20 terms

NCEA Level 3 Economics Key Terms

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
Break even point
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