Chapter 1
A diagram representing the economy as consisting of households and firms interacting in both a goods and services market and a labor market.
What is a circular flow diagram?
All possible combinations of goods that someone can afford, given the prices of goods, when all income is spent; this defines the boundary of the opportunity set.
What is a budget constraint?
The relationship between price and the quantity demanded of a certain good or service.
What is demand?
A decrease in production costs can lead to increased hiring.
What is the right shift in the demand curve for labor?
This term refers to the measure of how much the quantity demanded of a good changes in response to a change in its price, calculated as the percentage change in quantity demanded divided by the percentage change in price.
What is the price elasticity of demand?
This term refers to the total satisfaction or happiness derived from consuming a certain quantity of goods or services.
What is total utility?
This financial metric is calculated by subtracting total costs from total revenues.
What is profit?
The average cost of producing each unit decreases as the total output increases.
What is economies of scale?
As we consume more of a good or service, the utility derived from additional units tends to decrease compared to earlier units.
What is the law of diminishing marginal utility?
The situation where the quantity demanded is equal to the quantity supplied.
What is equilibrium?
Increases in the working-age population can affect labor supply.
What factors can cause the labor supply curve to shift to the right?
This occurs when the price elasticity of demand is less than one, indicating that the quantity demanded is not very responsive to changes in price.
What is inelastic demand?
This economic principle explains how the additional satisfaction gained from consuming one more unit of a good decreases as more units are consumed.
What is diminishing marginal utility?
This equation represents the relationship between the selling price of a product and the number of units sold, resulting in the total income generated from sales.
What is the formula for calculating total revenue?
Economic policies that involve government spending and taxation.
What is fiscal policy?
Costs incurred in the past that cannot be recovered.
What is sunk cost?
The general principle is that a higher price results in a lower quantity demanded for a particular good or service, while a lower price results in a higher quantity demanded, assuming all other variables are held constant.
What is the law of demand?
This occurs when the salary of nurses in a metropolitan area exceeds the equilibrium wage, leading to more nurses wanting jobs than employers are willing to hire.
What is a surplus in the labor market?
If the price elasticity of demand is less than one, indicating that demand is not very responsive to price changes, this situation typically leads to an increase in total revenue when prices are raised.
What happens to total revenue when demand is inelastic and prices increase?
By evaluating the additional satisfaction gained from each good relative to its cost, this method helps consumers make choices that maximize their overall satisfaction within a budget.
What is the decision-making process for maximizing utility?
This cost type represents a firm's expenses that do not change with the production level.
What are fixed costs?
When the demand for goods and services by humans exceeds the available supply.
What is scarcity?
The extra benefit or cost of one more unit.
What is marginal analysis?
The general principle is that a higher price leads to a greater quantity supplied, while a lower price results in a lower quantity supplied, assuming all other variables remain constant.
What is the law of supply?
This group includes households and businesses that seek to borrow money, often through instruments like credit cards or loans, in the financial market.
Who are the demanders in a financial market?
These are products for which the quantity demanded remains relatively stable despite changes in price, often because they are necessities or have few substitutes.
What are inelastic products?
The additional satisfaction gained from purchasing a good given the price of the product; MU/Price.
What is marginal utility per dollar?
A period during which all of a firm's inputs are variable.
What is the long run?
A policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing.
What is monetary policy?
This measures the cost of what we give up in exchange.
What is opportunity cost?
When an economic factor (other than price) changes, the quantity demanded at every price also changes.
What is a shift in demand?
This economic factor can lead to a decrease in the quantity of funds borrowed as interest rates rise, causing consumers to rethink their borrowing decisions.
How do interest rates affect demand in financial markets?
These are products for which the quantity demanded changes significantly in response to price changes, often because they are non-essential or have many substitutes.
What are elastic products?
When the price of a good rises, this general consumer behavior indicates that households will typically purchase less of that good, but the extent of the decrease depends on individual preferences.
What is the demand response to price increases?
Total cost is divided by the quantity of output.
What is average total cost?