1. normative economics
    analysis involving value judgments about economic policies; relates to whether things are good or bad. A statement of what ought to be. hint word is "should"
  2. ceteris paribus assumption
    the assumption that nothing changes except the factor or factors being studied; all other things are equal or constant
  3. positive economics
    analysis that is strictly limited to making either purely descriptive statements or scientific predictions, facts; if A, then B; a statement of what is
  4. microeconomics
    the study of decision making undertaken by individuals (or households) and by firms
  5. macroeconomics
    the study of the behavior of the economy as a whole, including such economy wide phenomena as changes in unemployment the general price level, and national income
  6. resources
    things that have value that are used to produce other things to satisfy people's wants
  7. wants
    what people would buy if their incomes were unlimited
  8. incentives
    rewards for engaging in a particular activity
  9. economics
    the study of how people allocate(to put aside for specific use) their limited resources to satisfy their unlimited wants; how people make choices
  10. aggregates
    total amounts or quantities; aggregate demand, for example is total planned expenditures throughout a nation
  11. rationality assumption
    the assumption that people do not intentionally make decisions that would leave them worse off
  12. models or theories
    simplified representations of the real world used as the basis for predictions or explanations
  13. empirical
    relying on real-world data in evaluating the usefulness of a model
  14. behavioral economics
    an approach to the study of consumer behavior that emphasizes psychological limitations and complications that potentially interfere with rational decision making
  15. bounded rationality
    the hypothesis that people are nearly, but not fully, rational, so that they cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them
  16. rational self-interest
    we are motivated by self interest and respond to opportunities for gain
  17. scarcity
    a situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants; we do not have enough of everything to satisfy our every desire
  18. production
    any activity that results in the conversion of resources into products that can be used in consumption
  19. land
    the natural resources that are available from nature. land as a resource includes location, original fertility and mineral deposits, topography, climate, water, and vegetation; all nonhuman gifts of nature
  20. labor
    productive contributions of humans who work, involving both metal and physical activities
  21. physical capital
    all manufactured resources, including buildings, equipment, machines, and improvements to land that are used for production
  22. human capital
    the accumulated training and education of workers
  23. entreprenuership
    the component of human resources that performs the functions of raising capital, organizing, managing, and assembling other factors of production, making basic business policy decisions, and taking risks
  24. goods
    all things from which individuals derive satisfaction or happiness
  25. economic goods
    goods that are scarce, for which the quantity demanded exceeds the quantity supplied at a zero price
  26. services
    mental or physical labor or help purchased by consumers. examples are the assistance of physicians, lawyers, dentists, repair personnel, housecleaners, educators, retailers, and wholesalers; items purchased or used by consumers that do not have physical characteristics
  27. opportunity cost
    the highest-value, next-best alternative that must be sacrificed to obtain something or to satisfy a want; the value of what is given up when a choice is made
  28. production possibilities curve (PPC)
    a curve representing all possible combinations of maximum outputs that could be produced assuming a fixed amount of productive resources of a given quality
  29. technology
    society's pool of applied knowledge concerning how goods and services can be produced
  30. efficiency
    the case in which a given level of inputs is used to produce the maximum output possible. alternatively, the situation in which a given output is produced at a minimum cost
  31. inefficient point
    any point below the production possibilities curve at which the use of resources is not generating the maximum possible output
  32. law of increasing relative cost
    the fact that the opportunity cost of additional units of a good generally increases as society attempts to produce more of that good. this accounts for the bowed-out shape of the production possibilities curve
  33. consumption
    the use of goods and services for personal satisfaction
  34. specialization
    the organization of economic activity so that what each person (or region) consumes is not identical to what that person (or region) produces. an individual may specialize, for example, specialize in the production of coffee, computers, or cameras; the division of productive activities among persons and regions so that no one individual or one area is totally self-sufficient
  35. comparative advantage
    the ability to produce a good or service at a lower opportunity cost compared to other producers
  36. absolute advantage
    the ability to produce more units of a good or service using a given quantity of labor or resource inputs. equivalently, the ability to produce the same quantity of a good or service using fewer units of labor or resource inputs
  37. division of labor
    the segregation of a resource into different specific tasks; for example, one automobile worker puts on bumpers, another doors, and so on
  38. market
    all of the arrangements that individuals have for exchanging with one another. thus, for example, we can speak of the labor market, the automobile market, and the credit market; a mechanism that brings together buyers and sellers of goods and services or resources
  39. demand
