MICROECONOMICS Key Terms

Free Market Economy

"Capitalism"; laissez faire; individuals own resources

Centrally-Planned Economy

"Command Economy" or "Communism"; government owns all resources

3 Shifters of the PPC

1. Change in resource quantity or quality 2. Change in technology 3. Change in trade

How unions increase wages

1. Convince consumers to buy only Union Products 2. Lobbying government officials to increase demand 3. Increase the price of substitute resources

Resource Demand Shifters

1. Demand (price) of the product 2. Productivity of the resources 3. Price of related resources

4 Factors of Production

1. Land 2. Labor 3. Capital 4. Entrepreneurship

Resource Supply Shifers

1. Number of qualified workers 2. Government regulation/licensing 3. Personal values regarding leisure time and societal roles

PPC 4 Key Assumptions

1. Only two goods can be produced 2. Full employment of resources 3. Fixed resources (Ceteris Paribus) 4. Fixed technology

5 Key Economic Assumptions

1. Scarcity 2. Trade-off 3. Make choices that maximize satisfaction 4. Make decisions by comparing the marginal costs and marginal benefits of every choice 5. Real-life situations can be explained and analyzed through simplified models and graphs

Demand Curve for Resources

MRP = Demand

Resource Market

Factor Market; place where resources are sold to businesses

MRP = MRC

Firms should continue to hire until...

PER UNIT Opportunity Cost

How much each marginal unit costs = (opportunity cost)/(units gained)

Profit

Revenue - Costs

Economic Terminology

Utility = Satisfaction Marginal = Additional Allocate = Distribute

Services

actions or activities that one person performs for another (ex. teaching, cleaning, cooking)

Marginal Resource Cost (MRC)

additional cost of an additional resource (worker)

Marginal Revenue Product (MRP)

additional revenue generated by an additional worker (resource) determines the demand for labor

Land

all natural resources that are used to produce goods and services

Trade-offs

all the the alternatives that we give up whenever we choose one course of action over others

Entrepreneurship

ambitious leaders that combine the other factors of production to create goods and services

Price

amount buyer pays

Cost

amount seller pays to produce a good

Labor

any effort a person devotes to a task for which that person is paid

Physical Capital

any human-made resource that is used to create other goods and services

Human Capital

any skills or knowledge gained by a worker through education and experience

Law of Increasing Opportunity Cost

as you produce more of any good, the opportunity cost will increase; bowed out (concave) PPC

Positive Statements

based of facts; avoid value judgments (what is)

Invisible Hand

concept that society's goals will be met as individuals seek their own self-interest; competition and self-interest act as this and regulates the free market

Consumer Goods

created for direct consumption (ex. pizza)

Capital Goods

created for indirect consumption; goods used to make consumer goods (ex. oven, blenders, knives...)

Derived Demand

demand for resources is determined (derived) by the products they help produce

Demand for Labor

demand is the different quantities of workers that businesses are willing and able to hire at different wages

Labor Unions

goal is to increasing wages and benefits

Normative Statement

includes value judgments (what ought to be)

Glass Ceiling

keep labor down

Economic System

method used by a society to produce and distribute goods and services

Production Possibilities Curve (PPC)

model that shows alternative ways that an economy can use its scarce resources

Opportunity Cost

most desirable alternative given up as a result of a decision

Implicit Costs

opportunity costs (ex. forgone time and forgone income)

Goods

physical objects that satisfy needs and wants

Product Market

place where goods and services produced by businesses are sold to households

Absolute Advantage

producer that can produce the most output or requires the least amount of inputs (resources)

Comparative Advantage

producer with the lowest opportunity cost

Productive Efficiency

products are being produced in the least costly way; any point on the PPC

Allocative Efficiency

products being produced are the ones most desired by society; optimal point on the PPC depends on society needs.

Constant Opportunity Cost

resources are easily adaptable for producing either good; straight line PPC (not common)

Globalization

result of firms seeking lowest costs firms are seeking greater profits

Economics

study of how individuals and societies deal with scarcity; study of choices

Microeconomics

study of small economic units such as individuals, firms, and industries (ex: supply and demand in specific markets, production costs, labor markets...)

Supply for Labor

supply is the different quantities of individuals that are willing and able to sell their labor at different wages

Policy Economics

theories are applied to fix problems or meet economic goals

Marginal Analysis

thinking on the margin; decisions based on the additional benefit vs. the additional costs Marginal = Additional

Explicit Costs

traditional "out-of-pocket costs" of decision making

Scarcity

unlimited wants but limited resources

Theoretical Economics

use scientific method to make generalizations and abstractions to develop theories.

Outsourcing

when firms send jobs overseas

Shortage

when producer will not or cannot offer goods or services at current prices; it is temporary

Perfect Competitive Labor Market

-Many small firms hiring workers -Many workers w/ identical skills -Wage constant -Workers are wage takers

Monopsony

-One firms hiring workers -Workers are relatively immobile -To add hire add -Firm is wage maker

Labor Market Imperfections

-insufficient/misleading job information -geographical immobility -unions -wage discrimination

Investment

the money spent by businesses to improve their production