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Microeconomics Vocab
Vocabulary quiz for Economics 12 Micro Final.
| Term | Definition |
|---|---|
| Benefit | The gain or pleasure achieved by consuming something |
| Capital | The tools, instruments, machines, etc. used by businesses to produce goods and services |
| Economics | The social science that studies the choices that individuals and entities make as they cope with scarcity |
| Entrepreneurship | The human resource that organizes labour, land, and capital |
| Factors of production | Productive resources used to produce goods and services |
| Human capital | The knowledge and skills that people obtain from education or training |
| Incentive | A reward that encourages an action or a penalty that discourages one |
| Interest | Income earned through capital |
| Labour | The work time and work effort that people devote to producing goods and services |
| Land | The "gifts of nature" used to produce goods and services |
| Marginal benefit | The benefit that arises from consuming an additional unit of something |
| Marginal cost | The opportunity cost incurred from producing an additional unit of something |
| Opportunity cost | The highest-valued alternative that must be given up to get something |
| Preferences | A person's likes and dislikes, and the intensity of those feelings |
| Rational choice | A choice that compares costs and benefits and achieves the greatest benefit |
| Rent | Income earned through land |
| Scarcity | The inability to get everything that we want |
| Self-interest | A person or firm's interest or advantage |
| Social interest | Society's interest or advantage |
| Tradeoff | An exchange where one thing is given up to get another |
| Wages | Income earned through labour |
| Profit | Income earned through entrepreneurship |
| Scatter diagram | A graph that plots one variable against another for many different values of each variable |
| Positive (direct) relationship | A relationship between two variables that move in the same direction |
| Negative (inverse) relationship | A relationship between two variables that move in opposite directions |
| Linear relationship | A relationship shown by a straight line |
| Slope | The change in the y value divided by the change in the x value |
| Ceteris paribus | If all other relevant things remain the same |
| Production possibilites frontier | The boundary between attainable and unattainable production |
| Production efficiency | When goods and services are produced at the lowest possible cost |
| Allocative efficiency | When goods and services are produced at the lowest possible cost and in quantities that provide the greatest possible benefit |
| Economic growth | The expansion of production possibilites |
| Technological change | The development of new goods and new methods of production |
| Capital accumulation | The growth of capital resources, including human capital |
| Comparative advantage | When a person can perform an activity at a lower opportunity cost |
| Absolute advantage | When a person is more productive overall |
| Firm | An economic unit that hires factors of production and organize those factors to produce goods and services |
| Market | Any arrangement that allows buyers and sellers to exchange information and conduct business |
| Property rights | The social arrangements that cover the ownership, use, and disposal of anything people value |
| Money | Any commodity or token that is generally acceptable as a means of payment |
| Competitive market | A market with many buyers and sellers, where no individual can influence the price |
| Money price | The amount in dollars that must be given up to get something |
| Relative price | The ratio of one price to another |
| Quantity demanded | The amount of a good that consumers plan to buy during a given time period at a particular price |
| Law of demand | The higher the price the smaller the quantity demanded, and the lower the price the greater the quantity demanded, ceteris paribus |
| Demand | The entire relationship between the price of a good and the quantity demanded of that good |
| Substitute | A good that can be used in place of another good |
| Complement | A good used in conjunction with another good |
| Normal good | A good for which demand increases as income increases |
| Inferior good | A good for which demand decreases as income increases |
| Quantity supplied | The amount of a good that producers plan to sell during a given time period at a particular price |
| Law of supply | The higher the price the greater the quantity supplied, and the lower the price the smaller the quantity supplied, ceteris paribus |
| Supply | The entire relationship between the price of a good and the quantity supplied of that good |
| Equilibrium price | The price at which quantity demanded equals quantity supplied |
| Equilibrium quantity | The quantity bought and sold at the equilibrium price |
| Price elasticity of demand | The measure of the responsiveness of quantity demanded to a change in price |
| Perfectly inelastic demand | The type of elasticity where quantity demanded holds constant when the price changes |
| Unit elastic demand | The type of elasticity where the percentage change in quantity demanded is equal to the percentage change in price |
| Inelastic demand | The type of elasticity where the percentage change in quantity demanded is less than the percentage change in price |
| Elastic demand | The type of elasticity where the percentage change in quantity demanded is greater than the percentage change in price |
