Microeconomics Vocabulary – Flashcards
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Economic Variable
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Something measurable that can have different values, such as the wages of software programmers
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Positive Analysis
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analysis concerned with what is
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Normative Analysis
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analysis concerned with what ought to be
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Demand Schedule
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a table that shows the relationship between the price of a good and the quantity demanded
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Quantity Demanded
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the amount of a good or service that a consumer is willing and able to purchase at a given price
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Demand Curve
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a graph of the relationship between the price of a good and the quantity demanded
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Market Demand
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the demand by all consumers of a given good or service
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Demographics
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the characteristics of a population with respect to age race, and gender
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Quantity Supplied
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the amount of a good that sellers are willing and able to sell
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Supply Curve
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a graph of the relationship between the price of a good and the quantity supplied
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Law of Supply
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Increases in price leads to an increase in quantity supplied, Decrease in price causes decrease in quantity supplied
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Technological Change
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a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
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Surplus
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a situation in which the quantity supplied is greater than the quantity demanded
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Shortage
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A situation in which the quantity demanded is greater than the quantity supplied
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Price ceiling
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A legally determined maximum price that sellers may charge
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Price floor
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A legally determined minimum price that sellers may recieve
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Consumer Surplus
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The difference between the highest price a consumer is willing to pay for a good or service and the price the consumer actually pays
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Marginal Benefit
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The benefit to a consumer from consuming on more unit of a good or service
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Marginal Cost
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The additional cost of producing one more unit of a good or service
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Producer surplus
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The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives
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Economic Surplus
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The sum of consumer surplus and producer surplus
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Deadweight Loss
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The reduction in economic surplus resulting from a market not being in competitive equilibrium
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Economic Efficiency
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A market outcome in which the marginal benefit to consumers of the last unit produced is equal to it's marginal cost of production in which the sum of consumer surplus and producer surplus is maximized
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Tax incidence
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The actually division of the burden of a tax between buyers and sellers in a market
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Elasticity
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A measure of how much one economic variable responds to changes in another economic variable.
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Price elasticity of demand
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The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price
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Elastic Demand
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the percentage change in quantity demanded is greater than the percentage change in price
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Inelastic Demand
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the percentage change in quantity demanded is less than the percentage change in price.
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Perfectly Inelastic demand
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the case where the quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero.
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Perfectly elastic demand
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the case where the quantity demanded is infinitely responsive to price, and the price elasticity of demand equals infinity.
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Total revenue
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the total amount of money a firm receives by selling goods or services
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Cross-price elasticity of demand
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the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
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Utility
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The enjoyment or satisfaction people receive from consuming goods and services
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Marginal Utility
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The change in total utility a person receives from consuming one additional unit of a good or service
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Law of diminishing marginal utility
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The principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time
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Budget constraint
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The limited amount of income available to consumers to spend on goods or services
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Network externalities
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A situation in which the usefulness of a product increases with the number of consumers who use it
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Behavioral economics
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The study of situations in which people make choices that do no appear to be economically rational
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Opportunity Cost
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The highest valued alternative that must be given up to engage in an activity
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Endowment effect
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the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it
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Sunk Cost
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A cost that has already been paid and cannot be recovered
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Marginal rate of substitution
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The rate at which a consumer would be willing to trade off one good for another.
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Technology
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The processes a firm uses to turn inputs into outputs of goods and services
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Technological change
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A change in the ability of a firm to produce a given level of output with a given quantity of inputs
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Short run
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The period of time during which at least one of a firm's inputs is fixed
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Long run
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The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of it's physical plant
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Total cost
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The cost of all the inputs a firm uses in production
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Variable costs
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Costs that change as output changes
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Fixed costs
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Costs that remain constant as output changes
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Explicit Cost
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A cost that involves spending money
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Implicit Cost
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a nonmonetary opportunity cost
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Production function
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The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs
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Marginal product of labor
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The additional output a firm produces as a result of hiring one more worker
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Law of diminishing returns
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The principle that at some point, adding more of a variable input such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline
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Average product of labor
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The total output produced by a firm divided by the quantity of workers.
