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42 terms

Microeconomics Terms

Terms from chapters 1 and 2 of Microeconomics by Hubbard and O'Brien (second edition)
STUDY
PLAY
Scarcity
The situation in which unlimited wants exceed the limited resources available to fulfill those wants
Economics
The study of the choices people make to attain their goals, given their scarce resources
Economic Model
A simplified version of reality used to analyze real-world economic situations
Market
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
Marginal Analysis
Analysis that involves comparing marginal benefits and marginal costs
Trade-off
The idea that because of scarcity, producing more of one good or service means producing less of another good or service
Opportunity Cost
The highest-valued alternative that must be given up to engage in an activity
Centrally Planned Economy
An economy in which the government decides how economic resources will be allocated
Market Economy
An economy in which the decisions of households and firms interacting in markets allocate economic resources
Mixed Economy
An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources
Productive Efficiency
The situation in which a good or service is produced at the lowest possible cost
Allocative Efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
Voluntary Exchange
The situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction
Equity
The fair distribution of economic benefits
Economic Variable
Something measurable that can have different values, such as the wages of software programmers
Positive Analysis
Analysis concerned with what is
Normative Analysis
Analysis concerned with what ought to be
Microeconomics
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
Macroeconomics
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
Entrepreneur
Someone who operates a business. In a market system, they decide what goods and services to produce and how to produce them, often putting their own funds at risk.
Innovation
The practical application of an invention, or more broadly, any significant improvement in a good or in the means of producing a good
Technology
The processes a firm uses to produce goods and services.
Firm, company, or business
An ORGANIZATION that produces a good or service. (Most organizations produce goods or services for profit, but there are also NON-PROFITS, such as universities or some hospitals)
Goods
Tangible merchandise, such as books, computers, or DVD players
Services
Activities done for others, such as providing haircuts or investment advice
Revenue
The total amount received for selling a good or service, calculated by multiplying the price per unit by the number of units sold
Profit
The difference between a firm's revenue and its costs.
Household
All persons occupying a home. Suppliers of factors of production
Capital
Financial or physical. FINANCIAL includes stocks, bonds issued by firms, bank accounts, and holdings of money. PHYSICAL includes manufactured goods that are used to produce other goods and services. Examples of PHYSICAL are: computers, factory buildings, machine tools, warehouses, and trucks
Capital Stock
The amount of PHYSICAL CAPITAL available in a country
Human Capital
The accumulated training and skills that workers possess. For example, college-educated workers generally have more skills and are more productive than workers who have only high school degrees
Production Possibilities Frontier (PPF)
A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
Economic Growth
The ability of the economy to produce increasing quantities of goods and services
Trade
The act of buying or selling
Absolute Advantage
The ability of an individual, firm, or country to produce more of a good or service than competitors, using the same amount of resources
Comparative Advantage
The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors
Product Markets
Markets for goods, such as computers- and services, such as medical treatment
Factor Markets
Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability
Factors of Production
The inputs used to make goods and services (labor, capital, human capital, natural resources-including land, and entrepreneurial ability)
Circular-flow Diagram
A model that illustrates how participants in markets are linked
Free Market
A market with FEW government restrictions on how a good or service can be produced or sold - or on how a factor of production can be employed
Property Rights
The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it