| Perfectly elastic demand | The type of elasticity where the quantity demanded changes by an infinite amount when the price changes by a tiny amount |
| Total revenue | The price of a good multiplied by the quantity sold |
| Total revenue test | A method of estimating the price elasticity of demand by observing changes in total revenue |
| Cross elasticity of demand | The measure of the responsiveness of quantity demanded to a change in the price of a different good |
| Income elasticity of demand | The measure of the responsiveness of quantity demanded to a change in income |
| Elasticity of supply | The measure of the responsiveness of quantity supplied to a change in price |
| Command system | A method of allocating resources that uses authority |
| Consumer surplus | The excess of the benefit received from a good over the amount paid |
| Producer surplus | The excess of the amount received from the sale of a good over the cost of producing it |
| Total surplus | The sum of consumer surplus and producer surplus |
| Market failure | When the market delivers an inefficient outcome |
| Deadweight loss | The decrease in total surplus resulting from an inefficient level of production |
| Transaction costs | The costs of the services that enable a market to bring buyers and sellers together |
| Utilitarianism | The principle that states that we should strive to achieve the greatest happiness for the greatest number |
| Symmetry principle | The requirement that people in similar situations be treated similarly |
| Price ceiling | A government regulation that makes it illegal to charge a price higher than a specified level |
| Price floor | A government regulation that makes it illegal to charge a price lower than a specified level |
| Tax incidence | The division of the burden of a tax between buyers and sellers |
| Production quota | An upper limit to the quantity of a good that may be produced in a specified period |
| Subsidy | A payment made by the government to a producer |
| Search activity | The time spent looking for someone with whom to do business |
| Imports | The goods and services purchased from other countries |
| Exports | The goods and service sold to other countries |
| Tariff | A tax on the good that is imported that is imposed by the importing country |
| Import quota | A restriction that limits the maximum quantity of a good that may be imported in a given period |
| Infant-industry argument | The argument that it is necessary to protect a new industry to enable it to mature and survive |
| Dumping | When a foreign firm sells its exports at a lower price than its cost of production |
| Budget line | A line that marks the boundary between affordable and unaffordable levels of consumption for a household |
| Utility | The benefit that a person gets from the consumption of goods and services |
| Total utility | The total benefit that a person gets from the consumption of all the different goods and services that they consume |
| Marginal utility | The change in total utility that results from a one-unit increase in the quantity of a good consumed |
| Diminishing marginal utility | The tendency for marginal utility to decrease as quantity consumed increases |
| Consumer equilibrium | A situation where a consumer has allocated all of their available income in a way that maximizes total utility |
| Marginal utility per dollar | The marginal utility from a good that results from spending one more dollar on it |
| Real income | A household's income expressed as the quantity of good that it can afford to purchase |
| Indifference curve | A line that shows combination of goods among which a consumer is indifferent |
| Marginal rate of substitution | The rate as which a person will give up good Y to get an additional unit of good X |
| Diminishing marginal rate of substitution | The tendency for a person to be willing to give up less of good Y to get one more unit of good X as quantity increases |
| Price effect | The effect of the change of the price of a good on the quantity of the good consumed |
| Income effect | The effect of a change in income on buying plans |
| Substitution effect | The effect of a change in price on the quantity bought when the consumer remains indifferent |
| Economic profit | Total revenue minus total cost |
| Implicit rental rate of capital | A firm's opportunity cost of using the capital that it owns |
| Economic depreciation | The fall in the market value of a firm's capital over a period, often a year |
| Normal profit | The profit that an entrepreneur earns on average |
| Technology | Any method of producing a good or service |
| Technological efficiency | Occurs when a given output is produced by using the fewest inputs |
| Economic efficiency | Occurs when a given output is produced at the lowest cost |
| Incentive system | A method of organizing production that uses compensation schemes |
| Principal-agent problem | The problem of devising compensation rules that induce an agent to act in the best interest of a principal |
| Sole proprietership | A firm with a single owner |
| Partnership | A firm with two or more owners |
| Corporation | A firm owned by one or more limited liability stockholders |
| Four-firm concentration ratio | The percentage of the value of sales accounted for by the four largest firms in an industry |
| Economies of scale | Occurs when the cost of producing a unit of a good falls as output increases |
