Economics Vocab

1. Definitions Sections 1 and Section 2

2. Positive Economics- examines matters of 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. Microeconomics- is the study of the individual markets and decisions by individual households and firms Macroeconomics- is the study of the economy as a whole. Scarcity-is a term used for a limited availability of recourses Section 1

3. 6. Free market economy- when the productions are privately held by individuals and firms 7. Factors of Production -Land-natural resources -Labor-human resources -Capital- man maid aids to production -Entrepreneurship- this is the ability to combine Opportunity cost- is the sacrifice made In the next best alternative. Type of good Free good- involve no opportunity cost Capital Good- Use consumption goods in the future Consumption Good- bought for final consumption

4. 11. Production possibility Curve (PPC)- shows the maximum combination of goods and services which can be produced given the existing levels of resources. -Actual output- the production of goods and services in the economy achieved in a certain period of time -Potential output- the possible production that would be achieved if the available factors were employed. -Actual Growth- when unemployed factors of production are brought into use -Potentialgrown-when the quantity or quality of factors of production within an economy increases -Economic Growth- growth of real output in an economy 12. Economic development- concept involving improvement in standards of living, reduction in poverty, improved health, and improved education - Sustainable development- is the economic development that meets its needs of the present without compromising the ability of the future generation to meet their needs.

7. ELASTICIES 8.Price elasticity of demand (PED) is the measure of the responsiveness of the quantity demanded of a good or service to a change in its price A. -Elastic demand- means that the change in the price of the good or service will cause a larger change in the quantity demanded B. -Inelastic demand-means that a change in the price of the good or service will cause a small change in the quantity demanded. 9. Cross elasticity of demand (XED) measure of the responsiveness of the demand for a good or service to a change in the price of a related good A. Substitute goods- is goods that can be used instead of another such as coke and Pepsi. Substitute good has positive cross elasticity of demand B. Complement goods- goods which are used together, such as calculator and batteries. Complement goods have negative cross elasticity of demand.

8. 10. Income Elasticity of demand (YED) is a measure of the responsiveness of demand for a good to a change in income. A Normal good- Has a positive income elasticity of demand. As income rises, demand increases B. Inferior goods- have a negative income elasticity of demand. As income rises, demand decreases. 11. 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 price A. Indirect tax- Is an expenditure tax on a good or service B. Incidence (burden)- tax refers to the amount of tax paid by the producer or the consumer.

9. THEORY OF THE FIRM 12. Fixed cost- are costs of production that do not change with the level of the output. A. Variable costs- are costs of production that vary with the level of output B Total cots- are the total costs of producing a certain level of output fixed costs plus the variable cots C Average cots is the average total costs of production per unit. D. Marginal costs- is the additional costs of producing an additional unit of output 13. Short run- period of time in which at least one factor of production is fixed A. Law of diminishing average return- as extra units of a variable factor are applied to a fixed factor, the output per unit of the variable factor will eventually diminish B. Law of diminishing marginal returns- As extra units of a variable factor are applied to a fixed factor, the output from each additional unit of variable factor will eventually diminish

10. 14.The long run- is the period of time in which all factors of production are variable A. Economies of scale- are any fall in long run unit costs that come about as a result of a firm increasing its scale of production B Diseconomies of scale- are any increase in long run unit costs that come about as a result of a firm increasing its scale of production. 15. Total revenue- Is the aggregated revenue gained by a firm from the scale of a particular quantity of output. A. Average revenue- is the total revenue received divided by the number of units sold. Usually the price is equal to average revenue. B. Marginal revenue-is the extra revenue gained from selling an additional unit of a good or service

11. 16. Normal profit- s are the amount of revenue needed to cover the total costs of production, including the opportunity costs. A. Abnormal profits- are any level of profit that is greater than the required to ensure that a firm will continue to supply its existing good or service. B. Profit maximizing level of output –the level of output where marginal revenue is equal to marginal costs. 17. 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. 18. The break even price is the price where average revenue is equal to the average total cost.