    a schedule or curve showing how much of a good or service people will purchase at any price during a specific time period, other things being constant
  40. law of demand
    the observation that there is a negative, or inverse, relationship between the price of any good or service and the quantity demanded, holding other factors constant; price and quantity are inversely related
  41. relative price
    the money price of one commodity divided by the money price of another commodity; the number of units of one commodity that must be sacrificed to purchase one unit of another commodity; an items price in terms of another commodity
  42. money price
    the price that we observe today, expressed in today's dollars; also called the absolute or nominal price; the price you pay for dollars and cents for an item
  43. demand curve
    a graphical representation of the demand schedule; a negatively sloped line showing the inverse relationship between the price and the quantity demanded (other things being equal)
  44. market demand
    the demand of all consumers in the marketplace for a particular god or service. the summation at each price of the quantity demanded by each individual
  45. ceteris paribus conditions
    determinants of the relationship between price and quantity that are unchanged along a curve; changes in these factors cause the curve to shift
  46. normal goods
    goods which demand rises as income rises. most goods are normal goods and the opposite
  47. inferior goods
    goods for which demand falls as income rises and the opposite
  48. substitutes
    two goods are substitutes when a change in the price of one causes a shift in demand for the other in the same direction as the price change
  49. complements
    two goods are complements when a change in the price of one causes an opposite shift in the demand for the other
  50. supply
    a schedule or curve showing the relationship between price and quantity supplied for a specified period of time, other things being equal
  51. law of supply
    the observation that the higher the price of a good, the more of that good sellers will make available over a specified time period, other things being equal; price and quantity are directly related
  52. supply curve
    the graphical representation of the supply schedule; a line (curve) showing the supply schedule, which generally slopes upward (has a positive slope), other things being equal
  53. subsidy
    a negative tax; a payment to a producer from the government, usually in the form of a cash grant per unit
  54. market clearing, or equilibrium, price
    the price that clears the market, at which quantity demanded equals quantity supplied; the price where the demand curve intersects the supply curve
  55. equilibrium
    the situation when quantity supplied equals quantity demanded at a particular price
  56. shortage
    a situation in which quantity demanded is greater than quantity supplied at a price below the market clearing price
  57. surplus
    a situation in which quantity supplied is greater than quantity demanded at a price above the market clearing price
  58. price system
    an economic system in which relative prices are constantly changing to reflect changed in supply and demand for different commodities. the prices of those commodities are signals to everyone within the system as to what is relatively scarce and what is relatively abundant
  59. voluntary exchange
    an act of trading, done on an elective basis, in which both parties to the trade are better off after the exchange
  60. terms of exchange
    the conditions under which trading takes place. usually, the terms of exchange are equal to the price at which a good is traded
  61. transaction costs
    all of the costs associated with exchange, including the informational costs of finding out the price and quality, service record, and durability of a product, plus the cost of contradicting and enforcing that contract
  62. price controls
    government-mandated minimum or maximum prices that may be charged for goods and services
  63. price ceiling
    a legally established maximum price a seller can charge
  64. price floor
    a legally established minimum price a seller can be paid (ex. minimum wage)
  65. nonprofit rationing devices
    all methods used to ration scarce goods that are price-controlled. whenever the price system is not allowed to work, nonprice rationing devices will evolve to ration the affected goods and services
  66. black market
    a market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold
  67. rent control
    price ceilings on rents
  68. minimum wage
    a wage floor, legislated by government, setting the lowest hourly rate that firms may legally pay workers
  69. import quota
    a physical supply restriction on imports of a particular good, such as sugar. foreign exporters are unable to sell in the United States more than the quantity specified in the import quota
  70. price system
    allows resources to move from lower valued uses to higher valued uses though voluntary exchange (ex. drive in movie theaters)
  71. externalities
    a consequence or benefit imposed on a third party (ex. farm, pollution)
  72. negative externality/spillover cost
    a cost imposed on a third party, market over allocates resources (too much produced). government correction: regulation and special taxes
  73. positive externality/ spillover benefit
    a benefit gained by a third party, market under allocates resources (too little is produced). government correction: regulation and subsidies (ex. shots)
  74. market failure
    a situation in which the market economy leads to too few or too many resources going to a specific economic activity
  75. third parties
    parties who are not directly involved in a given activity or transaction
  76. property rights
    the rights of an owner to use and to exchange property
  77. effluent fee
    a change to a polluter that gives the right to discharge into the air or water a certain amount of pollution; also called a pollution tax
  78. antitrust legislation
