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| The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity. |
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| A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions. |
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| The amount of other products that must be forgone or sacrificed to produce a unit of a product. |
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| The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services). |
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| The comparison of marginal (“extra” or “additional”) benefits and marginal costs, usually for decision making. |
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| widely accepted generalization about the economic behavior of individuals or institutions. |
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| other-things-equal assumption |
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| The assumption that factors other than those being considered are held constant; ceteris paribus assumption. |
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| The part of economics concerned with decision making by individual units such as a household, a firm, or an industry and with individual markets, specific goods and services, and product and resource prices. |
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| The part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy. |
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| A collection of specific economic units treated as if they were one. For example, all prices of individual goods and services are combined into a price level, or all units of output are aggregated into gross domestic product. |
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| The analysis of facts or data to establish scientific generalizations about economic behavior. |
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| The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics. |
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| The choices necessitated because society’s economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce). |
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| A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products’ prices. |
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| The land, labor, capital, and entrepreneurial ability that are used in the production of goods and services; productive agents; factors of production |
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| The human resource that combines the other resources to produce a product, makes nonroutine decisions, innovates, and bears risks. |
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| Economic resources: land, capital, labor, and entrepreneurial ability. |
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| Products and services that satisfy human wants directly. |
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| Human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; also called capital goods. |
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| production possibilities curve |
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Definition
| A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed. |
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Term
| law of increasing opportunity costs |
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Definition
| The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises. |
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Definition
| (1) An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita. |
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Term
demand
(AKA demand schedule) |
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Definition
| A schedule showing the amounts of a good or service that buyers (or a buyer) wish to purchase at various prices during some time period. |
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Definition
| The principle that, other things equal, an increase in a product’s price will reduce the quantity of it demanded, and conversely for a decrease in price. |
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Term
diminishing marginal utility
AKA (law of diminishing marginal utility) |
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Definition
| The principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases. |
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Definition
| A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product’s price. |
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| (1) A change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product’s price; (2) the effect of a change in the price of a resource on the quantity of the resource employed by a firm, assuming no change in its output. |
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| A curve illustrating demand. |
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| Factors other than price that determine the quantities demanded of a good or service. |
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| A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant. |
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Definition
| A good or service whose consumption declines as income rises, prices held constant. |
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| Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises. |
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Definition
| Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely). |
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Definition
| A movement of an entire demand curve or schedule such that the quantity demanded changes at every particular price; caused by a change in one or more of the determinants of demand. |
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Term
| change in quantity demanded |
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Definition
| A change in the quantity demanded along a fixed demand curve (or within a fixed demand schedule) as a result of a change in the price of the product. |
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Term
supply
(AKA supply schedule) |
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Definition
| A schedule showing the amounts of a good or service that sellers (or a seller) will offer at various prices during some period. |
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Definition
| The principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease. |
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Definition
| A curve illustrating supply. |
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Term
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Definition
| Factors other than price that determine the quantities supplied of a good or service. |
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Definition
| A movement of an entire supply curve or schedule such that the quantity supplied changes at every particular price; caused by a change in one or more of the determinants of supply. |
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Term
| change in quantity supplied |
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Definition
| A change in the quantity supplied along a fixed supply curve (or within a fixed supply schedule) as a result of a change in the product’s price. |
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Definition
| The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall. |
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Term
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Definition
| (1) The quantity at which the intentions of buyers and sellers in a particular market match at a particular price such that the quantity demanded and the quantity supplied are equal; (2) the profit-maximizing output of a firm. |
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Definition
| The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price. |
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Definition
| The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price. |
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Definition
| The production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar’s worth of input is the same for all inputs. |
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Definition
| The apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which its marginal cost and price or marginal benefit are equal, and at which the sum of consumer surplus and producer surplus is maximized. |
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Definition
| A legally established maximum price for a good or service. |
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Term
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Definition
| A legally determined minimum price above the equilibrium price. |
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Term
| price elasticity of demand |
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Definition
| The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource. |
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Term
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Definition
| A method for calculating price elasticity of demand or price elasticity of supply that averages the two prices and two quantities as the reference points for computing percentages. |
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Term
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Definition
| Product or resource demand whose price elasticity is greater than 1. This means the resulting change in quantity demanded is greater than the percentage change in price. |
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Term
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Definition
| Product or resource demand for which the elasticity coefficient for price is less than 1. This means the resulting percentage change in quantity demanded is less than the percentage change in price. |
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Term
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Definition
| Demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or supplied is equal to the percentage change in price. |
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Term
| perfectly inelastic demand |
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Definition
| Product or resource demand in which price can be of any amount at a particular quantity of the product or resource demanded; quantity demanded does not respond to a change in price; graphs as a vertical demand curve. |
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Term
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Definition
| Product or resource demand in which quantity demanded can be of any amount at a particular product price; graphs as a horizontal demand curve. |
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Term
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Definition
| The total number of dollars received by a firm (or firms) from the sale of a product; equal to the total expenditures for the product produced by the firm (or firms); equal to the quantity sold (demanded) multiplied by the price at which it is sold. |
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Term
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Definition
| A test to determine elasticity of demand between any two prices: Demand is elastic if total revenue moves in the opposite direction from price; it is inelastic when it moves in the same direction as price; and it is of unitary elasticity when it does not change when price changes. |
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Term
| price elasticity of supply |
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Definition
| The ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price; a measure of the responsiveness of producers to a change in the price of a product or resource. |
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Term
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Definition
| A period in which producers of a product are unable to change the quantity produced in response to a change in its price and in which there is a perfectly inelastic supply. |
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Term
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Definition
| (1) In microeconomics, a period of time in which producers are able to change the quantities of some but not all of the resources they employ; a period in which some resources (usually plant) are fixed and some are variable. (2) In macroeconomics, a period in which nominal wages and other input prices do not change in response to a change in the price level. |
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Term
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Definition
| (1) In microeconomics, a period of time long enough to enable producers of a product to change the quantities of all the resources they employ; period in which all resources and costs are variable and no resources or costs are fixed. (2) In macroeconomics, a period sufficiently long for nominal wages and other input prices to change in response to a change in a nation’s price level. |
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Term
| cross elasticity of demand |
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Definition
| The ratio of the percentage change in quantity demanded of one good to the percentage change in the price of some other good. A positive coefficient indicates the two products are substitute goods; a negative coefficient indicates they are complementary goods. |
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Term
| income elasticity of demand |
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Definition
| The ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income; measures the responsiveness of consumer purchases to income changes. |
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