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Microeconomics Chapter 1 Vocab
Terms in this set (32)
a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
Analysis that involves comparing marginal benefits and marginal costs.
The idea that because of scarcity, producing more of one good or service means producing less of another good or service.
Centrally planned economy
An economy in which the government decides how economic resources will be allocated.
An economy in which the decisions of households and firms interacting in markets allocate economic resources.
An economy in which most economic decisions result from the interaction of buyers and sellers in markets, but which the government plays a significant role in the allocation of resources.
The situation in which a good or service is produced at the lowest possible cost.
a state of the economy in which production reflects consumer preferences; in particular every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
the situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.
something measurable that can have different values, such as the wages of software programmers.
Analysis concerned with what is.
Analysis concerned with what ought to be.
the study of how households and firms make choices, how they interact in markets and how the government attempts to influence their choices.
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
: An entrepreneur is someone who operates a business. In a market system it is entrepreneurs who decide what goods and services to produce and how to produce them. An entrepreneur starting a new business puts his or her own funds at risk. If an antrepreneur is wrong about what consumer want or about the best way to produce goods and services, the entrepreneur's funds can be lost.
: This is a distinction between an invention and innovation. An invention is the development of a new good or new process of making a good. An innovation is the practical application of an invention. (Innovation also may be used more broadly to refer to any significant improvement in a good or in the means of producing a good.) Much time often passes between the appearance of a new idea and its development to the point where it can be widely used.
a firm's technology is the processes it used to produce goods and services. In the economic sense, a firm's technology depends on many factors, such as the skill of its managers, the training of its workers and the speed and efficiency of its machinery and equipment.
Firm, company or business
a firm is an organization that produces a good or service for profit. Economists use the words "firm, "company" and "business" interchangeably.
goods are tangible merchandise, such as books computers or DVD players.
services are activities done for others, such as providing haircuts or investment advice.
a firm's revenue is the total amount received for selling a good or service. It is calculated by multiplying the price per unit by the number of units sold.
the concept of opportunity cost is one of the most important in economics. The opportunity cost of any activity is the highest valued alternative that must be given up to engage in that activity.
a firm's profit is the difference between its revenue and its costs. Economists distinguish between accounting profit and economic profit. Accounting profit excludes the cost of some economic resources that the firm does not pay for explicitly. Economic profit includes the opportunity cost of all resources used by the firm.
household consists of all persons occupying a home. Households are suppliers of factors of production- particularly labor- used by firms to make goods and services. Households also demand goods and services produced by firms and governments.
Factors of production or economic resources
: firms use factors of production to produce goods and services. The main factors of production are labor, capital, human capital, natural resources- including land- and entrepreneurial ability. Households earn income by supplying the factors of production to firms.
The word "capital" can refer to financial capital or physical capital. Financial capital includes stocks and bonds issued by firms, bank accounts, and holdings of money. In economics, though, "capital" refers to physical capital, which includes manufactured goods that are used to produce other goods and services.
Human capital refers to the accumulated training and skills that workers possess.
the process of allowing most prices to be determined in free markets and lowering trade barriers that had shut off contact with the price structure of the world's market economies.
An economy undergoing the transition from one economic system to another. Most commonly from a centrally planned, command economy towards a free market or mixed economy.
Translates to "all else equal". Economists assume "ceteris paribus" in all of their models.
The economists word for satisfaction. Economists assume that rational consumers always behave in a way that maximizes their utility. "happiness points"
When property rights are in place there is an Incentive to innovate
Government must intervene to protect property rights in order for a market system to work.
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