Principles of Microeconomics.Final Test 2026\2027.
Scarcity
society has limited resources and therefore cannot produce all the goods and services
people wish to have
Economics
the study of how society manages its scarce resources
Efficiency
society is getting the maximum benefits from its scarce resources
Equality
benefits are distributed uniformly among society's members
opportunity cost
the cost of an item that is what you give up to get that item
rational people
people who systematically and purposefully do the best they can to achieve their objectives,
given the available opportunities
marginal change
describes a small incremental adjustment to an existing plan of action
market economy
the decisions of a central planner are replaced by the decisions of millions of firms and
households
Firms
decide who to hire and what to make
Households
decide which firms to work for and what to buy with their incomes
property rights
what market economies need in order so that individuals can own and control scarce
resources
market failure
refers to a situation in which the market on its own fails to produce and efficient allocation
of resources
externality
,Principles of Microeconomics.Final Test 2026\2027.
the impact of one person's actions on the wellbeing of a bystander
market power
the ability of a single person or firm (or a small group) to unduly influence market prices
productivity
the amount of goods and services produced by each unit of labor input
inflation
an increase in the overall level of pries in the economy
business cycle
the irregular and largely unpredictable fluctuations in economic activity, as measured by the
production of goods and services or the number of people employed
circular-flow diagram
productions possibilities frontier
a graph that shows the various combinations of output that the economy can possibly
produce given the available factors of production and the available production technology
that firms use to turn these factors into output
Microeconomics
the study of how households and firms make decisions and how they interact in specific
markets
Macroeconomics
the study of economy-wide phenomena
Positive statements
descriptive statements that make a claim about how the world is
Normative statements
prescriptive statements making a claim about how the world ought to be
absolute advantage
Used when comparing the productivity of one person, firm, or nation to that of another. The
producer that requires a smaller quantity of inputs to produce a good is said to have an
absolute advantage in producing that good
comparative advantage
describing the opportunity costs faced by two producers
Imports
, Principles of Microeconomics.Final Test 2026\2027.
goods produced abroad and sold domestically
Exports
goods produced domestically and sold abroad
Market
a group of buyers and sellers of a particular good or service
Competitive market
a market in which there are so many buyers and so many sellers that each has a negligible
impact on the market price
Quantity demanded
the amount of a good that buyers are willing and able to purchase
Law of Demand
the claim that, other things being equal, the quantity demand of a good falls when the price
of the good rises
Demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
Demand curve
a graph of the relationship between the price of a good and the quantity demanded
Normal good
a good for which, other things equal, an increase in income leads to an increase in demand
Inferior good
a good for which, other things being equal, an increase in income leads to a decrease in
demand
Substitutes
two goods for which an increase in the price of one leads to an increase in the demand for
the other
Complements
two goods for which an increase in the price of one leads to a decrease in the demand for
the other
Quantity supplied
the amount of a good that sellers are willing and able to sell
Law of Supply
Scarcity
society has limited resources and therefore cannot produce all the goods and services
people wish to have
Economics
the study of how society manages its scarce resources
Efficiency
society is getting the maximum benefits from its scarce resources
Equality
benefits are distributed uniformly among society's members
opportunity cost
the cost of an item that is what you give up to get that item
rational people
people who systematically and purposefully do the best they can to achieve their objectives,
given the available opportunities
marginal change
describes a small incremental adjustment to an existing plan of action
market economy
the decisions of a central planner are replaced by the decisions of millions of firms and
households
Firms
decide who to hire and what to make
Households
decide which firms to work for and what to buy with their incomes
property rights
what market economies need in order so that individuals can own and control scarce
resources
market failure
refers to a situation in which the market on its own fails to produce and efficient allocation
of resources
externality
,Principles of Microeconomics.Final Test 2026\2027.
the impact of one person's actions on the wellbeing of a bystander
market power
the ability of a single person or firm (or a small group) to unduly influence market prices
productivity
the amount of goods and services produced by each unit of labor input
inflation
an increase in the overall level of pries in the economy
business cycle
the irregular and largely unpredictable fluctuations in economic activity, as measured by the
production of goods and services or the number of people employed
circular-flow diagram
productions possibilities frontier
a graph that shows the various combinations of output that the economy can possibly
produce given the available factors of production and the available production technology
that firms use to turn these factors into output
Microeconomics
the study of how households and firms make decisions and how they interact in specific
markets
Macroeconomics
the study of economy-wide phenomena
Positive statements
descriptive statements that make a claim about how the world is
Normative statements
prescriptive statements making a claim about how the world ought to be
absolute advantage
Used when comparing the productivity of one person, firm, or nation to that of another. The
producer that requires a smaller quantity of inputs to produce a good is said to have an
absolute advantage in producing that good
comparative advantage
describing the opportunity costs faced by two producers
Imports
, Principles of Microeconomics.Final Test 2026\2027.
goods produced abroad and sold domestically
Exports
goods produced domestically and sold abroad
Market
a group of buyers and sellers of a particular good or service
Competitive market
a market in which there are so many buyers and so many sellers that each has a negligible
impact on the market price
Quantity demanded
the amount of a good that buyers are willing and able to purchase
Law of Demand
the claim that, other things being equal, the quantity demand of a good falls when the price
of the good rises
Demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
Demand curve
a graph of the relationship between the price of a good and the quantity demanded
Normal good
a good for which, other things equal, an increase in income leads to an increase in demand
Inferior good
a good for which, other things being equal, an increase in income leads to a decrease in
demand
Substitutes
two goods for which an increase in the price of one leads to an increase in the demand for
the other
Complements
two goods for which an increase in the price of one leads to a decrease in the demand for
the other
Quantity supplied
the amount of a good that sellers are willing and able to sell
Law of Supply
