MICROECONOMICS Key Terms
Economics - answersstudy of how individuals and societies deal with scarcity; study of
choices
Scarcity - answersunlimited wants but limited resources
Microeconomics - answersstudy of small economic units such as individuals, firms, and
industries (ex: supply and demand in specific markets, production costs, labor
markets...)
Theoretical Economics - answersuse scientific method to make generalizations and
abstractions to develop theories.
Policy Economics - answerstheories are applied to fix problems or meet economic goals
Positive Statements - answersbased of facts; avoid value judgments (what is)
Normative Statement - answersincludes value judgments (what ought to be)
5 Key Economic Assumptions - answers1. Scarcity
2. Trade-off
3. Make choices that maximize satisfaction
4. Make decisions by comparing the marginal costs and marginal benefits of every
choice
5. Real-life situations can be explained and analyzed through simplified models and
graphs
Marginal Analysis - answersthinking on the margin; decisions based on the additional
benefit vs. the additional costs
Marginal = Additional
Trade-offs - answersall the the alternatives that we give up whenever we choose one
course of action over others
, Opportunity Cost - answersmost desirable alternative given up as a result of a decision
Economic Terminology - answersUtility = Satisfaction
Marginal = Additional
Allocate = Distribute
Shortage - answerswhen producer will not or cannot offer goods or services at current
prices; it is temporary
Price - answersamount buyer pays
Cost - answersamount seller pays to produce a good
Investment - answersthe money spent by businesses to improve their production
Goods - answersphysical objects that satisfy needs and wants
Consumer Goods - answerscreated for direct consumption (ex. pizza)
Capital Goods - answerscreated for indirect consumption; goods used to make
consumer goods (ex. oven, blenders, knives...)
Services - answersactions or activities that one person performs for another (ex.
teaching, cleaning, cooking)
Explicit Costs - answerstraditional "out-of-pocket costs" of decision making
Implicit Costs - answersopportunity costs (ex. forgone time and forgone income)
4 Factors of Production - answers1. Land
2. Labor
3. Capital
4. Entrepreneurship
Land - answersall natural resources that are used to produce goods and services
Labor - answersany effort a person devotes to a task for which that person is paid
Physical Capital - answersany human-made resource that is used to create other goods
and services
Human Capital - answersany skills or knowledge gained by a worker through education
and experience
Economics - answersstudy of how individuals and societies deal with scarcity; study of
choices
Scarcity - answersunlimited wants but limited resources
Microeconomics - answersstudy of small economic units such as individuals, firms, and
industries (ex: supply and demand in specific markets, production costs, labor
markets...)
Theoretical Economics - answersuse scientific method to make generalizations and
abstractions to develop theories.
Policy Economics - answerstheories are applied to fix problems or meet economic goals
Positive Statements - answersbased of facts; avoid value judgments (what is)
Normative Statement - answersincludes value judgments (what ought to be)
5 Key Economic Assumptions - answers1. Scarcity
2. Trade-off
3. Make choices that maximize satisfaction
4. Make decisions by comparing the marginal costs and marginal benefits of every
choice
5. Real-life situations can be explained and analyzed through simplified models and
graphs
Marginal Analysis - answersthinking on the margin; decisions based on the additional
benefit vs. the additional costs
Marginal = Additional
Trade-offs - answersall the the alternatives that we give up whenever we choose one
course of action over others
, Opportunity Cost - answersmost desirable alternative given up as a result of a decision
Economic Terminology - answersUtility = Satisfaction
Marginal = Additional
Allocate = Distribute
Shortage - answerswhen producer will not or cannot offer goods or services at current
prices; it is temporary
Price - answersamount buyer pays
Cost - answersamount seller pays to produce a good
Investment - answersthe money spent by businesses to improve their production
Goods - answersphysical objects that satisfy needs and wants
Consumer Goods - answerscreated for direct consumption (ex. pizza)
Capital Goods - answerscreated for indirect consumption; goods used to make
consumer goods (ex. oven, blenders, knives...)
Services - answersactions or activities that one person performs for another (ex.
teaching, cleaning, cooking)
Explicit Costs - answerstraditional "out-of-pocket costs" of decision making
Implicit Costs - answersopportunity costs (ex. forgone time and forgone income)
4 Factors of Production - answers1. Land
2. Labor
3. Capital
4. Entrepreneurship
Land - answersall natural resources that are used to produce goods and services
Labor - answersany effort a person devotes to a task for which that person is paid
Physical Capital - answersany human-made resource that is used to create other goods
and services
Human Capital - answersany skills or knowledge gained by a worker through education
and experience
