Glossary

A

  • Average Product
    total product per unit of variable input

    • B

  • Budget equation
    an equation that states the maximum possible comsumption of one good, given income, prices, and consumption of other goods.
  • Budget line
    the limits to a household's consumption choices.

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    C

  • Comparative advantage
    a person/country, being able to produce a good at a lower opportunity cost than anyone else/any other country.
  • Competition
    a contest for command over scarce resources.
  • Ceteris paribus
    other things being equal, or other things remaining constant.
  • Change in demand
    a shift of the entire demand curve that occurs when some influence on buyers' plans, other than the price of the good, changes.
  • Change in supply
    a shif in the entire supply curve that occurs when some influence on producers' plans, other than the price of the good, changes.
  • Change in the quantity demanded
    a movement along the supply curve that results from a change in the price of the good.
  • Change in the quantity supplied
    a movement along the supply curve that results from a change in the price of the good.
  • Complementary good
    a good that is used in conjuction with another good.
  • Cross price elasticity of demand
    the percentage change in the quantity demanded of a good divided by the percentage change in the price of a substitute or complement.

    • E

  • Economics
    the study of how people use their limited resources to try to satisfy unlimited wants.
  • Elasticity
    The elasticity of any function can be defined as the ratio of percentage changes. More specifically, it is the percentage change in the dependent variable(ie. Qd) divided by the percentage change in the independent variable (ie. P).
  • Elasticity of supply
    the percentage change in the quantity supplied of a good divided by the percentage change in its price
  • Equilibrium
    a situation in which everyone has economized -- that is, all individuals have made the best possible choices in the light of their own preferences and given their endowments and the available technologies -- and in which those choices have been co-ordinated and made compatible with the choices of everyone else. Equilibrium is the solution or outcome of an econmic model.

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    F

  • Factors of production
    the economy's productive resources -- land, labour, and capital.
  • Firm
    an institution that buys or hires factors of production and organizes them to produce and sell goods and services.
  • Fixed Cost
    a cost that is independent of the ouptut level.

    • G

    Government
    an organization that provides goods and services and redistributes income and wealth.

    I

  • Income effect
    the effect of a change in income on the quantity consumed.
  • Income elasticity of demand
    the percentage change in the quantitiy demanded divided by the percentage change in income
  • Indifference curve
    a line showing all possible combinations of two goods among which the consumer is indifferent.
  • Inferior good
    a good, the demand for which decreases when income increases, eg. polyester shirts.

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    L

  • Labour
    the brain-power and muscle-power of human beings.
  • Law of diminishing marginal rate of substitution
    a general tendency for the marginal rate of substitution of capital for labour to fall as the amount of capital decreases and the amount of labour increases.
  • Law of diminishing returns
    the general tendency for marginal product to eventually diminish as more of the variable input is employed, holding the quantity of fixed inputs constant.
  • Lorenz curve
    a curve that shows the cumulative percentage of income or wealth against the cumulative percentage of population.

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    M

  • Macroeconomics
    The study of aggregate economic systems, such as nations, planets, or solar systems.
  • Marginal rate of substitution
    the rate at which a person will give up one good in order to get more of another good and, at the same time, remain indifferent.
  • Marginal rate of technical substitution
    the rate at which one factor of production can be replaced by another without altering the amount of output produced. It is represented by the slope of the Production Possibility Function.
  • Marginal utility
    the additional utility or change in utility resulting from the last unit of a good consumed.
  • Microeconomics
    the study of the individual components of an economy, such as households, firms, or the market for gizmos.
  • Monopoly
    the sole supplier of a good, service, or resource that has no close substitutes and there is a barrier preventing the entry of new firms into the industry.

    • N

  • Normal good
    a good, the demand for which increases increases when income increases.
  • Normative statement
    a statement about what ought to be. An expression of an opinion that cannot be verified by observation.

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    O

  • Opportunity Cost
    the value of your best forgone alternative
  • Own Price Elasticity
    see price elasticity

    • P

  • Price elasticity of demand
    the percentage change in the quantity demanded of a good divided by the percentage change in its price
  • Production possibility frontier
    the boundary between attainable and unattainable levels of production
  • Positive statement
    a statement about what is. Something that can be verified by careful observation.

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    Q

  • Quantity demanded
    the amount of a good or service that consumers plan to buy in a given period of time.
  • Quantity supplied
    the amount of a good or service that producers plan to sell in a given period of time.
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    S

  • Scarcity
    the universal state in which wants exceeds resources.
  • Slope
    the change in the value of the variable measured on the y-axis divided by the change in the value of the variable measured on the x-axis.
  • Substitute
    a good that may be used in place of another good.
  • Substitution effect
    the effect of a change in price on the quantities consumed when the consumer remains indifferent between the original and the new combinations of goods.
  • Supply
    the entire relationship between the quantity supplied and the price of a good, holding everything else constant (ceteris paribus)

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    T

  • Transformation curve
    see the Production Possibility Frontier
  • Total cost
    the sum of the costs of all the inputs used in production.
  • Total fixed cost
    the cost of all fixed inputs
  • Total product curve
    a graph showing the maximum output attainable with a given amount of a capital as the amount of labour employed is varied.
  • Total revenue
    the amount received from the sale of a good. It equals the price of the good multiplied by the quantity sold.
  • Total utility
    the the total benifit or satisfaction that a person gets from consumption of goods and services
  • Total variable cost
    the cost of variable inputs