Econ Exam

Economics

Study of satisfying our unlimited wants with limited resources.

Unlimited Wants

The concept that there is always someone who wants something different, and wants change over time.

Economics

Study of satisfying our unlimited wants with limited resources.

Unlimited Wants

The concept that there is always someone who wants something different, and wants change over time.

Microeconomics

The branch of economics focusing on individual decisions and the small-scale components of the economy.

Macroeconomics

The branch of economics that studies decision-making as a group for the entire economy.

Factors of Production

The resources needed to produce goods and services: Land, Labor, Capital, and Entrepreneurship.

Opportunity Cost

The cost of the next best option that was not chosen.

Production Possibilities Frontier (PPF)

A curve that shows the maximum feasible amount of two goods that can be produced with available resources.

Allocative Efficiency

A state where resources are allocated to maximize consumer happiness.

Marginal Utility (MU)

The additional satisfaction received from consuming one more unit of a good or service.

Marginal Cost (MC)

The change in total cost that comes from producing one additional unit of a good.

Ceteris Paribus

Latin phrase meaning 'all other things being equal', used in economic laws.

Law of Demand

Price and quantity demanded have an inverse relationship.

Substitution Effect

The change in quantity demanded due to a change in the relative price of a product.

Income Effect

The change in quantity demanded resulting from a change in purchasing power.

Normal Goods

Goods for which demand increases as income increases.

Inferior Goods

Goods for which demand decreases as income increases.

Change in Demand

Movement of the entire demand curve due to changes in determinants.

Change in Quantity Demanded

Movement along the demand curve due to a price change.

Law of Supply

As the price of a good increases, the quantity supplied will increase.

Change in Supply

Movement of the entire supply curve due to determinants changing.

Change in Quantity Supplied

Movement along the supply curve due to a price change.

Price Elasticity of Demand

Measures how much quantity demanded changes in response to a price change.

Perfectly Inelastic Demand

Demand that does not change with price changes.

Unit Elastic Demand

Demand where quantity demanded changes proportionately with price changes.

Elastic Demand

Demand that changes significantly when the price changes.

Inelastic Demand

Demand that does not change much with price changes.

Cross Price Elasticity

Measures how the quantity demanded of one good changes in response to the price of another good.

Absolute Advantage

The ability to produce more of a good using the same amount of resources compared to others.

Comparative Advantage

The ability to produce a good at a lower opportunity cost compared to another.

Utility

Satisfaction received from consuming a particular product or activity.

Total Utility

The total satisfaction received from consuming a certain quantity of goods.

Marginal Utility

The satisfaction gained from consuming one additional unit of a good.

Law of Diminishing Marginal Utility

The principle that consumers experience decreasing satisfaction as they consume more of a good.

Budget Constraint

A limitation on the consumption choices of an individual due to limited income.

Rule of Equal Marginal Utility per Dollar Spent

Maximizes total utility by ensuring the ratio of MU to price is equal across all goods.

Opportunity Cost Calculation

Sacrifice/Gain of the next best alternative when making a choice.

Economic Systems

Different structures of managing economies, including Free Market, Centrally Planned, and Mixed Systems.

PPF Points

Points on the Production Possibilities Frontier indicating efficiency: under curve (inefficient), on curve (efficient), outside curve (unattainable).

Determinants of Supply

Factors that affect the supply of a good or service, including production costs, technology, and number of suppliers.