EC 110 - Microeconomics

Economics

The study of how individuals and societies allocate scarce resources to satisfy unlimited wants.

Microeconomics

The branch of economics that focuses on individual agents, such as households and firms, and their interactions in specific markets.

Macroeconomics

The branch of economics that studies the economy as a whole, including aggregate measures like GDP, unemployment, and inflation.

Equality (Equity)

The concept of fairness in economic distribution and opportunities among individuals or groups.

Scarcity

The fundamental economic problem of having limited resources to meet unlimited wants.

Efficiency

The optimal use of resources to maximize output and minimize waste.

Tradeoffs

The alternatives that must be given up when making a choice; opportunity costs are the value of the next best alternative forgone.

Opportunity Costs

The cost of the next best alternative that is foregone when making a decision; can be measured in terms of time, money, or resources.

Rationality

The assumption that individuals make decisions based on maximizing their utility or benefit.

Thinking at the Margin

The process of considering the additional benefits and costs of a decision.

Incentives

Factors that motivate individuals to act in a certain way; examples include financial rewards or penalties.

Benefits of Trade

The advantages gained from exchanging goods and services, leading to increased efficiency and specialization.

Market

A place or system where buyers and sellers interact to exchange goods and services.

Market Economy

An economic system where decisions are made based on supply and demand with minimal government intervention.

Invisible Hand

A metaphor introduced by Adam Smith to describe how individuals pursuing their self-interest can lead to positive economic outcomes for society.

Market Failure

A situation where the allocation of goods and services is not efficient, often due to externalities or public goods.

Models

Simplified representations of complex economic processes used to analyze and predict economic behavior.

Circular Flow Diagram

A visual model that illustrates how money and goods flow through the economy between households and firms.

Factors of Production

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

Payments to Factors of Production

The compensation received by the factors of production, such as wages for labor and rent for land.

Production Possibility Frontier (PPF)

A curve that illustrates the maximum feasible output combinations of two goods given available resources.

Efficient Points on the PPF

Points where resources are fully utilized to produce maximum output.

Inefficient Points on the PPF

Points where resources are not being used to their full potential.

Unobtainable Points on the PPF

Points that lie outside the current production capabilities of the economy.

Increasing Opportunity Costs

The principle that as production of one good increases, the opportunity cost of producing additional units rises.

Shifts of the PPF

Changes in the economy's resources or technology that can cause the PPF to expand outward.

Normative Statements

Statements that express opinions or value judgments about what ought to be.

Positive Statements

Objective statements that can be tested and validated through evidence.

Absolute Advantage

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

Comparative Advantage

The ability of an individual or group to produce a good at a lower opportunity cost than another.

Specialization

The process of focusing on a specific task or production to increase efficiency and output.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices.

Quantity Demanded (QD)

The specific amount of a good or service that consumers are willing to buy at a given price.

Market Demand Curve

A graphical representation of the total quantity demanded by all consumers at various prices.

Law of Demand

The principle that, all else being equal, as the price of a good decreases, the quantity demanded increases, and vice versa.

Downward Sloping Demand Curve

The graphical representation of the inverse relationship between price and quantity demanded.

Change in Demand

A shift of the entire demand curve due to factors other than price.

Change in Quantity Demanded

A movement along the demand curve due to a change in the price of the good.

Determinants of Demand

Factors that can cause the demand curve to shift, including income, preferences, and prices of related goods.

Normal Good

A good for which demand increases as consumer income rises.

Inferior Good

A good for which demand decreases as consumer income rises.

Substitutes

Goods that can replace each other; an increase in the price of one leads to an increase in demand for the other.

Complements

Goods that are consumed together; an increase in the price of one