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Marginal cost
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The change in a firm's total cost from producing one more unit of a good or service
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Long-run average cost curve
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A curve showing the lowest cost at which a firm is able to produce a given quantity of outputs in the long run, when no inputs are fixed
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Economics of scale
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The situation when a firm's long-run average costs fall as it increases output
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Constant returns to scale
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The situation when a firm's long-run average costs remain unchanged as it increases output
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Minimum efficient scale
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The level of output at which all economics of scales are exhausted
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Diseconomies of scale
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The situation when a firm's long-run average cost rise as the firm increases output
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Marginal rate of technical substitution
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The rate at which a firm is able to substitute one input for another while keeping the level of output constant
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Isocost line
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All the combinations of two inputs, such as capital and labor, that have the same total cost
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Trade-off
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The idea that because of scarcity, producing more of one good or service means producing less of another good or service
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Centrally planned economy
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An economy in which the government decides how economic resources will be allocated
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Market economy
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An economy in which the decisions of households and firms interacting in market allocate economic resources
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Scarcity
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A situation in which unlimited wants exceed the limited resources available to fulfill those wants
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Economics
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The study of the choices people make to attain their goals, given their scarce resources
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Economic model
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A simplified version of reality used to analyze real-world economic situations
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Marginal analysis
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Analysis that involves comparing marginal benefits and marginal cost
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Mixed economy
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An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role to the allocation of resources
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Productive efficiency
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A situation in which a good or service is produced at the lowest cost possible
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Allocative efficiency
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A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
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Voluntary exchange
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A situation that occurs in the market when both the buyer and seller of a product are made better off by the transaction
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Equity
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The fair distribution of economy benefits
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Substitution effect
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The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes
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Income effect
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The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumer's purchasing power
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Ceteris paribus
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The requirement that when analyzing the relationship between two variable-such as price and quantity demanded-other variables are held constant
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Market equilibrium
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A situation in which quantity demanded equals quantity supplied
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Price taker
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A buyer or seller that is unable to affect the market price
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Shutdown point
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The minimum point on a firm's average variable cost curve, if the firm falls below then it shuts down in production in the short run.
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Economic profit
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A firm's revenues minus all it's cost, implicit and explicit
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Brand management
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The actions of a firm intended to maintain the differentiation of a product over time.
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Oligopoly
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A market structure in which a small number of interdependent firms compete
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Barriers to entry
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Anything that keeps new firms from entering an industry in which firms are earning economic profits.
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Payoff matrix
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A table that shows the payoff that each firm earns from every combination of strategies by the firms.
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Collusion
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An agreement among firms to charge the same price or otherwise not to compete.
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Dominant Strategy
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A strategy that is the best for a firm, no matter what strategies others use.
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Nash equilibrium
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A situation in which each firm chooses the best strategy, given the strategies chosen by other firms.
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Prisoner's dilemma
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A game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off
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Cartel
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A group of firms that collude by agreeing to restrict output to increase prices and profits
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Copyright
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A government-granted exclusive right to produce and sell a creation
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Public Franchise
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A government designation that a firm is the only legal provider of a good or service.
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Natural monopoly
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A situation in which economies of scales are so large that one firm can supply the entire market at a lower average total cost than can two or more firms.
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Market power
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The ability of a firm to charge a price greater than marginal cost
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Antitrust laws
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Laws aimed at eliminating collusion and promoting competition among firms
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Price discrimination
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Charging different prices to different customers for the same product when the price differences are not due to differences in cost.
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Two-part tariff
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A situation in which consumers pay one price for the right to buy as much of a related good as they want at a second price
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Derived demand
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The demand for a factor of production; it depends on the demand for the good the factor produces
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Marginal product of labor
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The additional output a firm produces as a result of hiring one more worker
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Marginal revenue product of labor
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The change in a firm's revenue as a result of hiring one more worker
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Human capital
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The accumulated training and skills that workers possess
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Compensating differentials
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Higher wages that compensate workers for unpleasant aspects of a job
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Economic discrimination
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Paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race or gender.
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Labor union
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An organization of employees that has the legal right to bargain with employers about wages and working conditions.
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Personnel economics
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The application of economic analysis to human resources issues.
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Economic rent
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The price of a factor of production that is in fixed supply
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Monopsony
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The sole buyer of a factor of production
