfectly inelastic demand
the quantity demanded doesn’t change as the price changes, so the demand curve is vertical at the fixed quantity, price elasticity of demand is 0
perfectly inelastic supply
price elasticity of supply is 0: the percentage change in quantity supplied is zero, one example is land
price elasticity of demand
the responsiveness of the quantity demanded to changes in price, equal to percent change in quantity demanded divided by percent change in price
price elasticity of supply
the responsiveness of the quantity supplied to changes in price, equal to percent change in quantity supplied divided by percent change in price
total revenue
total money a business generates from selling goods or services
unit elastic demand
price elasticity of demand is exactly 1.0: quantity increases by same amount as price, examples include housing and fruit juice
consumer surplus
your willingness to pay minus the price you actually pay
deadweight loss
deadweight loss is the decrease in the total surplus of the market due to a price floor or ceiling, in the sense that it is not offset by a gain to anyone else
deadweight loss from taxation
excess burden of a tax, loss of surplus that exceeds the amount lost to taxes from the government
efficiency
attained when economies distribute resources in a manner that maximizes benefits and eliminates waste
price ceiling
maximum price for a good set by the government to regulate a good
price floor
minimum price for a good set by the government to regulate a good
producer surplus
the price a producer receives for a product minus the marginal cost of production
total surplus
the sum of consumer surplus and producer surplus
willingness to accept
the minimum amount the seller is willing to accept as payment for a product, equal to the marginal cost of production
willingness to pay
the maximum amount you are willing to pay for the product
diminishing marginal utility
each additional unit of something leads to an ever-smaller increase in the utility of that unit
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