Microeconomics Flashcards

Only 10 flashcards are shown at a time! Once you’ve mastered these 10 Economic terms, click the shuffle button below for 10 new terms. There are approximately 115 flashcards covering Microeconomics.

Production possibilities curve
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A graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the available production technology.

Production possibilities curve
Factors of Production
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Include the human and natural resource needed to produce any good or service: Land, labor, capital and entrepreneurship

Factors of Production
Marginal Social Benefit (MSB)
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The benefits experienced by the individual consumers of a particular good, plus or minus any social or environmental benefits or costs. MSB can be greater than marginal private benefit (MPB) if there are positive externalities of consumption (e.g. education) or less than MPB if there are negative externatlities of consumption (e.g. smoking).

Marginal Social Benefit (MSB)
Price ceiling
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A maximum price set by the government, usually below the equilibrium price, meant to lower the price consumers have to pay for a product. An effective price ceiling leads to a disequilibrium in the market in which the quantity demanded is greater than the quantity supplied (shortage).

Price ceiling
Services
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The non-physical output of firms meant for consumption in a product market. Services are “non-tangible” goods, such as taxi rides, accounting, doctor visits, teaching, and other products that can be bought and sold, but not physically consumed.

Services
Supply
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A schedule or curve showing the direct relationship between the quantity of output firms produce in a particular period of time and the various prices of the good.

Supply
Utility Maximization Rule
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MUx/Px = MUy/Py, where MUx is the marginal utility derived from good x, Px is the price of good x, MUy is the marginal utility of good y and Py is the price of good y. A consumer should spend his limited money income on the goods which give him the most marginal utility per dollar. Only when the ratio of MU/P is equal for all goods is a consumer maximizing his total utility.

Utility Maximization Rule
Private sector
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Refers to the activities undertaken by the private households and firms in an economy. “Private sector spending” includes household consumption and investment by private, non-government-owned firms.

Private sector
Tradeable permits
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A market-based solution to correcting negative production externalities. The government issues or sells permits allowing firms to emit a pre-determined quantity of pollution (such as CO2) into the environment. If a producer wishes to exceed the amount they are permitted, they must purchase additional permits from other firms. Firms that reduce their emissions may sell permits they no longer require, adding to the firm’s revenues. Dirty firms end up paying more to produce, while greener firms earn greater revenues from selling permits they no longer require; thereby such a scheme creates a strong incentive to reduce pollution.

Tradeable permits
Marginal analysis
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Decision making which involves a comparison of marginal (extra) benefits and marginal costs.

Marginal analysis

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