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22 terms

Microeconomics, Chapter 04 - The Market System

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private property
the right of private persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other property
freedom of enterprise
the freedom of firms to obtain economic resources, to use those resources to produce products of the firm's own choosing, and to sell their products in markets of their choice
freedom of choice
the freedom of owners of property resources to employ or dispose of them as they see fit, of workers to enter any line of work for which they are qualified, and of consumers to spend their incomes in a manner that they think is appropriate
self-interest
that which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain
competition
the presence in a market of independent buyers and sellers competing with one another and the freedom of buyers and sellers to enter and leave the market
roundabout production
the construction and use of capital to aid in the production of consumer goods
specialization
the use of the resources of an individual, a firm, a region, or a nation to concentrate production on one or a small number of goods and services
division of labor
the separation of the work required to produce a product into a number of different tasks that are performed by different workers; specialization of workers
medium of exchange
any item sellers generally accept and buyers generally use to pay for a good or service; money; a convenient means of exchanging goods and services without engaging in barter
barter
the exchange of one good or service for another good or service
money
any item that is generally acceptable to sellers in exchange for goods and services
economic cost
a payment that must be made to obtain and retain the services of a resource; the income a firm must provide to a resource supplier to attract the resource away from alternative use; equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product
normal profit
the payment made by a firm to obtain and retain entrepreneurial ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm
economic profit
the total revenue of a firm less its economic costs (which include both explicit costs and implicit costs); also called "pure profit" and "above-normal profit."
expanding industry
an industry whose firms earn economic profits and for which an increase in output occurs as new firms entire the industry
declining industry
an industry in which economic profits are negative (losses are incurred) and that will, therefore, decrease its output as firms leave it
consumer sovereignty
determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy; consumers' direction of production through their dollar votes
dollar votes
the "votes" that consumers and entrepreneurs cast for the production of consumer and capital goods, respectively, when they purchase those goods in product and resource markets
derived demand
the demand for a resource that depends on the demand for the products it helps to produce
guiding function of prices
the ability of price changes to bring about changes int he quantities of products and resources demanded and supplied
creative destruction
the hypothesis that the creation of new products and production methods simultaneously destroys the market power of existing monopolies
invisible hand
the tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promote the interest of society