Microeconomics Chapter 1-4

Price ceiling

A legally determined maximum price that sellers may charge

Perfectly competitive market

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

Demand schedule

A table showing the relationship between the price of a product and the quantity of the product demanded

supply schedule

A table that shows the relationship between the price of a product and the quantity of the product supplied

law of supply

The rule that, holding everything else constant, increases in price causes increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.

scarcity

The situation in which unlimited wants exceed the limited resources available to fulfill those wants.

mixed economy

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 in the allocation of resources

market economy

an economy in which the decisions of households and firms interacting in markets allocate economic resources

complements

goods and services that are used together.

product markets

markets for goods- such as computers- and services- such as medical treatment

factor markets

markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

entrepreneur

someone who operates a business, bringing together the factor of production-labor, capital, and natural resources-to produce goods and services.

economic variable

something measurable that can have different values, such as the wages of software programmers

microeconomics

the study of how households and firms make choices, how the interact in markets, and how the government attempts to influence their choices

economics

the study of the choices people make to attain their goals, given scarce resources

macroeconomics

the study of the economy as a whole, including topics such as inflation, unemployment and economic growth

economic surplus

the sum of consumer surplus and producer surplus

Normal good

A good for which the demand increases as income rises and decreases as income falls.

production possibilities frontier (ppf)

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

demand curve

a curve that shows the relationship between the price of a product and the quantity of the product demanded.

supply curve

a curve that shows the relationship between the price of a product and the quantity of the product supplied.

inferior good

a good for which the demand increases as income falls and decreases as income rises.

market

a group of buyers and sellers of a good or service and the instition or arrangement by which they come together to trade.

price floor

a legally determined minimum price that sellers may receive

competitive market equilibrium

a market equilibrium with many buyers and many sellers

black market

a market in which buying and selling takes place at prices violate government price regulations.

economic efficiency

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

free market

a market with few government restrictions on how a good or service can be produced or sold, or on how a factor of production can be employed.

circular-flow diagram

a model that illustrates how participants in markets are linked

technological change

a positive or negative change in the ability of a firm to produce a given level of output with a give quality or inputs.

economic model

a simplified version of reality used to analyze real-world economic situations

market equilibrium

a situation in which quantity demanded equals quantity supplied

surplus

a situation in which quantity supplied is greater than the quantity demanded

shortage

a situation in which the quantity demanded is greater than the quantity supplied

allocative efficiency

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 marginal benefit to society equal to the marginal cost of producing it

centrally planned economy

an economy in which the government decides how economic resources will be allocated

positive analysis

analysis concerned with what is

normative analysis

analysis concerned with what ought be

Marginal analysis

analysis that involves comparing marginal benefits and marginal costs.

substitutes

goods and services that can be used for the same purpose.

economic growth

the ability of an economy to produce increasing quantities of goods and services

comparative advantage

the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

absolute advantage

the ability of an individual, a firm, or country to produce more of a good or service than competitiors, using the same amount of resources

trade

the act of buying or selling

tax incidence

the actual division of the burden of a tax between buyers and sellers in a market

marginal benefit

the additional benefit to a consumer from consuming one more unit of a good or service.

marginal cost

the additional cost to a firm of producing one more unit of a good or service

Quantity demanded

the amount of a good or service that a consumer is willing and able to purchase at a given price

quantity supplied

the amount of a good or service that a firm is willing and able to supply at a given price

substitution effect

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 the other goods that are substitutes

income effect

the change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power.

demographics

the characteristics of a population with respect to age, race, and gender.

market demand

the demand by all the consumers of a given good or service.

consumer surplus

the difference between the highest price a consumer is willing to pay and the price the consumer actually pays

producer surplus

the difference between the lowest price a firm would be willing to accept and the price it actually receives

equity

the fair distribution of economic benefits

opportunity cost

the highest valued alternative that must be given up to engage in an activity

trade-off

the idea that because of scarcity, producing more of one service or good means producing less of another good or service.

factors of production

the inputs used to makegoods and services

deadweight loss

the reduction in economic surplus resulting from a market not being in competitive equilibrium.

Ceteris paribus ("all else equal")

the requirement that when analyzing the relationship between two variables - such as price and quantity demanded - other variables must be held constant

property rights

the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it

law of demand

the rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of the product rises, the quantity demaded of the product will decrease

productive efficiency

the situation in which a good or service is produced at the lowest possible cost

voluntary exchange

the situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction