Principles of Microeconomics Chapters 1-6

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ceteris paribus

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75 Terms

1

ceteris paribus

the other variables that aren't being talked about stay the same; when all else is equal

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2

economic model

a simplified version of the economic environment, with all of the nonessential features eliminated

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3

economics

the study of choices that are made when there is scarcity

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4

entrepreneurship

effort to combine the other factors of production to produce and sell goods

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5

factors of production

natural resources, labor, physical capital, human capital, and entrepreneurship

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6

human capital

knowledge and skills a worker has that is required for their job, acquired through education and experience

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7

labor

physical and mental effort used by people to produce goods

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8

macroeconomics

the study of a nation's economics as a whole, focused on inflation, employment, and economic growth

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9

microeconomics

the study of choices made by individuals, groups of people, businesses, and governments, and their effects on the economy

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10

marginal change

how a small change in one variable affects another variable, and the effect of that change on decision making

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11

natural resources

resources provided by nature, such as oil, water, mineral deposits; some use the term "land" instead

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12

physical capital

the stock of equipment and infrastructure that is used to produce goods and services

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13

normative analysis

type of economic analysis that predicts the consequences of actions by asking "what ought to be"

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14

positive analysis

type of economic analysis that predicts the consequences of actions by asking "what is" or "what will be"

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15

scarcity

the idea that resources are limited, but wants and needs are limitless

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16

variable

a measure of something that can take on different values

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17

marginal benefit

the additional benefit resulting from a small increase in an activity

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18

marginal cost

the additional cost resulting from a small increase in an activity

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19

nominal value

an amount of money at its face value

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20

real value

an amount of money valued by the amount of goods it can buy

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21

real-nominal principle

the amount of money people carry around depends on the price of the goods and services they buy

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22

opportunity cost

the value of what you are missing out on by designating resources to a different area

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23

production possibilities curve

curve that shows what is attainable based on available resources

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24

absolute advantage

requiring less resources to provide the same good or service

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25

centrally planned economy

an economy in which a planning authority decides what products to produce, how to produce them, and who gets the products

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26

comparative advantage

having a lower opportunity cost to produce a good or service

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27

export

a product produced in the home country and sold abroad

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28

import

a product produced abroad and purchased in the home country

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29

market economy

an economy in which the production of products and their prices are determined by an open market competition between businesses and firms

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30

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

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31

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

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32

change in quantity supplied

a change in the quantity a producer is willing and able to sell when the price changes

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33

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

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34

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

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35

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

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36

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

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37

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

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38

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

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39

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

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40

inferior good

consumers buy larger quantities of goods in this category when their income decreases

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41

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

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42

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

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43

market demand curve

shows the relationship between the price of the good and the quantity demanded by all consumers

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44

market equilibrium

when the quantity of a product demanded equals the quantity supplied at the prevailing market price, no pressure to change the price

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45

market supply curve

shows the relationship between the price of the good and the quantity that all producers together are willing to sell

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46

minimum supply price

the lowest price at which a product is supplied, influenced by the marginal cost of producing the product

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47

normal good

when income increases, a consumer buys a larger quantity, most goods fall into this category

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48

perfectly competitive market

many buyers and sellers of a product, so no single buyer or seller can affect the market price

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49

quantity demanded

how much of a particular product an individual consumer is willing and able to buy

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50

quantity supplied

how much of a product a producer is willing and able to produce and sell

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51

substitutes

two similar products, an increase in the price of the first good may cause some consumers to switch to the second good

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52

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

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53

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

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54

elastic demand

price elasticity is greater than 1.0, examples include restaurant meals, air travel, and movies

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55

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

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56

inelastic demand

price elasticity is less that 1.0, examples include salt, eggs, coffee, and cigarettes

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perfectly elastic demand

price elasticity is infinite and the demand curve is horizontal, meaning that only one price is possible

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58

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

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59

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

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60

perfectly inelastic supply

price elasticity of supply is 0: the percentage change in quantity supplied is zero, one example is land

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61

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

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62

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

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63

total revenue

total money a business generates from selling goods or services

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64

unit elastic demand

price elasticity of demand is exactly 1.0: quantity increases by same amount as price, examples include housing and fruit juice

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65

consumer surplus

your willingness to pay minus the price you actually pay

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66

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

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67

deadweight loss from taxation

excess burden of a tax, loss of surplus that exceeds the amount lost to taxes from the government

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68

efficiency

attained when economies distribute resources in a manner that maximizes benefits and eliminates waste

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69

price ceiling

maximum price for a good set by the government to regulate a good

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70

price floor

minimum price for a good set by the government to regulate a good

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71

producer surplus

the price a producer receives for a product minus the marginal cost of production

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72

total surplus

the sum of consumer surplus and producer surplus

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73

willingness to accept

the minimum amount the seller is willing to accept as payment for a product, equal to the marginal cost of production

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74

willingness to pay

the maximum amount you are willing to pay for the product

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75

diminishing marginal utility

each additional unit of something leads to an ever-smaller increase in the utility of that unit

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