NCEA Level 3 Economics Key Terms

20 terms by blaireau

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Marginal utility

The extra utility or satisfaction received from consuming the last unit of a good

Marginal cost

The extra cost of producing one more unit of a good

Optimum purchase rule

A rational consumer will consume any good or service up to the point where its MU=P and not beyond

Equimarginal Rule, consumer equilibrium

Occurs when the MU/P marginal utility per dollar of each good is the same as the others

Law of demand

States that as the price falls, the quantity demanded will increase

Law of diminshing marginal utility

States that marginal utility falls as successive units are consumed

Description of law of dimishing marginal utility

A rational consumer will only purchase a good if the utility she receives from it is greater than or equal to the price she pays for it (Mu decreases as consumption increases) Therefore the consumer will only purchase an additional unit of the good if the price decreases to match the decrease in extra satisfaction she gains from consuming that good

Price competition

Attempts to increase the quantity demanded

Non price competition

Attempts to move the whole demand curve to the right

Rational consumer

Will not consume past the point where MU=0 and aims to maximise utility

Market demand curve

Is the horizontal summation of all the individual demand cuves

Short run situation in economics

At least one factor of production is fixed

Long run situation in economics

All factors of production are variable

MC=AC

Break even point

MC=AVC

Shut down point

Law of diminishing returns

States that as a producer adds increasing amounts of a variable input to a fixed amount of another input, total output will at first rise at an increasing rate, then rise at a diminishing rate, and may eventually fall
The producer requires more and more inputs for each successive increase in output (marginal costs increase as output increases)
The producer will not produce a unit of output unless the price he receives covers the MC of producing it. Since MC increases as output increases, the producer will only increase output if price increases to cover the higher MC

Economic costs

Accounting costs and opportunity costs

Accounting costs

explicit costs

Normal profit

Just enough profit to keep the entrepreneur in business

Supernormal profit

More than enough profit to keep the entrepreneur in business

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