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.

Price Elasticity of Supply (PES)
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A measure of the responsiveness of producers to changes in the price of a good. Calculated as the percentage change in the quantity supplied divided by the percentage change in the price.

Price Elasticity of Supply (PES)
Choice
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In economics, decisions must be made between the various alternative uses for society’s scarce resources. Every choice involves an opportunity cost.

Choice
Shortage
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When the quantity demanded for a particular good is greater than the quantity supplied. Also called “excess demand”. Occurs when the price is below the equilibrium level, for example, when a government imposes a price ceiling in a market.

Shortage
Marginal Private Cost (MPC)
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The costs of production of a good experienced by the firms in market. Does not take into account any social or environmental costs.

Marginal Private Cost (MPC)
Corrective tax (Pigouvian tax)
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A tax on the production of a demerit good, or one that creates negative externalities in its production or consumption. Meant to achieve a more socially optimal level of output.

Corrective tax (Pigouvian tax)
Quantity
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This is the amount of output produced and consumed in a market determined by the supply and demand. As supply and demand change, the quantity in the market changes as well.

Quantity
Allocative efficiency
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When the level of output that society demands is produced by the firms in a market. If the marginal benefit enjoyed by consumers equals the marginal cost faced by producers, allocative efficiency is achieved. Only in perfect competition will allocative efficiency be achieved in the long-run, since the price of the good equals the marginal cost of the producers. In imperfectly competitive markets, the price will always be higher than the marginal cost of the firms, indicating that resources are under-allocated towards the product.

Allocative efficiency
Short-run
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(In microeconomics): The period of time over which the amount of land and capital employed in the production of a good is fixed in quantity. “The fixed-plant period”. Labor and raw materials are the only variable resources in the short run. (In macroeconomics): The period of time over which wages and prices are relatively inflexible. A fall in aggregate demand will lead to unemployment and recession in the short-run. Due to the inability of the nation’s producers to reduce wages paid to worker, they must lay workers off to reduce costs as demand falls.

Short-run
Incentive
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Refers to the motivation an individual has to undertake a particular action.

Incentive
Commodity
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A good widely demanded (often globally) and supplied by many sellers, usually without much product differentiation between sellers. Commodities are standardized products. The price of commodities is determined by the market as a whole, often in the global market, not by any individual producer or group of producers. Often traded on national or international commodities markets. Examples include oil, wheat, corn, coffee, copper, cotton, tin, rice, gold, and other primary goods.

Commodity

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