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