Microeconomics Chapter 1 and 2 Vocab

Is the study of the individual units that make up the economy.

Is the study of the overall aspects and working of an economy.

Refers to the limited nature of society's resources, given society's unlimited wants and needs.

Is the study of how people allocate their limited resources to satisfy their nearly unlimited wants.

Are factors that motivate a person to act or exert effort.

Is the highest-value alternative that must be sacrificed in order to get something else.

Requires a purposeful evaluation of the available opportunities to make the best decision possible.

Requires decision-makers to evaluate whether the benefit of one more unit of something is greater than its cost.

Bring buyers and sellers together to exchange goods and services

Is the voluntary exchange of goods and services between two or more parties.

Refers to the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can.

Can be tested and validated; it describes "what is"

Is an opinion that cannot be tested or validated; it describes "What ought to be."

Is the concept under which economist examine a change in one variable while holding everything else constant.

Are the variables that can be controlled for in a model.

Are the variables that cannot be controlled for in a model.

Is a model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently.

States that the opportunity cost of producing a good rises as a society produces more of it.

Refers to the ability of one producer to make more than another producer with the same quantity of resources.

are produced for present consumption

help produce other valuable goods and services in the future.

is the process of using resources to create or buy new capital.

Is a quantity that can take on more than one value.

Is a graph that shows individual points

Occurs when two variable move in the same direction.

Occurs when two variables move in the opposite direction.

Refers to the change in the rise along the y-axis divided by the change in the run along the x axis.

Occurs when causation is incorrectly assigned among associated events.

Resources are allocated among households and firms with little or no government interference.

exists when there are so many buyers and sellers that each has only a small impact on the market price and output.

Is one in which either the buyer or the seller has an influence on the market price.

Exists when a single company supplies the entire market for a particular good or service

Is the amount of a good or service that buyers are willing and able to purchase at the current price.

States that, all other things being equal, quantity demanded falls when prices rise, and rises when prices fall.

Is a table that shows that relationship between the price of a good and the quantity demanded.

Is a graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices.

Is the sum of all the individual quantities demanded by each buyer in the market at each price.

Consumers buy more of a normal good as income rises, holding other things constant.

Is purchased out of necessity rather than choice

Is a measure of the responsibilities of buyers and sellers to changes in price or income.

Is a measure of the responsiveness of quantity demanded to a change in price.

Measures how a change in income affects spending

Is a measure of the responsiveness of the quantity supplied to a change in price.

1. Tastes or preferences
2. Price of related good (compliments decrease, demand increase)
(substitute increase, demand increase)
3. More consumers
4.Income (normal, more income, demand increase) (inferior, less income, demand increase)
5.Expected future price rises (demand increase)

1. Number of sellers (more sellers, supply increase)
2. Input prices (prices fall, supply increase)
3. Technology (better, supply increase)
4. Expected future (price lower future, sell now, increase)

1. Necessity
2. No close subs
3. short run
4. low prices
-1<Ed<0
More revenue but usually higher costs

Gas, water, salt,

(0, infinity)
(-1, negative infinity)
Raise prices

Descriptive, making a claim about how the world is.

The price is below the equilibrium price

A decrease in the price of wool shirts and a decrease in the price of raw cotton

incorporate assumptions that contradict reality. OR Good models assume away irrelevant details

Resources are specialized, that is, some are better at producing particular goods rather than other goods.

The price of land in Florida decreases, and Florida produces a significant proportion of the nation's oranges

Lower the price to increase total revenue.

According to the law of supply, what is the relationship between price and quantity supplied?

Suppose there is a shortage for a product. What must happen to the market price in order for a shortage to be eliminated?

Suppose pasta salad is a normal good. If the price of pasta (a major ingredient in pasta salad) increases and income also increase

Which of the following will cause a change in the quantity demanded of coffee? A change in

Flour is a factor of production of cupcakes. How will an increase in the price of flour affect the market for cupcakes?