Intro to Microeconomics – UC Dr. Erhardt

the study of how people use their scarce resources to satisfy their unlimited wants

inputs, factors or production used to produce goods/services people want (labor, capital, NR, etc.)

physical and mental effort used to produce goods and services

the buildings, equipment, and human skills used to produce goods and services

gifts of nature that are used to produce goods and services; includes renewable and exhaustible resources

the imagination required to develop a new product or process, the willingness to take the risk of profit or loss

a profit-seeking decision maker who starts with an idea, organizes an enterprise to bring that idea to life and assumes the risk of the operation

payment to resource owners for their labor

payment to resource owners for the use of their capital

payment to resource owners for the use of their natural resources

reward for entrepreneurial ability; sales minus resource cost

a tangible product used to satisfy human wants

an activity or intangible product, used to satisfy human wants

occurs when the amount people desire exceeds the amount available at a zero price

a set of arrangements by which buyers and sellers carry out exchange at mutually agreeable terms

a market in which a good or service is bought and sold

a market in which a resource is bought and sold

a diagram that traces the circular flow of resources, products, income, and revenue among economic decision makers

each individual tries to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit

incremental, additional, or extra; used to describe a change (one unit) in an economic variable

the study of the economic behavior in particular markets, such as that for computers or unskilled labor

the study of the economic behavior of entire economies, as measured, for example, by total production and employment

the rise and fall of economic activity relative to the long-term growth trend of the economy; also called business cycles

a simplification of reality used to make predictions about cause and effect in the real world

a measure such as price or quantity, that can take on different values at different times

the assumption when focusing on the relation among key economic variables, that other variables remain unchanged

an assumption that describes the expected behavior of economic decision makers; what motivates them

a theory about how key variables relate to each other

a statement that can be proved or disproved by reference to facts

a statement that reflects an opinion, which cannot be proved or disproved by reference to the facts

the incorrect idea that if two variables are associated in time, one must necessarily cause the other

the incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or the whole

unintended consequences or economic actions that may develop slowly over time a people react to the events

"no free lunch" principle - someone always ends up paying for it

an action should only be taken if the benefit exceeds its cost - class size, walking downtown to buy a computer game

the value of what must be forgone to undertake an activity - time of trip, movie vs. nap

the increase in total cost that results from carrying out one more unit of an activity

the increase in total benefit that results from carrying out one additional unit of an activity

the individual, firm, region, or country, with the lowest opportunity cost of producing a particular good should specialize in that good

the ability to make something using fewer resources that other producers use
- Adam Smith - Wealth of Nations 1776
- Laissez-Faire, Theory of the Invisible Hand, Devision of Labor

the ability to make something at a lower opportunity cost than other producers face

the direct exchange of one good for another without using money

breaking down the production of a good into separate tasks (increases productivity)

workers specialize at a task in the production process at which they are most efficient

a curve showing alternative combinations of goods that can be produced when available resources are used efficiently

the condition that exists when there is no way resources can be reallocated to increase the production of one good w/o decreasing the production of another good (any point inside the PPF)

when resources are not employed efficiently

cannot be achieved with the existing resources, technology, human capital, and/or rules of the game (any point outside the PPF)

to produce each additional increment of a good, a successively larger increment of an alternative good must be sacrificed if the economy resources are already being used efficiently

an increase in the economy's ability to produce goods and services; an upward shift of the production possibilities frontier

a set of mechanisms and institutions that resolve what, how, and for whom questions

an econ system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets

an econ stystem characterized by the private ownership of some resources and the public ownership of other resources; some markets are regulated, some aren't

characterized by the public ownership of resources and centralized planning - ex: north korea

communism or dictatorships

satisfaction received from consumption

cash or in-kind benefits given to individuals as outright grants from the government

developments of large-scale factory production that began in great britian around 1750 and spread to europe, NA, and australia

economic units formed by profit seeking entrepreneurs who use resources to produce goods and services for sale

a firm with a single owner who has the right to all profits and who bares unlimited liability for the firms debts

a firm with multiple owners who has the right to all profits and who bares unlimited liability for the firms debts

a legal entity by stockholders whose liability is limited to the value of their stock

an organization of people who pull their resources to buy and sell more efficiently than they could individually

groups that do not pursue profit as a goal; they engage in charitable, educational, humanitarian, etc. with a social purpose

technological change spawned by the invention of the microchip and the internet that enhanced the acquisition and transmission of info

a condition that arises when the unregulated operation of markets yields socially undesirable results

prohibitions against price fixing and other anticompetitive practices

a sole producer of a product for which there are no close substitutes

one firm that can serve the entire market at a lower per-unit cost than can two or more firms

a good that is both rival in consumption and exclusive
- pizza example

a good that, once produced, is available for all to consume, regardless of who pays and who doesn't

a cost or benefit that falls on a third party and is therefore ignored by the two parties to the market transaction

the use of government purchases, transfer payments, taxes, and borrowing to influence economy-wide activity such as inflation, employment, and economic growth (the government)

regulation of the money supply to influence economy-wide activity such as inflation, employment, and economic growth

those with a greater ability to pay such as those with a higher income or those who own more property should pay more taxes

those who receive more benefits from the government program funded by a tax should pay more taxes

the distribution of tax burden among taxpayers; who ultimately pays the tax

the tax as a percentage of income remains constant as income increases; also called a flat tax

