MICROECONOMICS 7TH EDITION BY JEFFREY
M PERLOFF 2026 KEY CONCEPTS AND
THEORY REVISION PACK A+
◉ Economic goods. Answer: A consumable item that is useful to
people but scarce in relation to its demand
◉ Opportunity cost. Answer: The value of the next best alternative
foregone
◉ Positive statement. Answer: An objective statement that can be
tested, amended or rejected by referring to available evidence
◉ Normative statement. Answer: A value judgement that is a
subjective statement of opinion rather than a fact that can be tested
◉ Needs vs Wants. Answer: Needs are defined as goods or services
that are required and cannot be done without. Wants are goods or
services that are not a necessity but we desire/wish for
◉ Cost-benefit principle. Answer: Every purchase is a trade-off
,◉ Rational decision makers. Answer: An assumption that economic
agents weigh the marginal benefit that one receives from a good or
service against its marginal cost
◉ Economic agents. Answer: Decision makers that have effects on
the economy of a country by buying selling, producing, investing,
taxing, etc. Government, firms and households
◉ Government. Answer: Elected representative of the consumers
that should act on behalf of the people. The government must decide
whether or not to intervene in the economy or leave it as is.
◉ Firms. Answer: An organisation that uses factors of production
alongside each other in order to produce output. They produce
goods and services demanded by consumers
◉ Households. Answer: A group of consumers that buy goods and
services. They also supply their labour to firms to produce goods
and services in order to earn the income needed to purchase g+s
◉ Factors of production. Answer: The available resource inputs used
in the production process of g+s (Capital, Enterprise, Land and
Labour)
,◉ Capital. Answer: Man made aids for production; goods used to
make other goods
◉ Entrepreneurship. Answer: The willingness of an
entrepreneur/individual to take risks and organise production. An
entrepreneur is someone who bears the risk of a business and
organises production
◉ Labour. Answer: The human resource that is available in the
economy; the quantity and quality of human resources
◉ Land. Answer: The natural resources available in the economy;
the quantity and quality of natural resources
◉ Factor payments/rewards. Answer: Capital=Interest
Enterprise=Profits
Labour=wages
Land=rent
◉ A model. Answer: A simplified representation of reality used to
create hypotheses about economic decisions and events
◉ Production. Answer: Any economic activity that leads to a flow of
goods and services for which people are willing and able to pay
, ◉ Production possibility frontier. Answer: A curve showing the
maximum quantities of different combinations of goods and services
that can be produced in a set time period given the available
resources and current state of technology
◉ Law of diminishing returns. Answer: As a firm adds variable
factors of production(usually labour) to fixed capital, the marginal
returns that the firm gains will gradually begin to decrease
◉ Consumer good. Answer: A finished good that is sold for
consumption
◉ Capital good. Answer: Ant tangible asset that an organisation uses
to produce goods or services such as office buildings, machinery etc.
◉ Specialisation. Answer: Where individuals, businesses and whole
economies are not self-sufficient but concentrate on producing
certain goods and services, then trading their surplus.
◉ Division of labour. Answer: The assignment of different parts of a
manufacturing process or task to different specialised people in
order to improve efficiency
M PERLOFF 2026 KEY CONCEPTS AND
THEORY REVISION PACK A+
◉ Economic goods. Answer: A consumable item that is useful to
people but scarce in relation to its demand
◉ Opportunity cost. Answer: The value of the next best alternative
foregone
◉ Positive statement. Answer: An objective statement that can be
tested, amended or rejected by referring to available evidence
◉ Normative statement. Answer: A value judgement that is a
subjective statement of opinion rather than a fact that can be tested
◉ Needs vs Wants. Answer: Needs are defined as goods or services
that are required and cannot be done without. Wants are goods or
services that are not a necessity but we desire/wish for
◉ Cost-benefit principle. Answer: Every purchase is a trade-off
,◉ Rational decision makers. Answer: An assumption that economic
agents weigh the marginal benefit that one receives from a good or
service against its marginal cost
◉ Economic agents. Answer: Decision makers that have effects on
the economy of a country by buying selling, producing, investing,
taxing, etc. Government, firms and households
◉ Government. Answer: Elected representative of the consumers
that should act on behalf of the people. The government must decide
whether or not to intervene in the economy or leave it as is.
◉ Firms. Answer: An organisation that uses factors of production
alongside each other in order to produce output. They produce
goods and services demanded by consumers
◉ Households. Answer: A group of consumers that buy goods and
services. They also supply their labour to firms to produce goods
and services in order to earn the income needed to purchase g+s
◉ Factors of production. Answer: The available resource inputs used
in the production process of g+s (Capital, Enterprise, Land and
Labour)
,◉ Capital. Answer: Man made aids for production; goods used to
make other goods
◉ Entrepreneurship. Answer: The willingness of an
entrepreneur/individual to take risks and organise production. An
entrepreneur is someone who bears the risk of a business and
organises production
◉ Labour. Answer: The human resource that is available in the
economy; the quantity and quality of human resources
◉ Land. Answer: The natural resources available in the economy;
the quantity and quality of natural resources
◉ Factor payments/rewards. Answer: Capital=Interest
Enterprise=Profits
Labour=wages
Land=rent
◉ A model. Answer: A simplified representation of reality used to
create hypotheses about economic decisions and events
◉ Production. Answer: Any economic activity that leads to a flow of
goods and services for which people are willing and able to pay
, ◉ Production possibility frontier. Answer: A curve showing the
maximum quantities of different combinations of goods and services
that can be produced in a set time period given the available
resources and current state of technology
◉ Law of diminishing returns. Answer: As a firm adds variable
factors of production(usually labour) to fixed capital, the marginal
returns that the firm gains will gradually begin to decrease
◉ Consumer good. Answer: A finished good that is sold for
consumption
◉ Capital good. Answer: Ant tangible asset that an organisation uses
to produce goods or services such as office buildings, machinery etc.
◉ Specialisation. Answer: Where individuals, businesses and whole
economies are not self-sufficient but concentrate on producing
certain goods and services, then trading their surplus.
◉ Division of labour. Answer: The assignment of different parts of a
manufacturing process or task to different specialised people in
order to improve efficiency
