Studied by 141 people
economics
the social science dealing with the use of scarce resources to obtain the maximum satisfaction of society's virtually unlimited economic wants
utility
the want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services)
trade-offs
the sacrifices of some or all of one economic goal, good, or service to achieve some other goal, good, or service
macroeconomics
the part of economics concerned with the economy as a whole; with such major aggregates such as the household, business, and government sectors; and with measures of the total economy
microeconomics
the part of economics concerned with such individual units as industries, firms, and households and with individual markets, specific goods and services, and product and resource prices
positive statements
statements based on facts and analysis to establish scientific generalizations about economic behavior
normative statements
statements involving value judgements about what the economy should be like
factors of production
economic resources: land, labor, capital, and entrepreneurial ability
productive efficiency
the production of a good in the least cast way; occurs when production takes place at the output at which the ATC is at a minimum & marginal product per dollar's worth of input is the same for all inputs
allocative efficiency
the apportionment of resources among firms and industries to obtain the production of the products most wanted by society; MC = P or MB
consumer goods
products/services that satisfy human wants directly
capital goods
human-made resources used to produce goods and services; goods that do not directly satisfy human wants
production possibilities curve
a curve showing the different combinations of two goods/services that can be produces in a full-employment, full-production economy where the available supplies of resources and tech are fixed
opportunity cost
the amount of other products that must be forgone/sacrificed to produce a unit of a product
law of increasing opportunity cost
the principle that as the production of a good increases, the opportunity cost of producing an additional unit rises
market economy
an economy in which only the private decisions of consumers, resource suppliers, and firms determine how resources are allocated
command economy
a method of organizing an economy in which property resources are publicly owned/govt. uses central economic planning to direct and coordinate economic activities
resource market
a market in which households sell and firms buy resources/the services of resources
product market
a market in which products are sold by firms and bought by households
demand
a schedule showing the amounts of a good or service that buyers (or a buyer) wish to purchase at various prices during some time period
law of demand
the principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded and conversely for a decrease in price
law of diminishing marginal utility
the principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good/service decreases
income effect
a change in the quantity demanded of a product that results from the change in real income caused by a change in the product's price
substitution effect
a change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product's price
normal goods
a good/service whose consumption increases when income increases/fall when income decreases, price remaining constant
inferior goods
a good/service whose consumption declines when income increases (and conversely), price remaining constant
supply
a schedule showing the amounts of a good or service that sellers (or a seller) will offer at various prices during some period
law of supply
the principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely
surplus
the amount by which the quantity supplied of a produce exceeds the quantity demanded at a specific price
shortage
the amount by which the quantity demanded of a product exceeds the quantity supplied at a particular price
price ceiling
a legally established maximum price for a good or service
price floor
a legally determined price above the equilibrium price
price elasticity of demand
the ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource
elastic demand
product or resource demand whose price elasticity is greater than 1. This means the resulting change in quantity demanded is greater than the percentage change in price
inelastic demand
product or resource supply for which the price elasticity coefficient is less than 1. The percentage change in quantity supplied is less than the percentage change in price
perfectly inelastic demand
product or resource demand in which quantity demanded can be of any amount at a particular product price; graphs as a horizontal supply curve
cross elasticity of demand
the ratio of the percentage change in quantity demanded of one good to the percentage change in the price of some other good. A positive coefficient indicates the two products are substitute goods; a negative coefficient indicates the two products are complementary goods
income elasticity of demand
the ratio of the percentage change in quantity demanded of one good to the percentage change in consumer income; measures the responsiveness of consumer purchases to income changes
utility maximization rule
the principle that to obtain the greatest utility, the consumer should allocate money income so that the last dollar spent on each good or service yields the same marginal utility
explicit cost
the monetary payment a firm must make to an outsider to obtain a resource
implicit cost
the monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes a normal profit
normal profit
the payment made by a firm to obtain and retain entrepreneurial ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm
economic profit
the total revenue of a firm less its economic costs (which include both explicit costs and implicit costs); also called "pure profit" and "above-normal profit"
law of diminishing returns
the principle that as successive increments of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decrease
fixed cost
any cost that in total does not change when the firm changes its output the cost of fixed resources
variable cost
a cost that in total increases when the firm increases its output and decreases when the firm reduces its output
total cost
the sum of fixed cost and variable cost
economies of scale
reductions in the average total cost of producing a product as the firm expands the size of plant (its output) in the long run; the economies of mass production
diseconomies of scale
increases in the average total cost of producing a product as the firm expands the size of its plant (its output) in the long run
constant returns to scale
an economic condition where a company's inputs, like capital and labor, increase at the same rate as their outputs, or value of their goods
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