Microeconomics CLEP Latest Update Already Passed

Microeconomics CLEP Latest Update Already Passed Scarcity Limited quantities of resources to meet unlimited wants Needs Things that are required in order to live Wants Those things which make our lives more comfortable but are not needed for survival Economic Choice The decision to buy one thing instead of another. Trade-Off An alternative that we sacrifice when we make a decision PPF Curve (Production Possibilities Frontier) A graph that shows the possibilities of combinations of goods and services Law of Diminishing Marginal Returns As successive units of a variable input are added to a fixed input, beyond some point the marginal product declines Law of Increasing Opportunity Cost To produce more of one good, a successively larger amount of the other good must be sacrificed Law of Supply As supply increases, prices go down; as supply decreases, prices go up. Law of Demand As demand increases, prices go up; as demand decreases, prices go down. Determinants of Supply Factors other than price that determine the quantities supplied of a good or service. Determinants of Demand Factors other than price that determine the quantities demanded of a good or service Change in Quantity Supplied A movement along the supply curve that occurs in response to a change in price Change in Quantity Demanded A movement along the demand curve that occurs in response to a change in price Change in Supply A change in supply that is shown by drawing a new supply curve Change in Demand A change in demand that is show by drawing a new demand curve Markets Divisions of the economy that specialize in certain goods or services Equilibrium Price The price that balances quantity supplied and quantity demanded Shortage A situation in which quantity demanded is greater than quantity supplied Surplus A situation in which quantity supplied is greater than quantity demanded Productive Efficiency The situation in which a good or service is produced at the lowest possible cost Allocative Efficiency When the last unit produced costs the same as the benefit recieved by consumers Market Equilibrium A situation in which quantity demanded equals quantity supplied Types of Economic Systems Free Market, Traditional, Command, Mixed Markets. Four Factors of Production (Imputs) Land, Capital, Labor, Entrepreneurship. Circular Flow Model A model that shows the flow of goods and services and the interaction among households, businesses, and banks Price Elasticity A measure of the sensitivity of demand to changes in price Elastic Describes demand that is very sensitive to a change in price Inelastic Describes demand that is not very sensitive to a change in price Total Revenue The total amount of money a firm receives by selling goods or services Cross Elasticity of Demand The impact of price changes on the quantity demand of a good or service by gauging the effect on the total revenue the firm will generate Cross Elasticity of Income Determines and classifies the relationship between income and demand for a good or service. Price Ceiling A maximum price that can be legally charged for a good or service Price floor A legal minimum on the price at which a good can be sold Price Elasticity of Supply Measures the relationship between change in quantity supplied and a change in price. Consumer Utility Maximization Allocating one's income so that the marginal utility/price of the last units obtained of each good are equal Budget Income Limits The maximum amount an individual is willing to pay in a specific scenario Explicit Cost A cost that requires an outlay of money. Implicit Cost An opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment Short Run A period during which at least one of a firm's resources is fixed Long Run A period of time of sufficient length that all the firm's factors of production are variable TFC Total Fixed Cost TVC Total Variable Cost AFC Average Fixed Costs (Declines as output increases.) AVC Average Fixed Cost ATC Average Total Cost MC Marginal Cost Economy of Scale The more you produce the less it costs and the cheaper the product is for the consumer.