the tax as a percentage of income increases as income increases

the percentage of each additional dollar of income that goes to the tax

the tax as a percentage of income decrease as income increases

the value of a country exported good minus the value of its imported goods during a given period

a record of all economic transactions b/t residents of one country and residents of the rest of the world during a given period

foreign money needed to carry out international transactions

a tax on imports

a legal limit on the quantity of a particular product that can be imported or exported

a relationship between the price of a good and the quantity that consumers are willing and able to buy during a given period (o.t.c)

the quantity of a good demanded during a given period relates inversely to its price (o.t.c)

when the price of a good falls, consumers substitute that good for other goods, which become relatively more expensive

the number of dollars a person receives per period, such as $400/week

income measured in terms of the goods and services it can buy

a fall in the price of a good increases consumers' real income making consumers more able to purchase goods, for a normal good, the quantity demanded increases

a curve showing the relation between the price of a good and the quantity demanded during a given period

the amount demanded at a particular price, as reflected by a point on a given demand curve

sum of the individual demands of all consumers in the market

a good, such as new clothes, for which demand increases, or shifts rightward, as consumer incomes rise

a good, such as new clothes, for which demand decreases, or shifts leftward, as consumer incomes rise

goods, like coke or pepsi, that are related in such a way that an increase in the price of one shifts the demand for the other rightward

goods, such as milk and cookies, that are related in such a way that an increase in the price of one shifts the demand for the other leftward

consumer preferences; likes and dislikes in consumption, assumed to be constant along a given demand

change in quantity demanded resulting from a change in the price of a good

movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good

a relationship between the price of a good and the quantity that producers are willing and able to sell during a given period

the quantity of a good supplied during a given period is usually directly related to this price

a curve showing the relation between the price of a good and the quantity supplied during a given period

the amount offered for sale at a particular price, as reflected by a point on a given supply curve

the supply of an individual producer

the sum of individual supplies of all producers in the market

resources used to produce the good in question

other goods that use some or all of the same resources as the good in question

change in quantity supplied resulting from a change in the price of the good

movement of a supply curve left or right resulting from a change in the price of the good

the cost of time and info required to carry out market exchange
**agricultural trade goes down, Chicago Board of Trade**

at a given price, the amount by which quantity supplied exceeds quantity demanded; a surplus usually forces the price down

at a given price, the amount by which quantity demanded exceeds quantity demanded; a shortage usually forces the price up

the condition that exists in a market when the plans of buyers do not match those of sellers, so quantity demanded equals quantity supplied and the market dears

the condition that exists in a market when the plans of buyers do not match those of sellers; a temporary mismatch between quantity supplied and quantity demanded as the market seeks equilibrium

a minimum legal price below which a good or service cannot be sold; to have an impact, a price floor must be set above the equilibrium price

a maximum legal price above which a good or service cannot be sold; to have an impact, a price ceiling must be set below the equilibrium price

measures how responsive quantity demanded is to a price change; the percentage change in quantity demanded divided by the percentage change in price

price elasticity of demand = percentage change in quantity demanded divided by percentage change in price

percentage change in quantity demanded divided by the percentage change in price; the average change in price; the average quantity and average price are used as bases for computing percentage changes in quantity and price

a change in price has relatively little effect on a quantity demanded; the percent change in quantity demanded is less than the percentage change in price; the resulting price elasticity has an absolute value less than 1.0

the percentage change in quantity demanded equals the percentage change in price; the resulting price elasticity has an absolute value exceeding 1.0

a change in price has a relatively large effect on quantity demanded; the percentage change in quantity demanded exceed the percentage change in price; the resulting price elasticity has an absolute value exceeding 1.0

price multiplied by the quantity demanded at that price

a straight line curve; a curve such as a demand curve has a constant slope but usually has a varying price elasticity

a horizontal line reflecting a situation in which any price increase reduces quantity demanded at zero; the elasticity has an absolute value of infinity

a vertical line reflecting a situation in which any price change has no effect on the quantity demanded; the elasticity value equals zero

everywhere along the demand curve the percentage change in price causes an equal but offsetting percentage change in quantity demanded so total revenue remains the same; elasticity has an absolute value of 1.0

the type of demand that exists when a price elasticity is the same everywhere along the curve; the elasticity val is constant

a measure of responsiveness of quantity supplied to a price change; the percentage change in quantity supplied divided by the % change in price

a change in price has relatively little effect on quantity supplied; the percentage change in quantity supplied is less than the percentage change in price; the price elasticity of supply has a value less than 1.0

the percentage change in quantity supplied equals the percentage change in price; the resulting price elasticity of supply equals 1.0

a change in price has a relatively large effect on quantity supplied; the percentage change in quantity supplied exceeds the percent change in price; the resulting price elasticity supply exceeds 1.0

a horizontal line reflecting a situation in which any price decrease drops the quantity supplied at 0; the elasticity value is infinity

a percentage change in price causes an identical percentage change in quantity supplied; depicted by a supply curve that is a straight line from the origin; the elastic value equals 1.0

the percentage change in demand divided by the percentage change in consumer income; the value is positive for normal goods and negative for inferior goods. cross-price elasticity of demand: the percentage of change in the demand of one good divided by the percentage of change in the price of another good