Karnataka II PUC Economics (KSEAB) key terms

The branch of economics that studies individual decision-making units such as a single consumer, a single firm, and one market at a time, rather than economy-wide totals.

The branch of economics that studies the economy as a whole, focusing on aggregates such as national income, general price level, total employment and aggregate output.

The study of economic facts and cause-effect relationships that can be verified against evidence, dealing with what is rather than what ought to be.

The study of economic questions involving value judgements about what ought to be, such as whether a policy is fair or desirable.

The situation in which available resources are limited relative to the unlimited wants of people, forcing choices about how resources are used.

The value of the next best alternative given up when a resource or income is used for one purpose instead of another.

The three basic questions every economy must answer: what to produce, how to produce it, and for whom to produce it.

A curve showing the maximum combinations of two goods an economy can produce when all resources are fully and efficiently employed, given its technology.

The number of units of one good sacrificed to produce one additional unit of another good along a production possibility frontier; it equals the slope of that curve.

An economic system in which decisions about production, consumption and distribution are taken mainly through the price mechanism and private decisions rather than central planning.

The system in which prices, determined by the interaction of demand and supply, guide producers and consumers and thereby allocate scarce resources.

The satisfaction or want-satisfying power a consumer obtains from consuming a good or service; it is subjective and cannot be measured in absolute units.

The sum of satisfaction obtained from consuming all units of a good within a given period.

The addition to total utility resulting from consuming one more unit of a good, calculated as the change in total utility divided by the change in quantity.

The principle that as a consumer takes successive units of a good in a given period, the marginal utility of each additional unit falls.

The rule that a consumer maximises satisfaction by allocating income so that the marginal utility per rupee spent is equal across all goods purchased.

A curve joining all combinations of two goods that give a consumer the same level of satisfaction, so the consumer is indifferent among them.

A set of indifference curves drawn on one diagram, each representing a different level of satisfaction, with higher curves showing higher satisfaction.

The number of units of one good a consumer is willing to give up to obtain one additional unit of another good while staying on the same indifference curve.

A line showing all combinations of two goods a consumer can buy by spending the entire given income at given prices.

The collection of all combinations of two goods that a consumer can afford with a given income at given prices, lying on or below the budget line.

The situation in which a consumer, given income and prices, buys the combination of goods that gives maximum satisfaction and has no reason to change it.

The quantity of a good a consumer is willing and able to buy at a given price during a given period, other things remaining constant.

The principle that, other things being equal, quantity demanded of a good falls when its price rises and rises when its price falls, giving an inverse price-quantity relationship.

A table showing the different quantities of a good demanded at different prices during a given period, other factors held constant.

A graph plotting quantity demanded against price, showing the inverse relationship described by the law of demand; it normally slopes downward.

A good whose demand increases when consumer income rises and decreases when income falls, so income and demand move in the same direction.

A good whose demand falls when consumer income rises, because consumers switch to better substitutes as they become richer.

Goods that can be used in place of each other to satisfy the same want, so a rise in the price of one increases demand for the other.

Goods that are used together to satisfy a want, so a rise in the price of one reduces demand for the other.

The degree of responsiveness of quantity demanded to a change in the good's own price, measured as percentage change in quantity divided by percentage change in price.

The quantity of a good a firm is willing and able to offer for sale at a given price during a given period, other factors remaining constant.

The principle that, other things being equal, quantity supplied of a good rises when its price rises and falls when its price falls, giving a direct price-quantity relationship.

A graph plotting quantity supplied against price, normally sloping upward to reflect the direct relationship between price and quantity supplied.

The technical relationship showing the maximum output a firm can produce from given quantities of inputs with a given technology.

The short-run principle that, with one input varied and others fixed, marginal product first rises, then falls, and may finally become negative.

The addition to total output produced by employing one more unit of a variable input, other inputs held constant.

The total quantity of output produced by a firm using a given quantity of a variable input along with fixed inputs.

The behaviour of output when all inputs are increased in the same proportion in the long run, giving increasing, constant or decreasing returns.

Cost that a firm must bear even when output is zero, arising from fixed inputs and unaffected by the level of output in the short run.

Cost that varies directly with the level of output, arising from variable inputs, and is zero when output is zero.

The sum of total fixed cost and total variable cost incurred in producing a given level of output.

The addition to total cost from producing one more unit of output, calculated as change in total cost divided by change in quantity.

Total cost divided by the number of units produced, also called per-unit cost; it is U-shaped in the short run.

A market form with many buyers and sellers, a homogeneous product, free entry and exit, perfect information, and firms that are price takers facing a horizontal demand curve.

A market form with a single seller of a product having no close substitutes, with strong barriers preventing entry of new firms.

A market form with many sellers offering differentiated products that are close substitutes, with free entry and exit and some price-setting power.

A market form dominated by a few large sellers whose decisions about price and output are interdependent, with entry difficult.

A firm that must accept the market price determined by industry demand and supply and cannot influence it by changing its own output.

A firm with enough market power to influence the price of its product, typically by choosing output where marginal cost equals marginal revenue.

The price at which quantity demanded equals quantity supplied, so the market clears and there is neither excess demand nor excess supply.

The state in which quantity demanded equals quantity supplied at the prevailing price, so neither buyers nor sellers have reason to change behaviour.

A situation at a price below equilibrium where quantity demanded exceeds quantity supplied, creating a shortage that pushes price upward.

A situation at a price above equilibrium where quantity supplied exceeds quantity demanded, creating a surplus that pushes price downward.

A legally imposed maximum price set below the equilibrium price, intended to protect buyers, which creates excess demand and possible shortages.

A legally imposed minimum price set above the equilibrium price, intended to protect sellers, which creates excess supply.

The practice of making a product appear different from rivals through brand name, packaging, quality or location, giving the seller some control over price.