ECON 102 Midterm 1 Vocabulary Review

Vocabulary flashcards generated from ECON 102 Midterm 1 Review materials (Versions A and B) covering core microeconomic terms, consumer and producer theory, market structures, elasticity, and optimization principles.

Scarcity

The situation of having more wants than the amount of available resources.

Law of Demand

The economic principle stating that the quantity demanded of a good falls as the price rises, causing the price elasticity of demand to have a negative value.

Law of Supply

The economic principle stating that the quantity supplied of a good rises when the price rises, all other things remaining constant.

Willingness to Pay

The highest price that a buyer is willing and able to pay for a unit of a good.

Consumer Surplus

For an individual consumer, the measure calculated as willingness to pay less the price paid for the good.

Market Price

The price charged during an exchange when all sellers and all buyers face the same price.

Price Taker

A firm that sells as much of any good as it wants at the prevailing market price because it cannot affect the market price by changing its supply.

Perfectly Competitive Market

A market structure in which sellers produce identical goods, buyers and sellers are price takers, and there are no restrictions on entry or exit.

Price Elasticity of Demand

A measure of the responsiveness of quantity demanded to price changes, calculated as the percentage change in quantity demanded divided by the percentage change in price.

Midpoint Elasticity on a Linear Demand Curve

The point at the middle of a downward-sloping linear demand curve where the price elasticity of demand is equal to $1$.

Perfectly Inelastic Supply

A supply condition where the price elasticity of supply is equal to $0$, meaning quantity supplied does not respond to price changes.

Cross-Price Elasticity of Demand

An economic concept used to estimate the effect of a price change or tax on Good X on the quantity demanded of a related good, Good Y.

Marginal Revenue

The change in total revenue associated with producing one more unit of output.

Marginal Cost Curve Intersections

The points where the marginal cost curve intersects both the average variable cost curve and the average total cost curve at their minimums.

Average Fixed Costs

Fixed costs per unit of output, which continuously decrease as the level of output increases.

Marginal Product of an Input

The additional output generated by adding one extra unit of an input, which can decline or become negative as more input units are added.

Specialization

The outcome achieved when workers develop a certain skill set to increase overall production efficiency.

Optimization Techniques

The analytical methods of optimization using total value and optimization using marginal analysis, which provide identical answers when comparing the same set of alternatives.

Omitted Variable

A variable left out of an economic study that, if included, would explain why the variables considered in the study are correlated.

Empirical Evidence

A set of facts established by observation and measurement used to test and evaluate economic models.

Positive Economics

Analysis that generates objective descriptions or predictions about the world that can be verified or disproven with data.

Normative Economics

Economic analysis depending on personal preferences and subjective values regarding what ought to be done.

Market Shortage

A market outcome resulting when a government price control sets a legal price below equilibrium, causing consumers to demand more than sellers are willing to supply.

Equilibrium Optimization Condition

The consumer choice rule stating that in equilibrium, the ratio of marginal benefits to price ($\frac{MB}{P}$) should be identical across all goods.

Budget Constraint Pivot

The rotation of a consumer's budget line along an axis resulting from a decrease or increase in the price of one of the goods.

Positive Economic Profit

The financial state for a perfectly competitive firm occurring when the market price is greater than average total cost ($P > ATC$).

Key Principles of Economics

The three foundational core principles of economics: optimization, equilibrium, and empiricism.

Profit Maximization Condition

The operational requirement for a perfectly competitive firm to produce at the level of output where marginal revenue equals marginal cost ($MR = MC$).

Substitutes

Pairs of goods where a change in the price or availability of one affects the consumption of the other in the same direction, such as a Ford car and public transportation.

Technological Advance in Supply

An innovation that lowers production costs (such as Roundup Ready seeds for soybean growers), causing an increase in supply (a rightward shift of the supply curve).