Microeconomics Chapter 1 terms

Area of a triangle

A= 1/2 base x height

Economics assumes that economics agents behave

Rationally, meaning they make the best decisions given their knowledge of the cost and benefits

Trade-off

The idea that because of scarcity, producing more of one good or service means producing less of another good or service refers to the economic concept of

Microeconomics

The study of how households and firms make choices

Making optimal decisions "at the margin" requires

Weighing the costs and benefits of a decision before deciding if it should be pursued.

Positive statement

a statement that can be proved or disproved. Supported with facts.

Marginal

additional or extra

Markets promote

competition and voluntary exchange.

Normative statement

expresses a value judgment about whether a situation is desirable or undesirable. It looks at the world as it "should" be.

Productive efficiency is achieved when

firms produce goods and services at the lowest price.

Percentage Change

formula: (old value- new value)/ old value

Two-dimensional graphs

have a horizontal and vertical axis and are used in economics to illustrate relationships between two economics variables.

Scarcity

refers to the situation in which unlimited wants exceed limited resources.

Marginal analysis

the examination of the additional benefits of an activity compared to the additional costs incurred by the same activities. until its marginal benefits equal marginal costs.

Marginal cost

the extra cost associated with undertaking an activity.

Opportunity cost

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

Marginal revenue

the money received from the sale of an additional good or service

Allocative efficiency

the state in which production represents consumer preferences; every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing. `

Economics

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

Macroeconomics

the study of the economy as a whole.