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Microeconomics Vocab

Vocabulary quiz for Economics 12 Micro Final.

TermDefinition
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
Created by: CrispyNotes