Giorgio Dal Pont - Microeconomics (Ch 1-6) Key Terms (Vocabulary)

Vocabulary flashcards covering key microeconomics concepts from Giorgio Dal Pont notes (Ch 1-6).

Opportunity cost

The value of the next best alternative that must be sacrificed to obtain a good or service.

Scarcity

Resources are finite while wants are infinite.

Sustainability

The environment and the economy can meet present needs without compromising future needs.

Free good

A good that is not scarce and has zero opportunity cost.

Economic good

A good that is scarce and has a positive opportunity cost.

Production Possibilities Curve (PPC)

Shows all maximum combinations of two goods that an economy can produce with given resources; points on the line indicate full employment and efficiency.

Land (factor of production)

Natural resources used in production.

Labour

Physical and mental effort contributed by people to production.

Capital (physical)

Man-made inputs used to produce goods.

Entrepreneurship

Organizes the other factors of production and takes on production risk.

Human capital

Skills, abilities, and knowledge acquired by people.

Natural capital

Expanded meaning of land; natural resources used in production.

Financial capital

Investments in financial instruments and assets.

Market

A venue or system where buyers and sellers exchange goods, services, or resources.

Competitive market

A market with many buyers and sellers; no single actor can control price.

Demand

Quantity of a good consumers are willing and able to buy at various prices, ceteris paribus.

Law of demand

Inverse relationship between price and quantity demanded, ceteris paribus.

Market demand

Sum of all individual demands for a good.

Non-price determinants of demand

Variables other than price that shift the demand curve (income, preferences, substitute/complement prices, number of buyers).

Supply

Quantity of a good produced and offered for sale at various prices, ceteris paribus.

Law of supply

Positive relationship between price and quantity supplied, ceteris paribus.

Non-price determinants of supply

Variables other than price that shift the supply curve (costs, technology, related goods prices, expectations, taxes or subsidies, number of firms, shocks).

Market equilibrium

When quantity demanded equals quantity supplied.

Equilibrium price

The price at market equilibrium.

Equilibrium quantity

The quantity at market equilibrium.

Shortage (excess demand)

Excess demand; price tends to rise to restore equilibrium.

Surplus (excess supply)

Excess supply; price tends to fall to restore equilibrium.

Price mechanism

Prices convey information (signals) and incentives to decision-makers; determine what and how to produce.

Allocative efficiency

Producing the quantity of goods most wanted by society; MB = MC at the margin.

Marginal benefit (MB)

The extra benefit from consuming one more unit of a good.

Marginal cost (MC)

The extra cost of producing one more unit; typically rises as output increases.

MB = MC

Allocation efficiency occurs where marginal benefit equals marginal cost.