ECO2023 Principles of Microeconomics Final Exam Term Study Guide

A set of definitions, postulates, and principles assembled in a manner that makes clear the "cause-and-effect" relationships.

The highest valued alternative that must be sacrificed as a result of choosing an option.

Choosing the option that offers the greatest benefit at the least possible cost.

The subjective benefit or satisfaction a person expects from a choice or course of action.

Changes in incentives influence human choices in a predictable manner.

Describes the effects of a change in the current situation. For example, a producer's marginal cost is the cost of producing an additional unit of a product, given the producer's current facility and production rate.

The scientific study of "what is" among economic relationships. Positive economic statements involve potentially verifiable or or refutable propositions.

Judgments about "what ought to be" in economic matters. Normative economic statements cannot be proven false because they are based on value judgments.

A Latin phrase that means "all other things held constant" that is used when the effect of one change is being described, recognizing that if other things changed, they also could affect the result.

Erroneous view that what is true for the individual (or the part) will also be true for the group (or the whole).

The branch of economics that focuses on how human behavior affects the conduct of affairs within narrowly defined units, such as individual households or business firms.

A curve that outlines all possible combinations of total possible output that could be produced, assuming (1) a fixed amount of productive resources, (2) a given amount of technical knowledge, and (3) full and efficient use of those resources. The slope of the curve indicates the amount of one product that must be given up to produce more of the other.

A principle which states that the total output of a group of individuals, an entire economy, or a group of nations will be greatest when the output of each good is produced by the person (or firm) with the lowest opportunity cost for that good.

A law stating that there is a negative causal relationship between the price of a good and quantity of the good demanded, over a particular time.

Products that serve similar purposes. An increase in the price of one will cause an increase in demand for the other.

The difference between the maximum price consumers are willing to pay and the price they actually pay.

Products that are usually consumed jointly (Bread and butter, hot dogs and hot dog buns). A decrease in the price of one will cause an increase in demand for the other.

The total economic cost of producing a good or service. The opportunity cost is equal to the value of the production of other goods sacrificed as the result of producing the good.

This willingness indicates that consumers' value the good more than other things that could have been produced with the same resources.

A principle that states there is a direct relationship between the price of a good and the quantity of it producers are willing to supply. As the price of a good increases, producers will wish to supply more of it. As the price decreases, producers will wish to supply less.

Refers to the difference between the price received by firms for selling their goods and the lowest price firms are willing to receive to produce the good.

A state in which the conflicting forces of supply and demand are in balance. When a market is in equilibrium, the decisions of producers and consumers are brought into harmony with one another, and the quantity supplied will equal the quantity demanded.

The tendency of market prices to direct individuals pursuing their own interests to engage in activities promoting the economic well-being of society.

Government mandated prices that are generally imposed in the form of maximum or minimum legal prices.

A legally established price maximum price sellers can charge for a good or resource.

A legally established minimum buyers must pay for a good or resource.

The way the burden of a tax is distributed among units (Consumers, producers, employees, employers, etc.). The actual tax burden does not always fall on those who are statutorily assigned to pay the tax.