Uni Econ Defs

economics

a social science that studies how individuals, societies, businesses and governments (consumers) allocate scarce resources to fulfil their unlimited needs and wants; the study of rationing systems.

microeconomics

a branch of economics relating to broad economic theories and models that help examine the behaviour of individual decision-making units in an economy.

macroeconomics

an economic branch that studies the behaviour of entire economies on an aggregate level.

opportunity cost

the value of the next best alternative forgone when a decision is made

production possibilities curve/frontier (PPC)

a curve that illustrates the different combinations of producing two goods using all available resources

positive economics

economic statements that are objective, factual, and verifiable, often backed by statistics.

normative economics

economic statements that are subjective and opinion-based, often an expression of how things should be.

market

any kind of arrangement where buyers and sellers of goods, services, or resources are linked together to carry out an exchange

Utility

The total satisfaction derived from consuming a good or service, measuring how much value a consumer places on a good or service.

total utility

overall satisfaction derived from consuming a certain amount of a good or service

marginal utility

additional satisfaction gained from consuming one more unit of the same good or service

marginal utility calculation

change in Tu/ change in quantity

(Tu2-Tu1)/(Q2-Q1)

law of diminishing marginal utility

as a person consumers more units of a good or service, the additional satisfaction or utility derived from each additional unit tends to decrease, ceteris paribus.

optimal purchase rule

a consumer maximizestheir total utility when the marginal utility per dollar spent on each good or service is equal to the price of the good (P=MU).

indifference curve

shows all possible combinations of two goods that provide a consumer with the same level of satisfaction ot utility; meaning that consumers are “indifferent" (indecisive) between any two points on the curve.

indifference map

collection of indifference curves

budget constraint

represents all possible combinations of two goods that a consumer can afford given their income and the prices of the goods

equation: I=Px(Qx)+Py(Qy)

Where i is the income

price mechanism

a system in the market economy where forces of supply and demand determine the prices and quantities of goods and services