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Scarcity
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Limited quantities of resources to meet unlimited wants
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Needs
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Things that are required in order to live
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Wants
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Those things which make our lives more comfortable but are not needed for survival
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Economic Choice
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The decision to buy one thing instead of another.
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Trade-Off
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An alternative that we sacrifice when we make a decision
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PPF Curve
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(Production Possibilities Frontier) A graph that shows the possibilities of combinations of goods and services
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Law of Diminishing Marginal Returns
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As successive units of a variable input are added to a fixed input, beyond some point the marginal product declines
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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 Supply
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As supply increases, prices go down; as supply decreases, prices go up.
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Law of Demand
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As demand increases, prices go up; as demand decreases, prices go down.
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Determinants of Supply
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Factors other than price that determine the quantities supplied of a good or service.
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Determinants of Demand
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Factors other than price that determine the quantities demanded of a good or service
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Change in Quantity Supplied
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A movement along the supply curve that occurs in response to a change in price
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Change in Quantity Demanded
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A movement along the demand curve that occurs in response to a change in price
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Change in Supply
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A change in supply that is shown by drawing a new supply curve
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Change in Demand
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A change in demand that is show by drawing a new demand curve
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Markets
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Divisions of the economy that specialize in certain goods or services
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Equilibrium Price
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The price that balances quantity supplied and quantity demanded
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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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Productive Efficiency
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The situation in which a good or service is produced at the lowest possible cost
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Allocative Efficiency
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When the last unit produced costs the same as the benefit recieved by consumers
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Market Equilibrium
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A situation in which quantity demanded equals quantity supplied
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Types of Economic Systems
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Free Market, Traditional, Command, Mixed Markets.
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Four Factors of Production (Imputs)
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Land, Capital, Labor, Entrepreneurship.
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Circular Flow Model
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A model that shows the flow of goods and services and the interaction among households, businesses, and banks
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Price Elasticity
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A measure of the sensitivity of demand to changes in price
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Elastic
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Describes demand that is very sensitive to a change in price
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Inelastic
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Describes demand that is not very sensitive to a change in price
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Total Revenue
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The total amount of money a firm receives by selling goods or services
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Cross Elasticity of Demand
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The impact of price changes on the quantity demand of a good or service by gauging the effect on the total revenue the firm will generate
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Cross Elasticity of Income
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Determines and classifies the relationship between income and demand for a good or service.
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Price Ceiling
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A maximum price that can be legally charged for a good or service
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Price floor
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A legal minimum on the price at which a good can be sold
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Price Elasticity of Supply
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Measures the relationship between change in quantity supplied and a change in price.
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Consumer Utility Maximization
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Allocating one's income so that the marginal utility/price of the last units obtained of each good are equal
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Budget Income Limits
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The maximum amount an individual is willing to pay in a specific scenario
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Explicit Cost
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A cost that requires an outlay of money.
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Implicit Cost
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An opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment
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Short Run
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A period during which at least one of a firm's resources is fixed
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Long Run
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A period of time of sufficient length that all the firm's factors of production are variable
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TFC
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Total Fixed Cost
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TVC
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Total Variable Cost
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AFC
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Average Fixed Costs (Declines as output increases.)
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AVC
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Average Fixed Cost
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ATC
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Average Total Cost
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MC
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Marginal Cost
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Economy of Scale
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The more you produce the less it costs and the cheaper the product is for the consumer.
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