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| an individual or a group that makes choices |
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| things that people want, where the quantity that people want exceeds the quantity that is available |
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| the situation of having unlimited wants in a world of limited resources |
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| the study of how agents choose to allocate scarce resources and how those choices affect society |
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| analysis that generates objective descriptions or predictions about the world that can be verified with data |
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| analysis that prescribes what an individual or society ought to do |
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| the study of how individuals, households, firms, and governments make choices, and how those choices affect prices, the allocation or resources, and the well-being of other agents |
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| the study of the economy as a whole |
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| trying to choose the best feasible option, given the available information |
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| the special situation in which everyone is simultaneously optimizing, so nobody would benefit personally by changing his or her own behavior |
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| analysis that uses data. Economists use data to test theories and to determine what is causing things to happen in the world |
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| when the agent needs to give up one thing to get something else. |
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| shows the bundles of good or services that a consumer can choose given his or her limited budget |
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| the best alternative use of a resource |
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| a calculation that adds up costs and benefits using a common unit of measurement, like dollars |
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| is the name for the ongoing process that economists use to (1) develop models of the world and (2) test those models with data |
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| a simplified description, or representation, of the world |
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| facts, measurements, or statistics that describe the world |
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is a set of facts established by observation and measurement
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| predictions that can be tested with data |
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| the sum of all the different values divided by the number of values |
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| occurs when one thing directly affects another through a cause-and-effect relationship |
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| means that there is a mutual relationship between two things |
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| a factor that is likely to change or vary |
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| implies that two variables tend to move in the same direction. |
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| implies that two variables tend to move in opposite directions |
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| when variables have movements that are not related |
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| something that has been left out of a study that, if included, would explain why two variables that are in the study are correlated |
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| occurs when we mix up the direction of cause and effect |
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is a controlled method of investigating casual relationships among variables
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| is the assignment of subjects by chance, rather than by choice, to a treatment group or control group |
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| is an empirical study in which some process -out of the control of the experimenter- has assigned subjects to control and treatment groups in a randomly or nearly random way |
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| calculates the total net benefit of different alternatives and then chooses the best alternative |
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| Optimization in Differences |
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| calculates the change in net benefits when a person switches from one alternative to another and then uses these marginal comparisons to choose the best alternative |
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| jointly analyzes the economic and psychological factors that explain human behavior |
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| is the comparison of economic outcomes before and after some economic variable is changed |
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| a cost benefit calculation that studies the difference between a feasible alternative and the next feasible alternative |
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| the extra cost generated by moving from one feasible alternative to the next feasible alternative |
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| Principle of Optimization at the Margin |
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| states that an optimal feasible alternative has the property that moving to it makes you better off and moving away from it makes you worse off |
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| a group of economic agents who are trading a good or service, and the rules and arrangements for trading |
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| all sellers and all buyers face the same price |
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| Perfectly Competitive Market |
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| (1) sellers sell an identical good or service, and (2) any individual buyer or any individual seller isn't powerful enough on his or her own to affect the market price of that good or service |
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| a buyer or seller who accepts the market price |
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| the amount of a good that buyers are willing to purchase at a given time |
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| a table that reports the quantity demanded at different prices, holding all else equal |
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| implies that everything else in the economy is held constant |
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| plots the quantity demanded at different prices |
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| if the variables move in the opposite direction |
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| In almost all cases, the quantity demanded rises when the price falls (holding all else equal) |
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| the highest price that a buyer is willing to pay for an extra unit of a good |
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| Diminishing Marginal Benefit |
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Definition
| As you consume more of a good, your willingness to pay for an additional unit declines |
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| the process of adding up individual behaviors |
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| the sum of the individual demand curves of all potential buyers. It plots the relationship between the total quantity demanded and the market price, holding all else equal |
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| only happen when the quantity demanded changes at a given price |
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| Movement Along the Demand Curve |
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Definition
| If a good's own price changes its demand curve hasn't shifted, the own price change produces _____ |
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| an increase in income causes the demand curve to shift to the right (holding the good's price fixed) |
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| an increase in income causes the demand curve to shift left (holding the good's price fixed) |
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| two goods are ____ when the fall in the price of one leads to a left shift in the demand curve of the other |
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| two goods are _____ when the fall in price of one, leads to a right shift in the demand curve for the other |
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| is a table that reports the quantity supplied at different prices, holding all else equal |
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| the amount of a good or service that sellers are willing to sell at a given price |
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| Plots the quantity supplied at different prices and the supply schedule |
