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Cram Cards Flashcards

1
Q

What is microeconomics?

A

Microeconomics focuses on decision making by individuals, businesses, industries, and governments.

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2
Q

What is macroeconomics?

A

Macroeconomics is concerned about the broader issues in the economy such as inflation, unemployment, and national output of goods and services.

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3
Q

What is Ceteris paribus?

A

Assumption used in economics where other relevant factors or variable are held constant.

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4
Q

What is efficiency?

A

How well resources are used and allocated. Do people get the goods and services they want at the lowest possible resource cost? This is the chief focus of efficiency.

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5
Q

What is equity?

A

The fairness of various issues and policies.

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6
Q

What is scarcity?

A

Our unlimited wants clash with limited resources, leading to scarcity. Everyone faces scarcity (rich or poor) because, at a minimum, our time is limited on earth. Economics focuses on the allocation of scarce resources to satisfy unlimited wants.

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7
Q

What are opportunity costs?

A

The next best alternatives; what you give up to do something or purchase something.

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8
Q

What are resources?

A

Productive resources include land, labor, capital, and entrepreneurial ability.

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9
Q

What is land?

A

Includes natural resources such as mineral deposits, oil, natural gas, water, and land in the usual sense of the word. The payment to land as a resources called rents.

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10
Q

What is labor?

A

Includes the mental and physical talents of individuals that are used to produce products and services. Labor is paid wages.

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11
Q

What is capital?

A

Includes manufactured products such as welding machines, computers and cellular phones that are used to produce other goods and services. The payment to capital is referred to as interest.

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12
Q

What are entrepreneurs?

A

Entrepreneurs combine land, labor and capital to produce goods and services. They absorb the risk of being in business, including ther risk of bankruptcy and other liabilities associated with doing business. Entrepreneurs receive profits fort his effort.

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13
Q

What is production efficiency?

A

Goods and services are produced at their lowest resource (opportunity) cost.

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14
Q

What is allocative efficiency?

A

The mix of goods and services produced are just what individuals in society desire.

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15
Q

What is the Production Possibilities Frontier (PPF)?

A

Shows the combinations of two goods that are possible for a society to produce at full employment. Points on or inside the PPF are feasible, and those outside of the frontier are unattainable.

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16
Q

What is an opportunity cost (Chapter 2)?

A

The cost paid for one product in terms of the output of another product that must be foregone.

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17
Q

What is the absolute advantage?

A

One country can produce more of a good than another country.

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18
Q

What is the comparative advantage?

A

One country has a lower opportunity cost of producing a good than another country.

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19
Q

What are markets?

A

Institutions that bring buyers and sellers together so they can interact and transact with each other.

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20
Q

What is a price system?

A

A name given to the market economy because prices provide considerable information to both buyers and sellers.

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21
Q

What is demand?

A

The maximum amount of a product that buyers are willing and able to purchase over some time period at various prices, holding all other relevant factors constant (ceteris paribus).

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22
Q

What is the law of demand?

A

Holding all other relevant factors constant, as price increases, quantity demanded falls, and as a price decreases, quantity demanded rises.

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23
Q

What is the demand curve?

A

Demand schedule information translated to a graph.

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24
Q

What is a horizontal summation?

A

Market demand and supply curves are found by adding together how many units of the product will be purchased or supplied at each price.

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25
Q

What are the determinants of demand?

A

Other nonprice factors that affect demand including tastes and preferences, income, prices of related goods, number of buyers, and expectations.

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26
Q

What are normal goods?

A

A good where an increase in income results in rising demand.

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27
Q

What are inferior goods?

A

A good where an increase in income results in declining demand.

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28
Q

What are substitute goods?

A

Goods consumers will substitute for one another depending on their relative prices.

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29
Q

What are complementary goods?

A

Goods that are typically consumed together.

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30
Q

What is a change in demand?

A

Occurs when one or more of the determinants of demand changes, shown as a shift in the entire demand curve.

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31
Q

What is a change in the quantity demanded?

A

Occurs when the price of the product changes, and is shown as a movement along an existing demand curve.

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32
Q

What is supply?

A

The maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant (ceteris paribus).

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33
Q

What is the law of supply?

A

Holding all other relevant factors constant, as price increases, quantity supplied will rise, and as price declines, quantity supplied will fall.

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34
Q

What is the supply curve?

A

Supply schedule information translated to a graph

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35
Q

What are the determinants of supply?

A

Other nonprice factors that affect supply including production technology, costs of resources, prices of other commodities, expectations, number of sellers, and taxes and subsidies.

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36
Q

What is a change in supply?

A

Occurs when one or more of the determinants of supply changes, shown as a shift in the entire supply curve.

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37
Q

What is a change in the quantity supplied?

A

Occurs when the price of the product changes, and is shown as a movement along an existing supply curve.

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38
Q

What is equilibrium?

A

Market forces are in balance where teh quantities demanded by consumers just equal quantities supplied by producers.

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39
Q

What is equilibrium price?

A

Market equilibrium price is the price that results when quantity demanded is just equal to quantity supplied.

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40
Q

What is equilibrium quantity?

A

Market equilibrium quantity is the output that results when quantity demanded is just equal to quantity supplied.

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41
Q

When does a surplus occur?

A

When the price is above market equilibrium, and quantity supplied exceeds quantity demanded.

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42
Q

When does a shortage occur?

A

When the price is below market equilibrium, and quantity demanded exceeds quantity supplied.

