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Micro Economic Terms

Armuchee Micro Economic Terms

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.
Created by: Armuchee



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