    laws that restrict the formation of monopolies and regulate certain anticompetitive business practices
  79. monopoly
    a firm that can determine the market price of a good. in the extreme case, a monopoly is the only seller of a good or service
  80. private goods
    goods that can be consumed by only one individual at a time. private goods are subject to the principle of rival consumption
  81. principle of rival consumption
    the recognition that individuals are rivals in consuming private goods because one person's consumption reduces the amount available for others to consume
  82. public goods
    goods for which the principle of rival consumption does not apply; they can be jointly consumed by many individuals simultaneously at no additional cost and with no reduction in quality and quantity. also no one who fails to help pay for the good can be denied the benefit of the good
  83. exclusion principle
    the principle that no one can be excluded from the benefits of a public good, even if that person has not paid for it
  84. free-rider problem
    a problem that arises when individuals presume that others will pay for public goods so that, individually, they can escape paying for their portion without causing a reduction in production
  85. elasticity
    responsiveness or sensitivity of one variable to change in another
  86. price elasticity of demand
    responsiveness of consumers to changes in the price of a product; the responsiveness of the quantity demanded of a commodity to changes in its price; defined as the percentage change in quantity demanded divided by the percentage change in price
  87. elastic demand
    a demand relationship in which a given percentage change in price will result in a larger percentage change in quantity demanded. total expenditures and price changes are inversely related in the elastic region of the demand curve
  88. unit elasticity of demand
    a demand relationship in which the quantity demanded changes exactly in proportion to the change in price. total expenditures are invariant to price changes in the unit-elastic region of the demand curve
  89. inelastic demand
    a demand relationship in which a given percentage change in price will result in a less than proportionate percentage change in the quantity demanded. total expenditures and price are directly related in the inelastic region of the demand curve
  90. perfectly inelastic demand
    a demand that exhibits zero responsiveness to price changes; no matter what the price is, the quantity demanded remains the same
  91. perfectly elastic demand
    a demand that has the characteristic that even the slightest increase in price will lead to zero quantity demanded
  92. price elasticity of supply (Es)
    measures responsiveness of sellers to changes in the price of a product; the responsiveness of the quantity supplied of a commodity to a change in its price; the percentage change in quantity supplied divided by the percentage change in price
  93. cross price elasticity of demand (Exy)
    measures how sensitive consumer purchases of one product (X) are to change in the price of some other product (Y); the percentage change in the demand for one good (holding its price constant) divided
  94. income elasticity of demand (Ei)
    measures the degree to which consumers respond to a change in their income by buying more or less of a product; the percentage change in demand for any good, holding its price constant, divided by the percentage change in income; the responsiveness of demand to changes in income, holding the good's relative price constant
  95. perfectly inelastic supply
    a supply for which quantity supplied remains constant, no matter what happens to price
  96. perfectly elastic supply
    a supply characterized by a reduction in quantity supplied to zero when there is a slightest decrease in price
  97. utitlity
    the pleasure or satisfaction obtained from a good or service
  98. total utility (TU)
    the total amount of satisfaction or pleasure a person derives from consuming some specific quantity
  99. marginal utility (MU)
    the extra satisfaction a consumer realizes from an additional unit of a product
  100. law of diminishing marginal utility
    as the consumer obtains more of a particular good, additional (successive) units yield less satisfaction (utility) to the individual consumer
  101. consumer optimum
    a choice of a set of goods and services that maximizes the level of satisfaction for each consumer, subject to limited income
  102. substitution effect
    the tendency of people to substitute the cheaper commodities for more expensive commodities
  103. principle of substitution
    the principle that consumers and produces shift away from goods and resources that become priced relatively higher in favor of goods and resources that are now priced relatively lower
  104. indifference curve
    a curve that shows the combination of 2 goods that yield the same total satisfaction to the individual
  105. downsloping
    more of one product means less of the other product, total utility remains unchanged
  106. convex to the origin
    diminishing or flatter slope as you move down the curve. the slope measures the marginal rate of substitution
  107. indifference map
    replaces the TU and MU schedule, each curve reflects constant but an unspecified level of total utility
  108. purchasing power
    the value of money for buying goods and services. if your money income says the same but the price of one good that you are buying goes up, your effective purchasing power falls, and vice versa
  109. real-income effect
    the change in people's purchasing power that occurs when, other things being constant, the price of one good that they purchase changes, when that price goes up, real income, or purchasing power, falls, and when that price goes down, real income increases
  110. budget constraint/budget line
    all of the possible combinations of goods that can be purchased (at fixed prices) with a specific budget
Card Set
micro econ at normandale community college