ECON1010 PRINCIPLES OF
MICROECONOMICS FINAL EXAM 100%
SOLVED
scarcity - unlimited wants exceed the limited resources available to fulfill those wants
rational - systematically and purposefully do the best they can to achieve an objective
incentive - induces someone to act
marginal - small, incremental changes
Law of Diminishing Marginal Utility - law of decreasing small changes in pleasure
trade-offs - produce more of one good or service, means we need to produce less of
another
opportunity cost - highest valued alternative that must be given up to engage in activity;
whatever must be given up to obtain some item; marginal benefit>marginal cost
centrally planned economy - government decides how economic resources will be
allocated--communism
market economy - decisions of the household and firms interacting in markets that
allocate resources--resources are allocated among households and firms with little to no
government interference
mixed economy - when most economic decisions result from the interaction of buyers
and sellers but the government plays a significant role in the allocation of resources
productive efficiency - good or service is produced at the lowest possible cost
allocative efficiency - production is in in accordance with consumer preferences
production possibilities frontier - curve showing the maximum attainable combinations of
two goods that can be produced with available resources and current technology,
positive tool -- "what is" -- shows trade-off curve between two quantities
ceteris paribus - to hold all else constant
, Law of increasing marginal opportunity cost - opportunity cost of production in a good
rises as society produces more of it
absolute advantage - ability of one producers to make more than another producer with
the same quantity of resources
comparative advantage - ability of an individual, a firm, or country to produce a good or
service at a lower opp cost than competitors
competitive market - many buyers and sellers
quantity demanded - amount of a good or service that a consumer is willing and able to
purchase at a given price
law of demand - given ceteris paribus quantity demanded falls when prices rise and QD
rises when prices fall
substitution effect - change in QD of good that results from a change in price, making
the good more or less expensive relative to other goods that are substitutes
income effect - change in QD of good that results from the effect of a change in the
goods price on consumer's purchasing power
shifters of demand - 1. changes in income
2. changes in prices of related goods
3. changes in taste
4. change in # of buyers
5. changes in expectations about the future
normal goods - anything you consume more of the more money you makes ^ income-
^demand
inferior goods - anything you buy less of the more money you make ^income-down
demand
substitues - goods and services that can be used for the same purpose -- ^price pepsi-
^demand coke
complements - ^price of coffee - down demand for coffee creamer
quantity supplied - amount of good or service that a firm is willing and able to supply at
a given price
Law of supply - given ceteris paribus, increases in the price cause increases in the
quantity supplied ^price-^QS and vice versa
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