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Vocab
- 1. Definitions Sections 1and Section 2
- 2.
- 3. Positive EconomicsExamines mattersof economics that can be proven to be right or wrong by looking at facts.Normative economics Examines matters of economics that are based upon opinion and so are hard to be proven to be right or wrong.
- 4. MicroeconomicsIs the studyof the individual markets and decisions by individual households and firmsMacroeconomicsis the study of the economy as a whole.
- 5. ScarcityIs a term used for a limited availability of recoursesFree market economyWhen the productions are privately held by individuals and firms
- 6. Opportunity costIs thesacrifice made In the next best alternative.Type of goodFree goodInvolve no opportunity costCapital GoodUse consumption goods in the futureConsumption Goodbought for final consumption
- 7. Factors of Production-Land-naturalresources-Labor-human resources-Capital- man maid aids to production-Entrepreneurship- this is the ability to combine
- 8. Production possibility Curve(PPC)Shows the maximum combination of goods and services which can be produced given the existing levels of resources.0
- 9. Economic developmentConcept involvingimprovement in standards of living, reduction in poverty, improved health, and improved educationSustainable developmentIs the economic development that meets its needs of the present without compromising the ability of the future generation to meet their needs.Economic GrowthBAShift in Production
- 10. ActualoutputThe production ofgoods and services in the economy achieved in a certain period of timePotential output The possible production that would be achieved if the available factors were employed.Actual GrowthWhen unemployed factors of production are brought into usePotentialgrownWhen the quantity or quality of factors of production within an economy increasesEconomic Growthgrowth of real output in an economy
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- 12. MarketWhere consumers andproducers come together to establish a price where each are happy with for a good or service.
- 13. DemandIs the willingnessand ability to purchase a quantity of a good or service at a certain price over a given time of periodLaw of demandStates as the price of good or service rises, the actual quantity demanded decrease.Demand curveIs a representation of the law of demand.D2D0
- 14. SupplyIs the willingnessand ability of a producer to produce a quantity of a good or service at a certain price over a certain period of timeLaw of supply states that as a price of a good rises, the quantity supplied will increase as well. Supply Curveis the curve of representation between the price and quantity suppliedP2Shift in Supply P1S2S1Q1Q2
- 15. Equilibrium priceIs themarket clearing price; demand is equal to supplySEQUALD
- 16. Maximum priceAka ‘ceilingprice’ is the set price by the government, in which sellers are not allowed to rise the price above. Price Ceiling on GasolineSupplyPriceP1$5.00E1IllegalP3$1.50Legal ShortageDemandQuantityQ10
- 17. Minimum priceAka ‘floorprice’ is set by the government, in which the price is not allowed to be bellow a certain price. Buffer stock schemeSets a maximum and minimum price in the market to stabilize prices.Equilibrium PointSIllegalMinimum priceLegalD
- 18. ELASTICIES Price elasticityof demand (PED) Is the measure of the responsiveness of the quantity demanded of a good or service to a change in its price
- 19. Price Elastic demandMeans that the change in the price of the good or service will cause a larger change in the quantity demandedPED > 1P2Price5%P1DQ2Q1Quantity10%
- 20. Price Inelastic demandMeansthat a change in the price of the good or service will cause a small change in the quantity demanded.PricePED < 1P220%P1DQ2Q1Quantity 10%
- 21. Income Elasticity ofdemand (YED)Is a measure of the responsiveness of demand for a good to a change in income.A Normal goodHas a positive income elasticity of demand. As income rises, demand increasesInferior goodsHave a negative income elasticity of demand. As income rises, demand decreases. Price elasticity of supply (PES) Is a measure of the responsiveness of the quantity supplied of a good or service to a change in its priceIndirect tax Is an expenditure tax on a good or serviceIncidence (burden)tax refers to the amount of tax paid by the producer or the consumer.
- 22. Cross elasticity ofdemand (XED)Measure of the responsiveness of the demand for a good or service to a change in the price of a related goodSubstitute goodsIs goods that can be used instead of another such as coke and Pepsi. Substitute good has positive cross elasticity of demandComplement goodsGoods which are used together, such as calculator and batteries. Complement goods have negative cross elasticity of demand.
- 23. THEORY OF THEFIRMFixed costAre costs of production that do not change with the level of the output.Eg. LandFixed Cost Graph CostFQuantity
- 24. Variable costsAre costsof production that vary with the level of outputEg. Labor, MaterialCostFQuantity
- 25. Total costAre thetotal costs of producing a certain level of output fixed costs plus the variable costAverage cotsIs the average total costs of production per unit. Marginal costs Is the additional costs of producing an additional unit of output
- 26. Short runPeriod oftime in which at least one factor of production is fixedSPAC1SPAC5SPAC2SPAC4SPAC3
- 27. The long runIsthe period of time in which all factors of production are variableSPAC1SPAC5SPAC2SPAC4SPAC3
- 28. Law of diminishingaverage returnAs extra units of a variable factor are applied to a fixed factor, the output per unit of the variable factor will eventually diminishDiminishing ReturnCostQuantity
- 29. Law of ConstantReturnAs extra units are added, the increase in outputs will be equal to the increase in costsLaw of Constant ReturnCostQuantity
- 30. Law of diminishingmarginal returnsAs extra units of a variable factor are applied to a fixed factor, the output from each additional unit of variable factor will eventually diminishCostLaw of diminishing marginal ReturnQuantity
- 31. Economies of scaleAreany fall in long run unit costs that come about as a result of a firm increasing its scale of productionDiseconomies of scaleAre any increase in long run unit costs that come about as a result of a firm increasing its scale of production.Total revenueIs the aggregated revenue gained by a firm from the scale of a particular quantity of output.
- 32. Average revenueIs thetotal revenue received divided by the number of units sold. Usually the price is equal to average revenue. CostA= DQuantity
- 33. Marginal revenueIs theextra revenue gained from selling an additional unit of a good or serviceCostA = DQuantityMr
- 34. Normal profitsAre theamount of revenue needed to cover the total costs of production, including the opportunity costs.McCostAC A = DQuantityMr
- 35. Abnormal profitsAreany level of profit that is greater than the required to ensure that a firm will continue to supply its existing good or service. McCostAC Abnormal ProfitA = DQuantity
- 36. Profit maximizing levelof output the level of output where marginal revenue is equal to marginal costs.Shut down price Is the price where the average revenue is equal to average variable costs. Below this price, the firm or company will shut down in the short run.The break even price Is the price where average revenue is equal to the average total cost.