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Microeconomics Part One
Microeconomics Part I
The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.
The best alternative that we forgo, or give up, when we make a choice or a decision.
The process of analyzing the additional or incremental costs or benefits arising from a choice or decision.
Costs that cannot be avoided because they have already been incurred.
A market in which profit opportunities are eliminated almost instantaneously.
The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units-that is, firms and households.
The branch of economics that examines the economics behavior of aggregates- income, employment, output, and so on-on a national scale.
An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.
An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action.
The compilation of data that describe phenomena and facts.
A statement or set of related statements about cause and effect, action and reaction.
A formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables.
A measure that can change from time to time or from observation to observation.
The principle that irrelevant detail should be cut away.
ceteris paribus, or all else equal
A device used to analyze the relationship between two variables while the values of other variables are held unchanged.
post hoc, ergo propter hoc
Literally, "after this (in time), therefore because of this." A common error made in thinking about causation: If Event A happens before Event B, it is not necessarily true that A caused B.
Fallacy of composition
The erroneous belief that what is true for a part is necessarily true for the whole.
The collection and use of data to test economic theories.
In economics, allocative efficiency. An efficient economy is one that produces what people want at the least possible cost.
An increase in the total output of an economy.
A condition in which national output is grawing steadily, with low inflation and full employment of resources.
Theory of comparative advantage
Ricardo's theory that specialization and free trade will benefit all trading parties, even those that may be "absolutely" more efficient producers.
A producer has an absolute advantage over another in the production of a good or service if he or she can produce that product using fewer resources.
A producer has a compartive advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost.
Goods produced for present consumption.
The process of using resources to produce new capital.
Production possibility frontier
A graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently.
Marginal rate of transformation
The slope of the production possiblility frontier.
An increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources.
An economy in which a central government either directly or indirectly sets output targets, incomes, and prices.
French: "allow [them] to do." An economy in which individual people and firms pursue their own self-interest without any central direction or regulation.
The idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase).
The freedom of individuals to start and operate private businesses in search of profits.
An organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy.
The consuming units in an economy.
Product or output markets
The markets in which goods and services are exchanged.
Input or factor markets
The markets in which the resources used to produce goods and services are exchanged.
The input/factor market in which households supply work for wages to firms that demand labor.
The input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.
The input/factor market in which households supply land or other real property in exchange for rent.
Factors of production
The inputs into the production process. Land, labor and capital are the three key factors of production.