ECON 1200 Study Guide - Final Guide: Ceteris Paribus, Demand Curve, Marginal Utility
11 May 2018
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Definitions to Know:
1. Economic Model : A simplified version of reality used to analyze real-world economic
situations.
2. Economics: The study of the choices people make to attain their goals, given their scarce
resources.
3. Equity: The fair distribution of economic benefits.
4. Marginal analysis: Analysis that involves comparing marginal benefits and marginal costs.
5. Market: A group of buyers and sellers of a good or service and the institution or
arrangement by which they come together to trade.
6. Market economy: which the decisions of households and firms interacting in markets
allocate economic resources.
7. Microeconomics: The study of how households and firms make choices, how they interact
in markets, and how the government attempts to influence their choices
8. Opportunity Cost: The highest valued alternative that must be given up to engage in an
activity.
9. Productive Efficiency: A situation in which a good or service is produced at the lowest
possible cost.
10. Allocative Efficiency: A state of the economy in which production represents consumer
preferences; in particular, every good or service is produced up to the point where the last
unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
11. Scarcity: A situation in which unlimited wants exceed the limited resources available to fulfill
those wants.
12. Trade-off: The idea that because of scarcity, producing more of one good or service means
producing less of another good or service.
13. Economic growth: The ability of the economy to increase the production of goods and
services.
14. Production possibilities frontier (PPF): A curve showing the maximum attainable
combinations of two products that may be produced with available resources and current
technology.
15. Free market: A market with few government restrictions on how a good or service can be
produced or sold or on how a factor of production can be employed.
16. Factors of productions: Labor, capital, natural resources, and other inputs used to produce
goods and services.
17. Ceteris paribus condition (“all else equal”): The requirement that when analyzing the
relationship between two variables—such as price and quantity demanded— other
variables must be held constant.
18. Competitive market equilibrium: A market equilibrium with many buyers and many sellers.
19. Complements: Goods and services that are used together.
20. Substitutes: Goods and services that can be used for the same purpose.
21. Demand curve: A curve that shows the relationship between the price of a product and the
quantity of the product demanded.
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22. Supply curve: A curve that shows the relationship between the price of a product and the
quantity of the product supplied.
23. Demand schedule: A table that shows the relationship between the price of a product and
the quantity of the product demanded.
24. Supply schedule: A table that shows the relationship between the price of a product and the
quantity of the product supplied.
25. Inferior good: A good for which the demand increases as income falls and decreases as
income rises.
26. Normal good: A good for which the demand increases as income rises and decreases as
income falls.
27. Law of demand: The rule that, holding everything else constant, when the price of a product
falls, the quantity demanded of the product will increase, and when the price of a product
rises, the quantity demanded of the product will decrease.
28. Law of supply: The rule that, holding everything else constant, increases in price cause
increases in the quantity supplied, and decreases in price cause decreases in the quantity
supplied.
29. Market demand: The demand by all the consumers of a given good or service.
30. Market equilibrium: A situation in which quantity demanded equals quantity supplied.
31. Quantity demanded: The amount of a good or service that a consumer is willing and able to
purchase at a given price.
32. Quantity supplied: The amount of a good or service that a firm is willing and able to supply
at a given price.
33. Shortage: A situation in which the quantity demanded is greater than the quantity supplied.
34. Surplus: A situation in which the quantity supplied is greater than the quantity demanded.
35. Technological change: A change in the ability of a firm to produce a given level of output
with a given quantity of inputs.
36. Consumer surplus: The difference between the highest price a consumer is willing to pay
for a good or service and the price the consumer actually pays. Area below demand and
above market price.
37. Producer surplus: The difference between the lowest price a firm would be willing to accept
for a good or service and the price it actually receives. Area above supply below market.
38. Economic surplus: The sum of consumer surplus and producer surplus.
39. Price floor: A legally determined minimum price that sellers may receive.
40. Price ceiling: A legally determined maximum price that sellers may charge.
41. Deadweight loss: The reduction in economic surplus resulting from a market not being in
competitive equilibrium.
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