Microecononmics: Explore And Apply Ch 1-3

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economics

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Studies the allocation of limited resources in response to unlimited wants.

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Scarcity

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a situation in which there are too few resources to meet all human wants.

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the margin

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the cutoff point; decision making at the margin refers to deciding on one more or one less of something.

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microeconomics

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analyzes the individual components of the economy, such as the choices made by people, firms, and industries.

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markets

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make possible the voluntary exchange of resources, goods, and services; can take physical, electronic, and other forms.

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market prices

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serve as signals that guide the allocation of resources.

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macroeconomics

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analyzes economic aggregates, such as aggregate empolyment, output, growth, and inflation.

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command and control

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government decrees that direct economic activity.

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free markets

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the collective decisions of individual buyers and sellers that, taken together, determine what outputs are produced, how those outputs are produced, and who recieves the outputs; free markets depend on private property and free choice.

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mixed economies

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the mixture of free-market and command-and-control methods of resource allocation that characterize modern economies.

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equity

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fairness

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efficiency

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means that resources are used in ways that provide the most value; implies that no one can be mae better off without someone else becoming worse off.

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technological efficiency

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the greatest quantity of output for given inputs; likewise, for any given output, requires the least-cost production technique.

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allocative efficiency

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involves choosing the most valuable mix of outputs to produce.

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invisible hand

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the idea that self-interest and competition promote economic efficencey without any need for action by government.

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market failure

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situation in which the market outcome is inefficient

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normative

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having to do with behavioral norms, which are judgements as to what is good or bad.

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positive

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having to do with what is, was, or will be.

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models

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simplified versions of reality that emphasize features central to answering the quesitons we ask of them.

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opportunity costs

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the value of the best alternative opportunity forgone.

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land

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natural resouces in their natural states.

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labor

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the human capacity to do work.

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human capital

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acquired skills and ailities embodied within a person.

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capital

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anything that is produced in order to increase productivity in the future; includes human capital and physical capital.

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entrepreneuership

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personal initiative to combine resources in productive ways; involves risk.

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technology

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possible techniques of production.

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production possibilities frontier

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a model that shows the various combinations of two goods the economy is capable of producing.

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law of increasing cost

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the rise in the marginal opportunity cost of producing a good as more of that good is produced.

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economic growth

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the ability of the economy to produce more or better output.

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money

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a medium of exchange that removes the need for barter; also a measure of value and a way to store value over time.

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barter

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the exchange of goods and services directly for one another, without the use of money.

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circular flow

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a model of the economy that depicts how the flow of money facilitates a counterflow of resources, goods, and services in the input and output markets.

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output market

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the market where goods and services are bought and sold.

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input market

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the market where resources are bought and sold

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comparative advantage

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the ability to produce a good at a lower opportunity cost (other goods forgone) than others could do.

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absolute advantage

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the ability to produce a good with fewer resources than other producers.

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exports

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goods and services a country sells to other countires.

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imports

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goods and services a country buys from other countries.

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demand

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relates the quantity of a good that consumers would purchase at each of various possible prices, over some period of time, ceteris paribus.

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quantity demanded

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the quantity that consumers would purchase at a given price.

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ceteris paribus

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holding all else constant.

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law of demand

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as price falls, the quantity demanded increases.

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normal goods

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demand for these goods varies directly with income

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inferior goods

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demand for these goods varies inversely with income.

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substitutes

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something that takes the place of something else, such as one breand of cola for another.

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complements

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goods or services that go well with each other, cuch as cream and coffee.

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supply

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relates the quantity of a good that will be offered for sale at each of various possible prices, overs some period of time, ceteris paribus.

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quantity supplied

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the quantity that will be offered for sale at a given price.

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law of supply

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as price rises, the quantity supplied increases.

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market equilibrium

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a situation in which there is no tendency for either price or quantity to change.

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surplus

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the excess of quantity demanded , which occurs when price is above equilibrium.

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shortage

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the excess of quantity demanded over quantity supplied, which occurs when price is below equilibrium.