POE PRELIMS

GOOD

Anything from which individuals receive utility or satisfaction

BAD

Anything from which individuals receive disutility or dissatisfaction

UTILITY

The satisfaction one receives from a good

LAND

All natural resources, such as minerals, forests, water, and unimproved lan

LABOR

The work brought about by the physical and mental talents that people contribute

CAPITAL

Produced goods, such as factories, machinery, tools, computers, and buildings, that can be used as inputs for further production

ENTREPRENEURSHIP

The talent that some people have for organizing the resources of land, labor, and capital to produce goods, seek new business opportunities, and develop new ways of doing things

SCARCITY

The condition in which our wants are greater than the limited resources available to satisfy those wants

ECONOMICS

The science of scarcity; the science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants

RATIONING DEVICE

A means for deciding who gets what of available resources and goods

OPPORTUNITY COST

The most highly valued opportunity or alternative forfeited when a choice is made

BENEFITS AND COSTS

Benefits rarely come without costs

• If we passed a law stating that anyone caught driving a car would go to prison for 40 years, few would drive, and car pollution would be gone

• But many would think that the cost was too high

• Economists think in terms of both costs and benefits

MARGINAL BENEFIT

Additional benefits; the benefits connected with consuming an additional unit of a good or undertaking one more unit of an activity

MARGINAL COST

Additional costs; the costs connected with consuming an additional unit of a good or undertaking one more unit of an activity

DECISIONS AT THE MARGIN

Decision making characterized by weighing the additional (marginal) benefits of a change against the additional (marginal) costs of a change with respect to current conditions

EFFICIENCY

Exists when marginal benefits equal marginal costs

MAXIMIZING NET BENEFITS

Efficiency is consistent with MB = MC, and also consistent with maximizing net benefits

INCENTIVE

Something that encourages or motivates a person to undertake an action

UNINTED EFFECTS

• If a minimum wage law is passed, might some lose their jobs?

• Do mandatory seat belt laws cause more accidents because people feel safer?

Economists think in terms of unintended effects

EXCHANGE (TRADE)

The giving up of one thing for something else

CETERIS PARIBUS

A Latin term meaning all other things constant or nothing else changes

CETERIS PARIBUS

they want to clearly define what they believe to be the realworld relationship between two variables

THEORY

An abstract representation of the real world designed with the intent to better understand it

ABSTRACT

The process (used in building a theory) of focusing on a limited number of variables to explain or predict an event

POSITIVE ECONOMICS

The study of what is in economics

NORMATIVE ECONOMICS

The study of what should be in economics

MICROECONOMICS

The branch of economics that deals with human behavior and choices as they relate to relatively small units: an individual, a firm, an industry, a single market

MACROECONOMICS

The branch of economics that deals with human behavior and choices as they relate to highly aggregate markets (e.g., the market for goods and services) or the entire economy

MARKET

a system or an environment where buyers and sellers interact to exchange goods, services, or information. Markets can be physical (like a farmer's market) or virtual (like online marketplaces)

SUPPLY AND DEMAND

The interaction between consumers' willingness to buy and producers' willingness to sell

PRICES MECHANISM

Prices adjust based on supply and demand, signaling to producers and consumers how to allocate resources

COMPETITION

The degree of rivalry among businesses influences market dynamics

MARKET SIZE

refers to the total potential sales volume or revenue available for a particular product or service within a specific market over a defined period

Factors Influencing Market Size

Consumer Demand: Changes in consumer preferences, demographics, and purchasing power.

Economic Conditions: Economic growth or recession can impact overall market size.

Technological Advancements: Innovations that create new markets or expand existing ones.

INDUSTRIAL SIZE

refers to the scale and capacity of specific industries within an economy, typically measured by factors such as production volume, revenue, number of firms, and employment levels.

COMPONENTS OF INDUSTRIAL SIZE

Production Capacity: The maximum output an industry can produce under normal conditions.

Revenue Generation: Total income generated by all firms within an industry.

Employment: Number of jobs created within

FACTORS INFLUENCING INDUSTRIAL SIZE

Market Demand: Higher demand can lead to increased production and industry growth.

Regulatory Environment: Policies affecting industry operations can either facilitate or hinder growth.

Technological Innovation: Advancements can enhance efficiency and expand industry capabilities.

PERFECT COMPETITION

Many buyers and sellers, homogeneous products, and free entry and exit

MONOPOLISTIC COMPETITION

Many sellers with differentiated products, allowing some control over prices

OLIGOPOLY

Few sellers dominate the market, often leading to strategic interactions between firms.

MONOPOLY

A single seller controls the entire market, leading to higher prices and restricted output.

PERFECT COMPETITION

1. All firms sell an identical product.

2. All firms are price takers.

3. All firms have a relatively small market share.

4. Buyers know the nature of the product being sold and the prices charged by each firm.

5. The industry is characterized by freedom of entry and exit. It is also referred as “PURE COMPETITION”

MONOPOLY

• Is a market structure in which there is only one producer/seller for a product.

• In other words, the single business is the industry.

• Entry into such a market is restricted due to high costs or other impediments, which may be economic, social or political

MONOPOLISTIC

competition is a type of imperfect competition such that one or two producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location).

OLIGOPOLY

• It is a situation in which a particular market is controlled by a small group of firms.

• An oligopoly is a market form in which a market or industry is dominated by a small number of sellers

MARKET STRUCTURE

is the interconnected characteristics of a market, such as the number and relative strength of buyers and sellers, degree of freedom in determining the price, level and forms of competition, extent of product differentiation and ease of entry into and exit from the market

The Straight-Line PPF

Constant Opportunity Costs

PRODUCTION POSSIBILITIES FRONTIER

The possible combinations of two goods that can be produced during a certain span of time under the conditions of a given state of technology and fully employed resources

THE BOWED - OUTWARD (CONCAVE DOWNWARD)

Increasing Opportunity Costs

LAW OF INCREASING OPPORTUNITY COSTS

As more of a good is produced, the opportunity costs of producing that good increase

PRODUCTIVE EFFICIENT

The condition in which the maximum output is produced with the given resources and technology

PRODUCTIVE ENEFFICIENT

The condition in which less than the maximum output is produced with the given resources and technology. Productive inefficiency implies that more of one good can be produced without any less of another being produced

TECHNOLOGY

The body of skills and knowledge involved in the use of resources in production. An advance in technology commonly increases the ability to produce more output with a fixed amount of resources or the ability to produce the same output with fewer resources

COMPARATIVE ADVANTAGE

The situation in which someone can produce a good at lower opportunity cost than someone else can

Demand

The willingness and ability of buyers to purchase different quantities of a good at a different prices during a specific period

Law of Demand

As the price of good rises the quantity demanded of the good falls and as the price of good falls the quantuty demanded of the good rises

Demand Curve

Graphical representation of demand curve

Demand Schedule

Numerical tabulation of the quantity demanded of a good at different prices. Numerical representation of law of demand

Supply

The willingness and ability of sellers to producd and offer to sell different quantities of a good at a different prices during a specific period

Upward Sloping ( Supply Curve)

Graphical representation of law of supply

Law of Supply

As the price of good rises the quantity demanded of the good rises and as the price of good falls the quantuty demanded of the good falls