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Micro Economic Terms
Armuchee Micro Economic Terms
Question | Answer |
---|---|
Law of Supply | Tendency of suppliers to supply more as price goes up and less as price goes down. |
Law of Demand | Tendency of consumers to buy more of something as price goes down and less when price goes up. |
Market Clearing Price/ Equilibrium Price | The price of a good that creates neither a shortage nor surplus. |
Price Ceiling | The maximum price that can be legally charged for a good or a service. |
Price Floor | The minimum price for a good or service. |
Elasticity of Supply | A measure of the way producers react to a change in price. |
Elasticity of Demand | A measure of how consumers react to a change in price. |
Elastic | Describes supply/demand that is very sensitive to a change in price. |
Inelastic | Describes supply/demand that is not sensitive to a change in price. |
Unitary Elastic | Describes demand whose elasticity is exactly equal to one. |
Sole Proprietorship | A business owned and managed by a single individual. |
Partnership | When two or more people share in the responsibility and profit of a business. |
Entrepreneur | Person that combines the factors of production and takes the financial risk of starting a business. |
Pure/Perfect Competition | A market structure in which a large number of firms all produce the same product. |
Oligopoly | A market structure in which a few firm dominate the market. |
Corporation | Legal entity owned by individual stock holders. |
Profit Motive | Force that encourages people and organizations to increase their material well-being. |
Monopoly | A market that is dominated by a single form. |
Natural Monopoly | A market that runs most efficiently when one large firm supplies all of the output. |
Monopolistic Competition | Market structure in which many companies sell products that are similar but not identical. |
Surplus | When quantity supplied is greater than quantity demanded. |
Shortage | When quantity supplied is less than quantity demanded. |
Fixed Cost | Costs that do not change, no matter how much of a good is produced. |
Variable Cost | Costs that rise and fall depending on production. |
Total Cost | Fixed costs plus variable costs. |
Marginal Cost | The cost of producing one more unit of a good. |
Marginal Revenue | The additional income received from selling one more unit of a good. |
Normal Goods | Things that we buy more of as income increases. |
Inferior Goods | Things that we buy more of when income goes down. |
Complements | Goods that are typically bought together. |
Substitutes | Goods that are used in place of one another. |
Economies of scale | Factors that cause a producer’s average cost per unit to fall as output rises. |
Collusion | An agreement among firms to divide the market, set prices, or limit production. |
Price fixing | An agreement among firms to charge one price for the same good. |
Cartel | A formal organization of producers that agree to coordinate price and production. |
Commodity Money | Objects that have value in themselves as well as for use as money. |
Diminishing marginal returns | When marginal production levels decrease with new worker. |
Factor market | Where households supply labor and are paid wages and salaries |
Fiat Money | Also called “legal tender,” has value because the government decreed that is an acceptable means to pay debts. |
Increasing marginal returns | When production levels increase with new worker. |
Marginal Product of Labor | The change in output from hiring one additional worker. |
Microeconomics | The study of how economic actors (individuals and businesses) make decisions and are impacted by the allocation (distribution) of resources. |
Money | Anything that serves as a medium of exchange, a unit of account, and a store of value. |
Negative marginal returns | When the marginal production levels become negative. |
Product market | Where households purchase the productive output of businesses. |
Subsidies | Governmental payments that supports a business or market. |
Representative Money | Money that has value because the holder can exchange it for something else of value. |