| Diseconomies of scale | Occurs when the cost of producing a unit of a good rises as output increases |
| Constant returns to scale | Occurs when the cost of producing a unit of a good remains constant as output increases |
| Economic of scope | Occurs when a firm uses specialized technologies or resources to produce a range of goods and services |
| Short run | A time frame in which the quantity of at least one factor of production is fixed |
| Long run | A time frame in which the quantities of all factors of production can be varied |
| Sunk cost | The past expenditure on a plant which has no resale value |
| Total product (of labour) | The maximum output that a given quantity of labour can produce |
| Marginal product (of labour) | The increase in total product that results from a one-unit increase in the quantity of labour |
| Average product (of labour) | Total product divided by the quantity of labour |
| Law of diminishing returns | As a firm uses more of a variable factor of production with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminished |
| Total cost | The cost of all factors of production |
| Total fixed cost | The cost of all fixed factors of production |
| Total variable cost | The cost of all variable factors of production |
| Average fixed cost | Total fixed cost per unit of output |
| Average variable cost | Total variable cost per unit of output |
| Average total cost | Total cost per unit of output |
| Long-run average cost curve | The relationship between the lowest attainable average total cost and output when the firm can change both its plant and its labour |
| Minimum efficient scale | The smallest output at which long-run average cost reaches its minimum |
| Perfect competition | A market where many firms sell identical products, there are no barriers to entry, and established firms have no advantage |
| Marginal revenue | The change in total revenue that results from a one-unit increase in the quantity sold |
| Shutdown point | The price and quantity at which a firm is indifferent between producing and shutting down |
| Short-run market supply curve | A curve that shows the quantity supplied by all firms in the market |
| Monopoly | A market where a single firm that produces a good with no close substitutes, and is protected by barriers to entry |
| Barrier to entry | A constraint that protects a firm from potential competition |
| Natural monopoly | A monopoly created by a natural barrier to entry |
| Legal monopoly | A monopoly created by a legal barrier to entry |
| Single-price monopoly | A monopoly that must sell each unit of its output for the same price to all of its customers |
| Price discrimination | Occurs when a firm sells different units of a good or service for different prices |
| Economic rent | Total surplus, consumer surplus, producer surplus, or economic profit |
| Rent seeking | The pursuit of wealth by capturing economic rent |
| Perfect price discrimination | Occurs when a firm is able to sell each unit of output for the highest price anyone is willing to pay for it |
| Regulation | Rules administered by a government agency to influence prices, quantities, and economic activities |
| Deregulation | The process of removing regulation |
| Social interest theory | The theory that states that regulation removes inefficiency and allocates resources efficiency |
| Capture theory | The theory that states that regulation serves the self-interest of the producer |
| Marginal cost pricing rule | Regulation that sets price equal to marginal cost |
| Average cost pricing rule | Regulation that sets price equal to average total cost |
| Rate of return regulation | Regulation where a firm must limit its return on capital |
| Price cap regulation | Regulation that sets a price ceiling |
| Monopolistic competition | A market where a large number of firms compete with differentiated products, and firms are free to enter and exit the industry |
| Product differentiation | Producing a product that is slightly different than the products of competing firms |
| Excess capacity | Occurs when the quantity produced is less than the efficient scale |
| Markup | The amount by which price exceeds marginal cost |
| Signal | An action taken by an informed person to send a message to uninformed people |
| Oligopoly | A market where a small number of firms compete, and there are barriers to entry |
| Duopoly | An oligopoly with two firms |
| Cartel | A group of firms acting together to increase economic profit |
| Game theory | A set of tools for studying strategic behaviour |
| Strategies | All of the possible actions of each player in a game |
| Payoff matrix | A table that shows payoffs for every possible action of each player in a game |
| Nash equilibrium | Occurs when each player takes the best possible action given the actions of the other players in a game |
| Dominant-strategy equilibrium | An equilibrium in which the best strategy for a player is always preferred, regardless of the actions of other players |
| Collusive agreement | An agreement between producers to form a cartel |
| Cooperative equilibrium | An equilibrium where the players cooperate |
| Contestable market | A market in which firms can enter and exit easily, so firms face competition from potential entrants |
| Limit pricing | Setting price at the highest level that inflicts loss on an entrant to the market |
| Anti-combine law | A law that regulates oligopolies and prevents them from behaving like monopolies |
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