Download Exam 1 | ECON 112 - Principles of Microeconomics and more Quizzes Microeconomics in PDF only on Docsity!
Comparative Advantage
A specific advantage in one choice over someone else because of a lower opportunity cost TERM 2
Absolute Advantage
DEFINITION 2 A person has absolute advantage if that person is more productive than the other person TERM 3
Production Possibilities Curve
DEFINITION 3 A graph that describes the maximum amount of one good that can be produced for every level of production of the other good. TERM 4
The Principle of Increasing Opportunity
Cost
DEFINITION 4 In expanding the production of any good, first employ those resources with the lowest opportunity cost, and only afterward turn to resources with higher opportunity costs. TERM 5
Economics
DEFINITION 5 The study of how people make choices under conditions of scarcity and of the results of those choices for society.
The Scarcity
Principle
Boundless wants cannot be satisfied with limited resources. Therefore, having more of one thing usually means having less of another. Because of scarcity we must make choices. TERM 7
Rational Person
DEFINITION 7 Someone with well-defined goals who tries to fulfill those goals as best her or she can. TERM 8
The Cost-Benefit
Principle
DEFINITION 8 An individual (or firm or society) should take action if, and only if, the extra benefits from taking the action are at least as great as the extra costs. TERM 9
Economic Surplus
DEFINITION 9 The benefit of taking any action minus its cost. The goal of economic decision makers is to maximize their economic surplus. TERM 10
Microeconomics
DEFINITION 10 The study of individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets.
Reservation Price
Maximum you'd be willing to pay TERM 17
The Supply Curve
DEFINITION 17 A curve or schedule showing the quantity of a good that sellers wish to sell at each price TERM 18
Seller's Reservation Price
DEFINITION 18 The smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost. TERM 19
Equilibrium
DEFINITION 19 The values of price and quantity for which quantity supplied and quantify demanded are equal. TERM 20
Complements
DEFINITION 20 Goods that go together
Substitutes
Goods that replace one another TERM 22
Normal Good
DEFINITION 22 One whose demand increases (decreases) when the incomes of buyers increase (decrease). TERM 23
Inferior Good
DEFINITION 23 One whose demand decreases (increases) when the income of buyers increase (decrease). TERM 24
The Equilibrium
Principle
DEFINITION 24 A market equilibrium leaves no unexploited opportunities for individuals, but may not exploit all gains achievable through collective action. TERM 25
Cash on the Table
DEFINITION 25 The "unexploited" potential gains from trade for one particular individual.
Cross-Price Elasticity of Demand
The percentage by which quantity demanded of the first good changes in response to a 1% change in the price of the second good. TERM 32
Income Elasticity of Demand
DEFINITION 32 The percentage by which quantity demanded changes in response to a 1% change in income. TERM 33
Price Elasticity of Supply
DEFINITION 33 The percentage change in the quantity supplied that occurs in response to a 1% change in price. TERM 34
Dead Weight Loss
DEFINITION 34 A measure of inefficiency. It is equal to the decrease in total surplus that results from an inefficient level of production.
