Econ 110 Final All Vocab

Scarcity

The limited nature of society's resources.

Economics

The study of how society manages its scarce resources.

Efficiency

Maximizing the total benefits from scarce resources.

Equality

Distributing economic prosperity uniformly among society's members.

Opportunity Cost

The next best alternative foregone when making a decision.

Rational People

Individuals who systematically and purposefully do the best they can to achieve their objectives.

Marginal Change

A small, incremental adjustment to a plan of action.

Incentive

Something that induces a person to act.

Market Economy

An economic system where decisions are guided by prices and self-interest.

Property Rights

The ability to own and control scarce resources.

Market Failure

A situation where a market left on its own fails to allocate resources efficiently.

Externality

The impact of one person’s actions on the well-being of a bystander.

Market Power

The ability of a single economic actor to influence market prices.

Productivity

The amount of goods and services produced from each hour of a worker’s time.

Inflation

An increase in the overall level of prices in the economy.

Circular-Flow Diagram

A visual model of the economy that shows how money, goods, and services flow through markets among households and firms.

Production Possibilities Frontier (PPF)

A graph showing the combinations of output that an economy can produce given available factors of production and technology.

Microeconomics

The study of how households and firms make decisions and interact in markets.

Macroeconomics

The study of economy-wide phenomena, such as inflation, unemployment, and economic growth.

Positive Statements

Claims that attempt to describe the world as it is.

Normative Statements

Claims that attempt to prescribe how the world should be.

Absolute Advantage

The ability to produce a good using fewer inputs than another producer.

Opportunity Cost

What must be given up to obtain something else.

Comparative Advantage

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

Imports

Goods produced abroad and sold domestically.

Exports

Goods produced domestically and sold abroad.

Market

A group of buyers and sellers of a particular good or service.

Competitive Market

A market with many buyers and sellers, where each has negligible influence on the price.

Quantity Demanded

The amount of a good that buyers are willing and able to purchase.

Law of Demand

The claim that, other things equal, the quantity demanded of a good falls when the price rises.

Demand Schedule

A table showing the relationship between price and quantity demanded.

Demand Curve

A graph showing the relationship between price and quantity demanded.

Normal Good

A good for which demand increases as income rises.

Inferior Good

A good for which demand decreases as income rises.

Substitutes

Goods for which an increase in the price of one increases demand for the other.

Complements

Goods for which an increase in the price of one decreases demand for the other.

Quantity Supplied

The amount of a good that sellers are willing and able to sell.

Law of Supply

The claim that, other things equal, the quantity supplied of a good rises when the price rises.

Supply Schedule

A table showing the relationship between price and quantity supplied.

Supply Curve

A graph showing the relationship between price and quantity supplied.

Equilibrium

The point where supply equals demand.

Equilibrium Price

The price at which supply equals demand.

Equilibrium Quantity

The quantity at which supply equals demand.

Surplus

A situation in which quantity supplied exceeds quantity demanded.

Shortage

A situation in which quantity demanded exceeds quantity supplied.

Law of Supply and Demand

The claim that the price of any good adjusts to bring supply and demand into balance.

Elasticity

A measure of the responsiveness of quantity demanded or supplied to one of its determinants.

Price Elasticity of Demand

The responsiveness of quantity demanded to a change in price.

Total Revenue

The total amount paid by buyers and received by sellers, calculated as price multiplied by quantity.

Income Elasticity of Demand

The responsiveness of quantity demanded to a change in income.

Cross-Price Elasticity of Demand

The responsiveness of demand for one good to a change in the price of another good.

Price Elasticity of Supply

The responsiveness of quantity supplied to a change in price.

Price Ceiling

A legal maximum on the price of a good or service.

Price Floor

A legal minimum on the price of a good or service.

Tax Incidence

The manner in which the burden of a tax is shared among participants in a market.

Welfare Economics

The study of how the allocation of resources affects economic well-being.

Willingness to Pay

The maximum amount a buyer will pay for a good.

Consumer Surplus

The difference between willingness to pay and the amount actually paid.

Cost

The value of everything a seller must give up to produce a good.

Producer Surplus

The difference between the price received by sellers and their costs.

Efficiency

The property of resource allocation maximizing total surplus.

Equality

The property of distributing economic prosperity uniformly among members of society.

Deadweight Loss

The fall in total surplus that results from a market distortion, such as a tax.

World Price

The price of a good that prevails in the world market.

Tariff

A tax on imported goods.

Natural Monopoly

A monopoly that arises because a single firm can supply a good or service to the market at a lower cost than two or more firms.

Price Discrimination

The practice of selling the same good at different prices to different customers.

Competitive Market

A market in which many buyers and sellers trade identical products.

Average Revenue

Total revenue divided by the quantity sold; equal to the price in competitive markets.

Marginal Revenue

The change in total revenue from selling one more unit.

Sunk Cost

A cost that has already been incurred and cannot be recovered.

Factors of Production

Inputs used to produce goods and services, such as labor, land, and capital.

Production Function

The relationship between the quantity of inputs used and the quantity of output produced.

Marginal Product of Labor

The increase in output from hiring one more unit of labor.

Value of the Marginal Product

The marginal product of an input multiplied by the price of the output.

Capital

The equipment and structures used to produce goods and services.

Compensating Differential

A difference in wages that arises to offset the non-monetary characteristics of different jobs.

Human Capital

The accumulation of investments in education, training, and health.

Monopsony

A labor market with only one buyer (employer).

Union

A worker association that bargains with employers over wages and working conditions.

Strike

The organized withdrawal of labor from a firm by a union.

Efficiency Wages

Wages set above the equilibrium level to increase worker productivity.

Discrimination

Offering different opportunities to similar individuals based on characteristics such as race, gender, or ethnicity.

Poverty Rate

The percentage of the population whose income falls below the poverty line.

Poverty Line

The income level below which a family is classified as impoverished.

In-Kind Transfers

Assistance given in the form of goods and services rather than cash.

Life Cycle

The regular pattern of income variation over a person’s life.

Permanent Income

A person’s normal income over time, adjusted for temporary changes.

Utilitarianism

The political philosophy advocating maximizing total utility.

Utility

A measure of well-being or satisfaction.

Liberal Contractarianism

A political philosophy emphasizing justice and fairness in the distribution of goods and opportunities.

Maximin Criterion

The idea of maximizing the utility of the worst-off member of society.

Social Insurance

Government programs that protect individuals from adverse events.

Libertarianism

The political philosophy that emphasizes individual freedom and the minimal role of government.

Welfare

Government programs that provide financial aid to the poor.

Negative Income Tax

A tax system where low-income individuals receive payments rather than owe taxes.

Budget Constraint

The limit on consumption bundles a consumer can afford.

Indifference Curve

A curve showing consumption bundles that give the consumer the same level of satisfaction.

Marginal Rate of Substitution

The rate at which a consumer is willing to trade one good for another while remaining equally satisfied.

Perfect Substitutes

Goods for which a consumer is willing to trade one for another at a constant rate.