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| two variables are ____ if the variables move in the same direction |
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| In almost all cases, the quantity supplied rises when the price rises (holding all else equal) |
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| is the lowest price that a seller is willing to get paid to sell an extra unit of a good. This is also the same as the marginal cost of production. |
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| the sum of the individual supply curves of all the potential sellers. It plots the relationship between the total quantity supplied and the market price, holding all else equal. |
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| is a good or service used to produce another good or service |
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Definition
| this happens only when the quantity supplied changes at a given price |
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| Movement Along the Supply Curve |
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Definition
| if a good's own price changes and its supply curve hasn't shifted, the own price change produces a ______ |
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| the crossing point of the supply curve and the demand curve |
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| Competitive Equilibrium Price |
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| equates quantity supplied and quantity demanded |
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| Competitive Equilibrium Quantity |
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| the quantity that corresponds to the competitive equilibrium price |
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| when the market is above the competitive equilibrium price, quantity supplied exceeds quantity demanded, creating _____ |
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| When the market price is below the competitive equilibrium price, quantity demanded exceeds quantity supplied, creating ______ |
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| the set of all possible bundles of goods and services that can be purchased with a consumer's income |
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| the difference between willingness to pay and the price paid for the good |
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| the measure of sensitivity of one variable to a change in another |
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| Price Elasticity of Demand |
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Definition
| measures the percentage change in quantity demanded of a good due to a percentage change in its price |
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| a method of calculating elasticities that measures at the mid-point of the demand range |
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Definition
| goods that have ____ have a price elasticity of demand greater than 1 |
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Definition
| A very small increase in price causes consumers to stop using goods that have ______ |
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| goods that have ____ have a price elasticity of demand equal to 1 |
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Definition
| goods that have _____ have a price elasticity of demand less than 1 |
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| Perfectly Inelastic Demand |
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Definition
| Quantity demanded is unaffected by prices of goods with ______ |
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| Cross-Price Elasticity of Demand |
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| measures the percentage change in quantity demanded of a good due to a percentage change in another good's price |
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| Income Elasticity of Demand |
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| measures the percentage change in quantity demanded due to a percentage change in income |
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Definition
| when income rises and consumers buy more of a good, it is a ______ |
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| When income rises and consumers buy less of a good, it is an _____ |
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| any business entity that produces or sells a goods or services |
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| the process that by which the transformation of inputs to outputs occurs |
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| any good, including machines and buildings used for production |
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| a period of time when only some of the firm's inputs can be varied |
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| is a period of time when all of the firm's inputs can be varied |
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| Fixed Factor of Production |
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| an input that cannot be changed in the short run |
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| Variable Factor of Production |
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Definition
| an input that can be changed in the short run |
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Definition
| the change in total output associated with using one more unit of input |
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Definition
| the result of workers developing a certain skill set in order to increase total productivity |
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| Law of Diminishing Returns |
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Definition
| states that successive increases in inputs eventually lead to less additional output |
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| is what a firm must pay for its inputs |
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| is the sum of variable and fixed costs |
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| A _____ is the cost of variable factors of production, which change along with a firm's output |
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| A _____ is the cost of fixed factors of production, which a firm must pay even if it produces zero outputs |
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| the total cost divided by the total output |
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| Average Variable Cost (AVC) |
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Definition
| the total variable cost divided by the total output |
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| the total fixed cost divided by the total output |
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| the change in total cost associated with producing one more unit of output |
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| the amount of money the firm brings in from the sale of its outputs |
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| the change in total revenue associated with producing one more unit of output |
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| equal to total revenue minus explicit costs |
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| equal to total revenue minus both explicit and implicit costs |
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| Price Elasticity of Supply |
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| the measure of how responsive quantity supplied is to price changes |
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Definition
| a short-run decision to not produce anything during a specific period |
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| costs that, once committed, can never be recovered and should not affect current and future decisions |
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| the difference between the market price and the marginal cost curve |
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| this occurs when ATC falls as the quantity produced increases |
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| Constant returns of scale |
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Definition
exist when ATC does not change as the quantity produced changes
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| This occurs when ATC rises as the quantity produced increases |
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| is a long-run decision to leave the market |
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| the sum of consumer surplus and producer surplus |
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Definition
| An outcome is ______ if no individual can be made better off without making someone else worse off |
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| Value of Marginal Product of Labor |
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Definition
| the contribution of an additional worker to a firm's revenues |
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| Value of Marginal Product of Physical Capital |
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Definition
| the contribution of an additional unit of physical capital to a firm's revenues |
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