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Micro Definitions

by: rlv54536

Micro Definitions Econ2106

Marketplace > University of Georgia > Econ2106 > Micro Definitions

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About this Document

This contains all the definitions that have been covered in class.
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This 4 page Study Guide was uploaded by rlv54536 on Thursday September 22, 2016. The Study Guide belongs to Econ2106 at University of Georgia taught by Schreiber in Fall 2016. Since its upload, it has received 125 views.


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Date Created: 09/22/16
Absolute Advantage: the ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group. Allocative Efficiency: When we cannot produce more of any one good without giving up some other good that we value more highly (MB =MC) Benefit: what you gain from something Common Resource: is owned by no one but can be used by everyone. Comparative Advantage: if someone can perform the activity at a lower opportunity cost than anyone else Competitive Market: a market that has many buyers and sellers so no single buyer or seller can influence the price. Complements: they must be produced together Consumer Surplus: the excess of the benefit received from a goof over the amount paid for it. ( (marginal benefit – price) / (quantity bought) ) Cost: what you must give up to get something Cross Elasticity of Demand: a measure of the responsiveness of demand for a good to a change in the price of a substitute or a compliment, other things remaining the same. Deadweight Loss: equals the decrease in total surplus Demand: the entire relationship between the price of the good and the quantity demanded of the good Demand Curve: Shows the relationship between the quantity demanded of a good and its price when all other influences on consumers’ planned purchases remain the same. Economics: the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices. Elastic Demand: the price elasticity of demand is greater than 1. Elasticity of Supply: measure the responsiveness of the quantity supplied to a change in the price of a good when all other influence on selling plans remain the same Equilibrium Price: the price at which the quantity demanded equals the quantity supplied Equilibrium Quantity: the quantity bought and sold at the equilibrium price Externality: is a cost or benefit that affects someone other than the seller or the buyer of a good. (external costs = overproduction, external benefit = underproduction) Firm: an economic unit that hires factors of production and organizes those factors to produce and sell goods and services Free-Rider Problem: Everyone’s self-interest to avoid paying for a public good, leads to underproduction. Goods and Services: objects that people value and produce to satisfy human wants Incentive: a reward that encourages an action or a penalty that discourages an action Income Effect: when the price of a good or service rises relative to income, people cannot afford all the things they previously bought, so the quantity demanded of the good or service decreases. Income Elasticity of Demand: measures how the quantity demanded of a good responds to a change in income, other things remaining the same. Inelastic Demand: the price elasticity of demand is less than 1 Inferior Good: a good for which demand decreases as income increases Law of Supply: other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller is the quantity supplied. Macroeconomics: the study of the performance of the national and global economies. Marginal Benefit: benefit received from consuming one more unit of it Marginal Benefit Curve: shows the relationship between the marginal benefit of a good and the quantity of that good consumed. Marginal Cost: the opportunity cost of producing one more unit of it Market: any arrangement that enables buyers and sellers to get information and do business with each other Market Failure: arises when a market delivers an inefficient outcome. (over or underproduction) Microeconomics: the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments Money Price: the amount of money needed to buy it. Monopoly: a firm that is the sole provider of a good or service. The self-interest of a monopoly is to maximize its profit. To do so, a monopoly sets a price to achieve its self-interested goal. As a result, a monopoly produces too little, underproduction. Normal Good: one for which demand increases as income increases Opportunity Cost: something is the highest-valued alternative that must be given up to get it. Perfectly Inelastic Demand: when the quantity demanded doesn’t change when the price changes, the price elasticity of demand is zero. Price Elasticity of Demand: units-free measure of the responsiveness of a quantity demanded of a good to a change in its price when all other influences on buying plans remain the same. Price Regulations: sometimes put a block on the price adjustments and lead to underproduction. Producer Surplus: the excess of the amount received from the sale of a good over the cost of producing it. ( (price received – minimum supply price, marginal cost) / quantity sold) ) Production Efficiency: we achieve it if we cannot produce more of one good without producing less of some other good. Production Possibilities Frontier (PPF): the boundary between those combinations of goods and services that can be produced and those that cannot. Property Rights: social arrangements that govern ownership, use, and disposal or resources, goods or services. Public Good: benefits everyone and no one can be excluded from its benefits. \ Quantity Regulations: limit the amount that a farm is permitted to produce, leads to underproduction Quantity Supplied: of a good or service is the amount that producers plan to sell during a given time period at a particular price. Rational Choice: one that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice. Relative Price: the ratio of its money price to the money price of the next best alternative good- its opportunity cost Scarcity: inability to satisfy all our wants Subsidies: increase the quantity produced, leads to overproduction. Substitute: another good that can be produced using the same resources. Substitution Effect: when the relative price (opportunity cost) of a good or service rises, people seek substitutes for it, so the quantity demanded of the good or service decreases. Supply: the entire relationship between the quantity supplied and the price of a good Supply curve: shows the relationship between the quantity supplied of a good and its price when all other influences on producers’ planned sales remain the same Taxes: increase the prices paid by buyers and lower the prices received by sellers. Decreases the quantity produced, leads to underproduction The Invisible Hand: Adam Smith’s idea in the Wealth of Nations implied that competitive markets send resources to their highest valued use in society. Consumers and producers pursue their own self interest and interact in markets. Market transactions generate efficient – highest valued- use of resources. Also known as First Welfare Theorem. Total Revenue: equals the price of a good multiplied by the quantity sold. Total Revenue Test: a method of estimating the price elasticity of demand by observing the change in total revenue that results from a price change (when all other influences on the quantity sold remain the same). Tradeoff: An exchange, giving up one thing to get something else. Tragedy of the Commons: everyone’s self interest to ignore the costs of their own use of a common recourse that fall on others, leads to overproduction. Transaction Costs: the opportunity cost of making trades in a market. Unit Elastic Demand: when the percentage change in the quantity demanded equals the percentage change in price, the price elasticity of demand equals one Utilitarianism: the principle that states that we should strive to achieve “the greatest happiness for the greatest number.”


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