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Economics
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The allocation of resources available to fulfill people's needs and wants for goods and services
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scarcity
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The limited nature of society's resources
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Marginalism
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The process of analyzing the additional or incremental costs or benefits arising from a choice or decision
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efficient markets
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A market in which profit opportunities are eliminated almost instantaneously
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Positive Economics
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The branch of economics that seeks to describe economic behavior and the working of economic systems, without making any value judgments as to whether the outcomes are desirable or undesirable
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Normative Economics
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The branch of economics that examines economic outcomes and asks whether they are desirable or undesirable, and whether they can be improved upon
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Descriptive Economics
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A part of Positive Economics that which entails putting together data that describe economic phenomena
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Economic Theory
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A part of Positive Economics that consists of a statement or group of related statements that focus on cause and effect
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opportunity cost
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The most desirable alternative given up as the result of a decision
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marginal cost
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The cost of producing one more unit of a good
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marginal benefit
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The additional benefit to a consumer from consuming one more unit of a good or service
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sunk cost
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A cost that has already been committed and cannot be recovered
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Microeconomics
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The study of the behavior of individual decision-making units in the economy, business firms, and households, and the functioning of individual industries
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Macroeconomics
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The study of the factors that determine national output and income, the overall price level, aggregate employment and unemployment, and growth of the economy
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Ockham's Razor
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The principle that irrelevant detail should be cut away
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ceteris paribus
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Latin: "all other things held constant"
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post hoc, ergo propter hoc
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Latin: "after which therefore because of which". A logical informal fallacy that states: "Since event Y followed event X, event Y must have been caused by event X."
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economic growth
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An increase in the total output of an economy
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capital
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Things that are produced and then used in the production of other goods and services
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Absolute Advantage
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The ability to produce a good using fewer inputs than another producer
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Comparative Advantage
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The ability to produce a good at a lower opportunity cost than another producer
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production possibility frontier (PPF)
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a graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently
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Law of increasing opportunity cost
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To produce more of one good, a successively larger amount of the other good must be sacrificed
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Law of Demand
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Consumers buy more of a good when its price decreases and less when its price increases
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change in quantity demanded (Qd)
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A movement along a given demand curve. It occurs because of a change in the price of a good or service
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change in demand (D)
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A shift of the entire demand curve. It occurs because of a change in something other than the price of a good or service
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increase in demand =
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a shift to the right of the demand curve
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decrease in demand =
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a shift in the left of the demand curve
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normal good
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A good that consumers demand more of when their incomes increase
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inferior good
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A good that consumers demand less of when their incomes increase
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compliments
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Two goods for which an increase in the price of one leads to a decrease in the demand for the other
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substitutes
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Two goods for which an increase in the price of one leads to an increase in the demand for the other
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Law of Supply
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Producers offer more of a good as its price increases and less as its price falls
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change in quantity supplied (Qs)
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A movement along a given supply curve. It occurs because of a change in the price of a good or service
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change is supply (S)
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A shift of the entire supply curve. It occurs because of a change in something other than the price of a good or service
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increase in supply =
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a shift to the right of the supply curve
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decrease in supply =
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a shift to the left of the supply curve
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equilibrium point
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The point on the supply and demand curves where a good or service is offered at an equilibrium price for an equilibrium quantity. At equilibrium, there is no tendency for price or quantity to change
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shortage
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A situation in which quantity demanded is greater than quantity supplied
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surplus
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A situation in which quantity supplied is greater than quantity demanded
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price ceiling
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A legal maximum on the price at which a good can be sold. In order to be effective, it must be set below the equilibrium point
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price floor
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A legal minimum on the price at which a good can be sold. In order to be effective, it must be set above the equilibrium point
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Price elasticity of demand
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A measure of how much the quantity demanded of a good response to a change in the price of that good.
% change in Qd / % change in $
% change in Qd / % change in $
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Perfectly inelastic demand
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Demand in which quantity demanded does not respond at all to a change in price
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Perfectly elastic demand
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Demand in which quantity drops to zero at the slightest increase in price
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Unitary elasticity of demand
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Demand in which the % change in Qd is exactly equal in absolute value to the % change in $
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total revenue =
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Price x Quantity
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Price elasticity of supply
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a measure of how much the quantity supplied of a good response to a change in the price of that good.
% change in Qs / % change in $
% change in Qs / % change in $
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