Colloqium No. 1

Business Entity

the basic unit of analysis in economics

Capital

amount of financial resources accumulated for conducting business activity \=\> cash capital and amount of capital goods \=\> production capital

Land

terrain, water, air, minerals

Labour

number of employees willing to take up work

Entrepreneurship

the process of starting, organizing, managing, and assuming the responsibility for a business

Goods

in economics it is all the means that can be used, directly or indirectly, to meet human needs

Total Factor Productivity (TFP)

the amount of output that can be achieved with a given amount of factor inputs

Oppurtunity costs

whatever must be given up to obtain some item

Scarcity

Limited quantities of resources to meet unlimited wants

Hidden costs

support staff, downtime, additional network management

Explicit costs

costs that require a firm to spend money

Marginal changes

small incremental adjustments to a plan of action

Circular flow of income

economic model that pictures income as flowing continuously between businesses and consumers

Shift in the Production Possibilities Frontier

A technological advance in the computer industry enables the economy to produce more computers for any given number of cars. As a result, the production possibilities frontier shifts outward.

Production capacity curve

Microeconomy

close-up picture of individual markets, including product design and pricing, efficiency, and costs

Macroeconomy

the economy as a whole

Positive economics

the branch of economic analysis that describes the way the economy actually works

Normative economics

describes beliefs or values about how things should be or what people ought to do rather than what actually is

Market definition

determination of the buyers, sellers, and range of products that should be included in a particular market

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases;

Substitution effect

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

Income effect

the change in consumption resulting from a change in real income

Decrease in demand

demand curve shifts left

Increase in demand

demand curve shifts right

Determinants of demand

the external factors that shift demand to the left or right

Substitution Goods

goods used in place of one another

Complimentary Goods

goods that go together, if price ↑ the demand for both that good and complimentary good ↓.

Normal goods (superior goods)

products whose demand varies directly with income

Inferior goods

goods that consumers demand less of when their incomes rise

Change in quantity demanded

movement along the demand curve

Change in demand

shift of the demand curve

Prices changes the quantity demanded

moves along the curve

The 5 shifters change the demand

moves the entire curve

Elasticity of demand

a measure of how consumers react to a change in price

Inelastic demand

A form of demand in which changes in price do not affect demand.

Elastic demand

A situation in which consumer demand is sensitive to changes in price

Law of Supply

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

Decrease in supply

a leftward shift of the supply curve

Increase in supply

a rightward shift of the supply curve

Determinants of Supply

factors other than price that determine the quantities supplied of a good or service

Taxes

Required payments to a government

Subsides

Financial support from the government

Surplus

A situation in which quantity supplied is greater than quantity demanded; it will fix itself

Shortage

A situation in which consumers want more of a good or service than producers are willing to make available at a particular price; it will fix itself

Equilibrium

a state in which opposing forces or influences are balanced.

Consumer's budget constraint

the limited amount of income available for goods and services

Budget constraint

the limit on the consumption bundles that a consumer can afford

Budget line

shows the consumption bundles available to a consumer who spends all of his or her income

The slope of a budget line

reflects the price ratio of the two products

Utility

the capacity to be useful and provide satisfaction

Marginal Utility (MU)

the additional satisfaction gained by the consumption or use of one more unit of a good or service

Total Utility (TU)

the total amount of satisfaction obtained from consumption of a good or service

Law of Diminishing Marginal Utility

rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchased

Law of Equi-Marginal Utility

Indifference Curve (IC)

a line that shows combinations of goods among which a consumer is indifferent

Consumer Surplus (CS)

the amount a buyer is willing to pay minus the amount the buyer actually pays

Producers Surplus (PS)

the difference between the price sellers receive for a good and the minimum or lowest price for which they would have sold the good