ECO105—Microeconomics Term Test Review Session

This set of flashcards covers key vocabulary and concepts in Microeconomics, specifically from Chapters 1 to 6, helping students prepare for their term test.

Scarcity

A fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

Opportunity Cost

The cost of the best alternative that is forgone when making a decision.

Circular Flow Diagram

A model that shows how goods and services flow in an economy between households and firms.

Gains from Trade

The increase in total welfare that occurs when countries specialize in producing goods where they have a comparative advantage.

Production Possibilities Frontier (PPF)

A curve that illustrates the varying amounts of two products that an economy can produce given fixed resources.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another producer.

Absolute Advantage

The ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group.

Economics Model

A simplified representation of reality used to understand and predict economic behavior.

Marginal Benefit

The additional satisfaction or utility that a person receives from consuming an additional unit of a good or service.

Marginal Cost

The cost of producing one additional unit of a good.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay.

Producer Surplus

The difference between the amount producers are willing to accept for a good or service and the amount they actually receive.

Total Surplus

The sum of consumer surplus and producer surplus.

Elasticity

A measure of how much buyers and sellers respond to changes in market conditions.

Price Elasticity of Demand

The responsiveness of the quantity demanded to a change in the price of a good.

Inelastic Demand

Demand is considered inelastic when a change in price results in a small change in the quantity demanded.

Elastic Demand

Demand is considered elastic when a change in price results in a larger change in the quantity demanded.

Unit Elastic Demand

Demand is unit elastic if the percentage change in quantity demanded is equal to the percentage change in price.

Cross-Price Elasticity of Demand

A measure of how much the quantity demanded of one good responds to a change in the price of another good.

Income Elasticity of Demand

A measure of how much the quantity demanded changes in response to a change in consumer income.

The Law of Demand

All else being equal, as the price of a good increases, the quantity demanded decreases, and vice versa.

Market Demand

The sum of all individual demands for a particular good or service.

Factors Influencing Demand

Changes in preferences, prices of substitutes, prices of complements, income, expected future prices, and number of consumers.

Factors Influencing Supply

Changes in the price of inputs, price of related goods, expected future prices, and number of businesses.

Sunk Costs

Costs that have already been incurred and cannot be recovered.

Price Floor

A minimum price set by the government that must be paid for a good or service.

Price Ceiling

A maximum price set by the government that can be charged for a good or service.

Equilibrium

The point where quantity supplied equals quantity demanded.

Surplus

A situation where the quantity supplied exceeds the quantity demanded at a given price.

Shortage

A situation where the quantity demanded exceeds the quantity supplied at a given price.

Deadweight Loss

The loss of economic efficiency when the equilibrium outcome is not achievable.

Voluntary Trade

A trade that occurs when both parties agree to the terms of exchange.

Tax Incidence

The distribution of a tax burden between buyers and sellers.

Excise Tax

A tax charged on each unit of a good or service sold.

Elasticity and Total Revenue

The relationship between elasticity of demand and total revenue; if demand is elastic, an increase in price decreases total revenue.

Factors Influencing Price Elasticity of Demand

Available substitutes, time to adjust, proportion of income spent.

Factors Influencing Price Elasticity of Supply

Availability of inputs, time.

Market Supply

The sum of all individual producer's supply for a particular good or service.

Price Effect

The change in total revenue resulting from a change in price.

Quantity Effect

The change in total revenue resulting from a change in quantity sold.

Opportunity Cost Formula

Opportunity Cost = Give Up / Get.

Implicit Costs

Costs that represent foregone opportunities and do not involve direct monetary payments.

Elasticity Ratio

The percentage change in quantity demanded or supplied divided by the percentage change in the price.

Consumer Preferences

Actual choices made by consumers based on their tastes and preferences.

Related Goods

Goods that can be substitutes or complements to one another.

Normal Goods

Goods for which demand increases as income increases.

Inferior Goods

Goods for which demand decreases as income increases.

Time Horizon

The period over which demand and supply will respond to price changes.

Price Adjustment

The process by which the price of a good or service is altered to reach equilibrium.

Equilibrium Price

The price at which the quantity demanded equals the quantity supplied.

Marginal Utility

The additional satisfaction or utility that a consumer derives from consuming one more unit of a good.

Service Economy

A sector of the economy that provides services rather than goods.

Labor Market

The market in which workers compete for jobs and employers compete for workers.

Welfare Economics

The study of how the allocation of resources affects economic well-being.

Microeconomics

The study of how households and firms make decisions and how they interact in specific markets.

Macroeconomics

The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Factors of Production

The resources used to produce goods and services: land, labor, capital, and entrepreneurship.

The Law of Supply

All else being equal, as the price of a good or service increases, the quantity supplied increases, and vice versa.

Economic Growth

An outward shift of the Production Possibilities Frontier (PPF), indicating an increase in the economy's ability to produce goods and services over time.

Incentives

Factors that motivate individuals and firms to act in a certain way, often due to rewards or penalties.