ECON 201 CHAPTER 1

MICROECONOMICS PRINCIPLES

Good

Anything from which individuals receive utility or satisfaction.

Utility

The satisfaction one receives from a good.

Bad

Anything from which individuals receive disutility or dissatisfaction.

Disutility

The dissatisfaction one receives from a bad.

Land

All natural resources, such as minerals, forests, water, and unimproved land.

Labor

The work brought about by the physical and mental talents that people contribute to the production process.

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. (Ex. Money, competition)

Opportunity Cost

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

Marginal Benefits

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

Marginal Costs

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.

Incentive

Something that encourages or motivates a person to undertake an action.

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.

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.