Microeconomics Key Concepts Flashcards

Vocabulary practice flashcards covering introductory microeconomics topics including scarcity, PPF, absolute/comparative advantage, demand, determinants of demand, and market definitions.

Economics

A social science studying the allocation of limited resources across unlimited wants and desires.

Microeconomics

The study of choices made regarding limited resources (inputs).

Scarcity Principle

The principle that resources are limited, making them scarce; spending more time or resources on any one activity means having less to spend on others.

Opportunity Cost

The value of the next best alternative given up when making a decision (note: price in dollars does not equal value).

Capital

Created resources or "stuff" that makes other "stuff" (e.g., machines, buildings, desks, chairs). Money is non-productive potential capital, not capital itself.

Entrepreneurship

Taking the risk to bring together resources (land, labor, and capital) to produce an output.

Free Market

A market with no government or outside control, influenced entirely by the agents acting within the market.

Market (Professor Definition)

A set of rules about the exchange of information about value. Markets are not inherently fair.

Production Possibility Frontier (PPF / PPC)

The set of all possible output combinations of two goods that can be produced using all available resources and current technology.

Constant Opportunity Cost (PPF)

Represented by a straight downward-sloping PPF line, occurring when resources are perfect substitutes for each other.

Increasing Opportunity Cost (Bowed-Out PPF)

Represented by a PPF bowed outward from the origin, occurring because inputs (labor/resources) are specialized.

Absolute Advantage

When a person or firm can produce an output using less time or resources than another, or can do something another cannot.

Comparative Advantage

When a person, firm, or country can produce an output at a lower opportunity cost than another.

Largest Trading Partners of the US

1. Mexico, 2. Canada, 3. China.

Demand

The usually negative (inverse) relationship between the price of a good and the quantity of units purchased.

Law of Demand

The principle that as price falls, quantity demanded increases; as price rises, quantity demanded decreases.

Change in Quantity Demanded

A change in the number of units purchased caused solely by a change in price, shown as movement along a single demand curve.

Change in Demand

A change in the number of units purchased with no change in price, shown as an entire shift of the demand curve.

Normal Good

A good for which demand increases as consumer income increases.

Inferior Good

A good for which demand decreases as consumer income increases.

Substitutes

Goods consumed in place of one another; an increase in the price of Good A leads to an increase in demand for Good B.

Complements

Goods consumed together (e.g., hamburgers and buns); an increase in the price of Good A leads to a decrease in demand for Good B.

Tariffs

Taxes on imported goods that are always imposed on the domestic buyer, resulting in decreased spending.