Microeconomics Terms (Chapters 1-5)
Barter, An economic system in which goods and services are traded directly
for other goods and services.
Command economy, An economy in which most economic decisions are
made by a central planning authority.
Consumption, The act of using goods or services to satisfy wants.
Division of labour, The breaking up of a production process into a series of
specialized tasks each done by a different worker.
Economy, A system in which scarce resources are allocated among
Factors of production, Resources used to produce goods and services;
frequently divided into the basic categories of land labour and capital.
Free-market economy, An economy in which most economic decisions are
made by private households and firms.
Goods, Tangible commodities such as cars or shoes.
Macroeconomics, The study of the determination of economic aggregates
such as total output the price level employment and growth.
Microeconomics, The study of the causes and consequences of the
allocation of resources as it is affected by the workings of the price system.
Mixed economy, An economy in which some economic decisions are made
by firms and households and some by the government.
Opportunity cost, The cost of using resources for a certain purpose
measured by the benefit given up by not using them in their best alternative
Production possibilities boundary, A curve showing which alternative
combinations of commodities can just be attained if all available resources
are used efficiently; it is the boundary between attainable and unattainable
Production, The act of making goods or services.
Resource allocation, The allocation of an economy's scarce resources of
land labour and capital among alternative uses.
Services, Intangible commodities such as haircuts or medical care.
Specialization of labour, The specialization of individual workers in the
production of particular goods or services.
Traditional economy, An economy in which behavior is based mostly on
Transnational corporations (TNCs), Firms that have operations in more
than one country. Also called multinational enterprises (MNEs). Cross-sectional data, A set of observations made at the same time across
several different units (such as households firms or countries).
Economic model, A term used in several related ways: sometimes for an
abstraction designed to illustrate some point but not designed to generate
testable hypotheses and sometimes as a synonym for theory.
Endogenous variable, A variable that is explained within a theory.
Sometimes called an induced variable or a dependent variable.
Exogenous variable, A variable that is determined outside the theory.
Sometimes called an autonomous variable or an independent variable.
Index number, An average that measures change over time of such
variables as the price level and industrial production; conventionally
expressed as a percentage relative to a base period - which is assigned the
Normative statement, A statement about what ought to be as opposed to
what actually is.
Positive statement, A statement about what actually is (was or will be) as
opposed to what ought to be.
Scatter diagram, A graph of statistical observations of paired values of two
variables (one measured on the horizontal and the other on the vertical
axis). Each point on the coordinate grid represents the values of the
variables for a particular unit of observation.
Time-series data, A set of observations made repeatedly at successive
periods of time.
Variable, Any well-defined item such as the price or quantity of a
commodity that can take on various specific values.
Absolute price, The amount of money that must be spent to acquire one
unit of a commodity. Also called money price.
Change in demand, A change in the quantity demanded at each possible
price of the commodity - represented by a shift in the whole demand curve.
Change in quantity demanded, A change in the specific quantity of the
good demanded - represented by a change from one point on a demand curve to another point (either on the original demand curve o