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Econ 2001 Midterm 1 Vocab

Terms in this set (13)

Economics
The study of how people make decisions about how to allocate scarce resources.
Opportunity Costs
A type of cost that is equal to the value of the next best alternative when making a decision.
Competitive Market
A market in which fully informed, price-taking buyers and sellers easily trade a standardized good or service.
Law of Demand
There is an inverse relationship between price and quantity demanded for a particular good or service.
Law of Supply
All else held equal, the quantity supplied of a good will increase as the price increases.
Equilibrium
A situation in a market where the quantity supplied equals the quantity demanded at a particular price.
Price Elasticity of Demand
Using percent changes to describe the size of the change in quantity demanded of a good when its price changes.
Price Elasticity of Supply
Using percent changes to describe the size of a change in quantity supplied of a good when its price changes.
Willingness to Pay
The maximum price that an individual buyer would be willing to pay for a good or service.
Willingness to Sell
The minimum price that an individual seller is willing to accept in exchange for a good or a service.
Consumer Surplus (CS)
The difference between a buyer's willingness to pay for a good and the actual price.
Producer Surplus (PS)
The difference between a producer's willingness to sell a good and the actual price.
Efficient Market
An arrangement such that no exchange can make anyone better off without someone becoming worse off.
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