economics midterm

key terms

efficiency

using resources to maximize the production of goods and services

profit motive

the desire for financial gain as an incentive in economic activity

open opportunity

the idea that all individuals have the freedom to compete, participate, and make choices in the market or society without restrictions based on race, gender, or background

voluntary exchange

a principle where buyers and sellers freely engage in transactions of goods, services, or resources without persuasion by force

work ethic

it is a set of moral principles, values, and behaviors that an individual applies to their job (integrity, responsibility, and discipline are examples)

public good

a product or service that is non-rivalrous (one person’s use doesn’t stop other from using it) and non-excludable (people can’t be prevented from using it). they benefit everyone, like national defense, clean air, or streetlights, and is usually provided by the government and funded by taxes

market failure

when a free market fails to efficiently allocate resources, leading to an outcome that isn’t optimal for society, resulting in a new loss of economic value or social welfare. ex: pollution, monopolies, and inequality

free rider

an individual or entity who consumes more than their fair share of a resource, or benefits from a public good without paying for it. can result in a market failure

subsidy

a form of financial assistance or incentive provided by the government to individuals, businesses, or institutions to reduce production costs or lower consumer prices (negative tax)

regulation

the set of government imposed rules designed to control and manage economic activities to correct market failures, protect customers, ensure fair competition, and promote overall economic stability and public interest

fixed cost

a business expense that does not change with the level of goods and services produced, remaking constant regardless of output, even of production is zero, at least in the short term

variable cost

a production expense that changes directly and proportionally with the volume of goods or services a company produces

total cost

the overall expense a firm incurs to produce a specific quantity of goods or services, calculated as a sum of fixed costs and variable costs

marginal cost

the additional cost incurred from producing one or more unit of a good or service, calculated as the change in total cost divided by the change in quantity produced

marginal product of labor

the additional output produced by adding one more unit of labor (one worker) while keeping all other inputs, such as capital and technology, constant

increasing marginal returns

it happens when adding one more unit of an input (like labor) causes output to rise by a larger amount than the previous unit

diminishing marginal returns

a principle that states that as more of a single variable input is added to fixed inputs (machinery, land), the additional output produced by each new unit will eventuall

negative marginal returns

it occurs when there is an additional unit of a variable input added to a fixed process, and results in a decrease in total output. ex: when a workspace becomes too crowded and workers get in each others way, reducing overall efficiency and total production

elasticity of demand

it measures how sensitive the quantity demanded of a good is to change in other factors, primarily price

elasticity of supply

it measures how responsive the quantity of a good or service supplied is to a change in its price

gross domestic product (GDP)

the total monetary value of all final goods and services produced within a country’s borders in a specific time period, usually a year

interest groups

a formal or informal organization of individuals or groups that share common goals and work to influence government policy and public opinion to benefit their specific interests, without running candidates for office