Elasticity
A measure of how much one economic variable responds to changes in another economic variable.
Price elasticity of demand
The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price.
Elastic demand
Demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price, so the price elasticity is greater than 1 in absolute value.
Inelastic demand
Demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price, so the price elasticity is less than 1 in absolute value.
Unit-elastic demand
Demand in unit elastic when the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value.
Perfectly inelastic demand
The case when the quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero.
Perfectly elastic demand
The case where the quantity demanded is infinitely responsive to price, and the price elasticity of demand equals infinity.
Total revenue
The total amount of funds received by a seller of a good or service, calculated by multiplying price per unit by the number of units sold.
Cross-price elasticity of demand
the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
Income elasticity of demand
A measure of the responsiveness of qunantity demanded to changes in income, measured by the percentage change in qunaitity demanded by the point
free elasticity of supply
The responsiveness of the quantity supplied to a change in price, measured by dividing the percentage change in the quantity supplied of a product by the percentage change in the product's price.
Price elasticity of supply
The responsiveness of the quantity supplied to a change in price, measured by divined the percentage change in the quantity supplied of a product by the percentage change in the product's price.
Price ceiling
A legally determined maximum price that sellers may charge.
Price floor
A legally determined minimum price that sellers may receive.
Consumer surplus
The difference between teh highest price a consumer is willing to pay and the price the consumer actually pays.
Marginal benefit
The additional benefit to a consumer from consuming one more unit of a good or service.
Marginal cost
The additional cost to a firm of purchasing one more unit of a good or service.
Producer surplus
The difference between the lowest price a firm would be willing to accept and the price it actually receives.
Economic surplus
The sum of consumer surplus and producer surplus.
Deadweight loss
The reduction in economic surplus resulting from a market not being in competitive equilibrium.
Economic efficiency
A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
Black market
A market in which buying and selling take place at prices that violate government price regulations.
Tax incidence
The actual division of the burden of a tax between buyers and sellers in a market.
Perfectly competitive market
A market that meets the conditions of: many buyers and sellers, all firms selling identical products, and no barriers to new firms entering the market.
Demand schedule
A table showing the relationship between the price of a product and the quantity of the product and the quantity of the product demanded.
Quantity demanded
The amount of a good or service that a consumer is willing and able to purchase at a given price.
Demand curve
A curve that shows the relationship between the price of a product and the quantity of the product demanded.
Market demand
The demand by all the consmers of a given good or service.
Law of demand
The rule that, holding everything else constant, when the price of a prduct falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.
Substitution effect
The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are subsitutes.
Income effect
The change in teh quntity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power.
Ceteris paribus "all else equal
The requirement that when analyzing the relationship between two variables - such as price and quantity demanded - other variables must be held constant.
Normal good
A good for which the demand increases as income rises and decreases as income falls.
Inferior good
A good for which the demand increases as income falls and decreases as income rises.
Subsitutes
Goods and services that can be used for the same purpose.
Complements
Goods and services that are used together.
Demographics
The characteristics of a population with respect to age, race, and gender.
Supply schedule
A tabel that shows the relationship between the price of a product and the quantity of a product supplied.
Supply curve
A curve that shows the relationship between the price of a product and the quantity of the product supplied.
Law of supply
The rule that, holding everything else constant, increases in price cause increases in teh quantity supplied, and decreases in price cause decreases in the quantity supplied.
Technological change
A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs.
Market equilibrium
A situation in which quantity demanded equal quantity supplied
Competitive market equilibrium
A market equilibrium with many buyers and many sellers.
Surplus
A situation in which the quantity supplied is greater than the quantity demanded.
shortage
a situation in which the quantity demanded is greater than the quantity supplied.
Technology
The processes a firm uses to turn inputs into outputs of goods an services.
Technological Change
A change in the ability of a firm to produce a given level of output with a given quantity of inputs.
Short Run
The period of time during which at least one of a firm's inputs is fixed.
Long run
The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant.
Total cost
The cost of all the inputs a firm uses in production
Variable costs
Costs that change as output changes.
Fixed costs
costs that remain constant as output changes.
Opportunity cost
The highest valued alternative that must be given up to engage in an activity
Explicit Cost
a cost that involves spending money
Implicit cost
a non-monetary opportunity cost
Production function
the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.
Average total cost
total cost divided by the quantity of output produced
Marginal product of labor
The additional output a firm produces as a result of hiring one more worker.
Law of diminishing returns
The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital will cause the marginal product of the variable input to decline.
Average product of labor
the total output produced by a firm divided by the quantity of workers.
Marginal Cost
The change in a firm's total cost from producing one more unit of a good or service.
Utility
The enjoyment or satisfaction people receive from consuming goods and services.
Marginal utility (MU)
The change in total utility a person receives from consuming one additional unit of a good or service.
Law of diminishing marginal utility
The principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time.
Budget constraint
The limited amount of income available to consumers to spend on goods and services.
Income effect
The change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant.
Substitution effect
The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant that effect of the price change on consumer purchasing power.
Network externality
A situation in which the usefulness of a product increases with the number of consumers who use it.
Behavioral economics
The study of situation in which people make choices that do not appear to be economically rational.
Opportunity cost
The highest valued alternative that must be given up to engage in an activity.
Endowment effect
The tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it.
Sunk cost
A cost A cost that has already been paid and cannot be recovered.
Scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
Production Possibilities Frontier
A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
Opportunity cost
the highest-valued alternative that must be given up to engage in an activity
Economic growth
The ability of the economy to increase the production of goods and services.
Trade
The act of buying and selling
Absolute advantage
The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.
Comparative advantage
The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
Market
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
Product markets
markets for goods-such as computer- and services-such as medical treatment.
Factor Markets
Markets for goods-such as computers-and services-such as medical treatment.
Factor markets
Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.
Factors of production
The inputs used to make godos and services.
Circular-flow diagram
A model that illustrates how participants in markets are linked.
Free market
A market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed.
Entrepreneur
Someone who operates a business, bringing together the factors of production-labor, capital, and natural resources-to produce goods and services.
Property rights
the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
Scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
Economics
The study of the choices people make to attain their goals, given their scarce resources.
Economic Model
A simplified version of reality used to analyze real-world economic situations.
Marginal Analysis
Analysis that involves comparing marginal benefits and marginal costs.
Trade-off
The idea that because of scarcity, producing more of one good or service means producing less of another good or service
Opportunity cost
The highest-valued alternative that must be given up to engage in an activity.
Centrally planned economy
An economy in which the government decides how economic resources will be allocated.
Market economy
An economy in which the decisions of households and firms interacting in markets allocate economic resources.
Mixed economy
An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
Productive efficiency
A situation in which a good or service is produced at the lowest possible cost.
Allocative efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.
Voluntary exchange
A situation that occurs in markets when both the buyer and seller or a product are made better off by the transaction.
Economic Variable
Something measurable that can have different values, such as the wages of software programmers.
Positive analysis
Analysis concerned with what is.
Normative analysis
Analysis concerned with what ought to be.
Microeconomics
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Macroeconomics
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.