Econ

Opportunity Costs Principle

The true cost of something is the next best alternative you must give up to get it

Scarcity

Occurs because of limited resources

Sunk Costs

a cost that has been incurred and cannot be reversed

Marginal Benefit

the extra benefit from one unit

Marginal Costs

the extra cost from one unit

Rational rule

If something is worth doing, keep doing it until your marginal benefits equals your marginal costs

market

any place where traders, producers and consumers, come together for exchange

supply and demand model

economic model/framework used to assist our analysis of particular markets

competeitive market

one where there are many buyers and sellers of the same good or service

market equillibrium

the conditions of price and quantity where the market is "balanced"

comparitive statics

how the market equilibrium adjusts when demand/supply change

demand schedule

a table that shows how much of a good/service consumers want to buy at different prices

demand curve

graphical representation of the demand schedule

quantity demanded

the amount that consumers wish to buy at a specific price

law of demand

a higher price reduces the quantity demanded; a lower price increases the quantity demanded, ceteris paribus

individual demand curve

a graph plotting the quantity of an item that someone plans to buy at each price

Rational Rule for buyers

Buy more of an item if its marginal benefit is greater than or equal to the price, keep buying until: price=marginal benefit

market demand curve

a graph plotting the total quantity of an item demanded, by the entire market, at each price

Demand curve

Always downward sloping

Normal Good

A good for which higher income causes an increase in demand

Inferior Good

A good for which higher income causes a decrease in demand

Individual Supply Curve

a graph plotting the quantity of an item that a business plans to sell at each price

PPF (Production Possibilities Frontier)

illustrates the trade-offs you experience when deciding how to allocate scarce resources

Network Effect

the effect that occurs when a good becomes more useful when other people use it

Congestion Effect

Good becomes less valuable when other people use it

Supply Curve

Always upward sloping

Law of supply

the tendency for the quantity supplied to be higher when the price is higher

Variable Costs

costs that vary with quantity of output (included in marginal cost)

Fixed Costs

Costs that don't vary when the quantity of output changes

Diminishing marginal product

The marginal product of an input as you use more of that input

Market Supply curve

graph plotting the total quantity of an item supplied by the entire market at each price

Productivity growth

growth that occurs when businesses figure out how to produce more output with fewer inputs

Price Elasticity of Demand

a measure of how responsive buyers are to price changes

cross-price elasticity of demand

measures how sensitive quantity demanded is to price changes of other goods

Income Elasticity of Demand

measures how sensitive quantity demanded is to changes in income

Price Elasticity of supply

measures how responsive sellers are to price changes

Statutory Burden

the burden of being assigned by the government the responsibility of sending a tax payment

Economic Burden

the burden created by the change in after-tax prices faced by buyers and sellers

tax incidence

the division of the economic burden of a tax between buyers and sellers

Subsidy

a payment made by the government to those who make a specific choices

Interdependence Principle

Your best choice depends on the other choices you make, the choices others make, developments in other markets, and expectations about the future

Framing

how different alternatives are described

Framing Effects

can lead you astray and can make identical choices seem different

Economic Surplus

the total benefits minus the total costs flowing from a decision

Cost-Benefit Principle

a guide to decision-making which states that an individual should undertake an activity only if the additional benefit of doing so is greater than or equal to the additional cost of doing so.

Marginal Principle

Decisions about quantities are best made incrementally. You should break "how many" questions into a series of smaller decisions, weighing marginal benefits and marginal costs.

Price Ceiling

A maximum price that sellers can charge

Price Floor

A minimum price that sellers can charge.

Binding Price Ceiling

A price ceiling that prevents the market from reaching the market equilibrium price.

Binding Price Floor

A price floor that prevents the market from reaching the equilibrium price

Quantity regulation

A minimum or maximum quantity that can be sold

Mandate

A requirement to buy or sell a minimum amount of a good

Quota

A limit on the maximum quantity of a good that can be sold.