Basic Terms

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microeconomics

The study of smaller economic units such as individual consumers, families, and individual businesses.

positive economic principles are those that

predicts how people WILL behave

average benefit

the total benefit of undertaking n units of an activity divided by n

average cost

the total cost of undertaking n units of an activity divided by n

opportunity cost

the value of what must be forgone to undertake an activity (most desirable/most valuable one... the one you would have chosen to spend your time doing)

mixed economies

economies made up of elements from more than one economic system (free markets, some government intervention, most economies are made up of this)

increasing returns to scale

the bigger you get, the more efficient you are

income effect

the change in quantity demanded of a good that results because a change in the price of a good changes the buyer's purchasing power

marginal cost

the cost of an additional unit of activity

economic surplus

the difference between the benefit of making the trip and its cost

When a market is not in equilibrium:

the economic motives of sellers and buyers will move the market to its equilibrium.

the marginal benefit of an activity is

the extra benefit associated with an extra unit of an activity

pure monopolies

1 seller; tend to have barriers to entry and a unique product

invisible hand

A phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all

The buyer's reservation price for a particular good or service is the:

largest price the buyer would be willing to pay for it.

What will happen to the equilibrium price and quantity of beef if more lenient FDA inspections increase the number of cattle ranches?.

Equilibrium price will decrease and equilibrium quantity will increase.

Which of the following is NOT a characteristic of rent controls?

Greater availability of apartments.

sunk costs

a cost that is beyond recovery at the moment a decision must be made

oligopolies

a few forms dominate the industry

monopolistic competition

a market structure in which many companies sell products that are similar but not identical (many buyers and sellers, free entry and exit, similar but differentiated products)

price ceiling

a maximum allowable price, specified by law

change in quantity demanded

a movement along the demand curve that occurs in response to a change in price

change in quantity supplied

a movement along the supply curve that occurs in response to a change in price

demand curve

a schedule or graph showing the quantity of a good that buyers wish to buy at each price

change in demand

a shift of the ENTIRE demand curve

market

consists of buyers and sellers of that good

cost benefit principle

an action should be taken if, and only if, its benefits exceed its costs

decreasing returns to scale

as we get bigger, we get less efficient

When two people agree to a price in a negotiation, we can assume that:

both parties will benefit.

Equilibrium price and quantity are determined by:

both supply and demand

A movement along a demand curve from one price-quantity combination to another is called a:

change in quantity demanded.

Those most likely to benefit from an increase in the minimum wage are

hose workers who get a higher wage due to the minimum wage and who are still able to keep their jobs.

normative economic principle

how people SHOULD behave (ex: cost benefit analysis)

excess demand

is the amount by which quantity demanded exceeds quantity supplied when the price of a good lies below the equilibrium price

marginal price equals

marginal benefit

An outcome is socially optimal if it:

maximizes total economic surplus.

If the demand for a good decreases as income decreases, then the good is a(n):

normal good.

positive economic principle

one that describes how we WILL ACTUALLY behave

economic naturalist

someone who uses isights from economics to help make sense of observations from everyday life

macroeconomics

study of the large economy as a whole or economic aggregates

perfect competition are price

takers

excess supply

the amount by which quantity supplied exceeds quantity demanded when the price of a good exceeds equilibrium price

marginal benefit

the benefit of an additional unit of the activity

buyer's reservation price

the largest dollar amount the buyer would be willing to pay for a good

Milton Friedman argues that, in a free-enterprise system, a corporate executive is an employee of

the owners of the business

Economics

the study of how people make choices under conditions of scarcity and of the results of those choices for society

When a market is in equilibrium:

there is neither excess demand or excess supply

Milton Friedman argues that the political principle underlying free markets is ______________ becaues mutual benefits ensure that all parties participate voluntarily.

unanimity

constant returns to scale

when long-run average total cost is constant as output increases

For two goods, X and Y, to be classified as substitutes, it must be the case that:

when the price of X rises, the demand for Y increases.

According to the textbook, government price controls fail because:

legislation cannot alter basic economic incentives.


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