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43
Q

What are property rights?

A

The clear delineation of ownership of property backed by government enforcement.

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44
Q

What is a consumer surplus?

A

The difference between market price and what consumers (as individuals or the market) would be willing to pay. It is equal to the area above market price and below the demand curve.

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45
Q

What is a produce surplus?

A

The difference between market price and the price that firms would be willing supply the product. It is equal to the area below market price and above the supply curve.

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46
Q

What is asymmetric information?

A

Occurs when one party to a transaction has significantly better information that another party.

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47
Q

What is adverse selection?

A

Occurs when products of different qualities are sold at the same price because of asymmetric information.

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48
Q

What is a moral hazard?

A

Asymmetric information problem that occurs when an insurance policy or some other arrangement changes the economic incentives and leads to a change in behavior.

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49
Q

What are public goods?

A

Goods that, once provided, no one person can be excluded from consuming (nonexclusion), and one person’s consumption does not diminish the benefit to others from consuming the good (nonrivalry).

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50
Q

What is a free rider?

A

When a public good is provided, consumers cannot by excluded from enjoying the product, so some consume the product without paying.

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51
Q

What are common property resources?

A

Resources that are owned by the community at large and therefore tend to be overexploited because individuals have little incentive to use them in a sustainable fashion.

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52
Q

What is an external cost?

A

Occurs when a transaction between two parties has an impact on a third party not involved with the transaction. External costs are negative such as pollution or congestion. The market provides too much of the product with negative externalities at too low a cost.

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53
Q

What is an external benefit?

A

Positive externalities such as education and vaccinations. Private markets provide too little at too high a price of goods with external benefits.

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54
Q

What is a price ceiling?

A

A government–set maximum price that can be charged for a product or service. When the price ceiling is set below equilibrium, it leads to shortages (EX. rent control).

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55
Q

What is a price floor?

A

A government–set minimum price that can be charged for a product or service. If the price floor is set above equilibrium price, it leads to surpluses. (EX. minimum wages).

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56
Q

What is deadweight loss?

A

The loss in consumer and producer surplus due to inefficiency because some transactions cannot be made and therefor their value to society is lost.

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57
Q

Scarcity

A

Is the limited nature of society’s resources

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58
Q

Economics

A

economics the study of how society manages its scarce resources

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59
Q

the economy

A

the economy all the production and exchange activities that take place every day

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60
Q

economic activity

A

economic activity how much buying and selling goes on in the economy over a period of time

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61
Q

Equity

A

Equity the property of distributing economic prosperity fairly among the members of society

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62
Q

opportunity cost

A

Opportunity Cost on whatever must be given up to obtain some item; the value of the bene ts foregone (sacrificed)

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63
Q

Marginal changes

A

marginal changes small incremental adjustments to a plan of action

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64
Q

Market economy

A

market economy an economy that addresses the three key questions of the economic problem through allocatingresources through the decentralized decisions of many rms and households as they interact in markets for goods and services

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65
Q

Market Failure

A

market failure a situation where scarce resources are not allocated to their most ef cient use

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66
Q

Externality

A

externality the cost or bene t of one person’s decision on the well–being of a bystander (a third party) which the decisionmaker does not take into account in making the decision

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67
Q

Market Power

A

market power the ability of a single economic agent (or small group of agents) to have a substantial in uence on market prices

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68
Q

Microeconomics

A

microeconomics the study of how households and rms make decisions and how they interact in markets

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69
Q

Macroeconomics

A

the study of economy–wide phenomena, including in ation, unemployment and economic growth

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70
Q

Economic Growth

A

the increase in the amount of goods and services in an economy over a period of time

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71
Q

Gross domestic product per capita

A

the market value of all goods and services produced within a country ina given period of time divided by the population of a country to give a per capita figure

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72
Q

Standart of living

A

refers to the amount of goods and services that can be purchased by the population of a country.Usually measured by the in ation–adjusted (real) income per head of the population

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73
Q

Productivity

A

the quantity of goods and services produced from each hour of a worker or factor of production’s time

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74
Q

Inflation

A

an increase in the overall level of prices in the economy

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75
Q

Philips curve

A

a curve that shows the short run trade–off between in ation and unemployment

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76
Q

business cycle

A

fuctuations in economic activity such as employment and production

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77
Q

endogenous variable

A

a variable whose value is determined within the model

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78
Q

exogenous variable

A

a variable whose value is determined outside the model

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79
Q

circular–flow diagram

A

a visual model of the economy that shows how money and production inputs and outputs owthrough markets among households and firms

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80
Q

Positive statements

A

claims that attempt to describe the world as it is

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81
Q

Normative statements

A

claims that attempt to prescribe how the world should be

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82
Q

Competitive market

A

a market in which there are many buyers and sellers so that each has a negligible impact on themarket price

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83
Q

Law of demande

A

the claim that, other things equal (ceteris paribus) the quantity demanded of a good falls when the priceof the good rises

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84
Q

Quantity demanded

A

the amount of a good that buyers are willing and able to purchase at different prices

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85
Q

demand schedule

A

a table that shows the relationship between the price of a good and the quantity demanded

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86
Q

demand curve

A

a graph of the relationship between the price of a good and the quantity demanded

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87
Q

normal good

A

a good for which, ceteris paribus, an increase in income leads to an increase in demand (and vice versa)

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88
Q

inferior good

A

a good for which, ceteris paribus, an increase in income leads to a decrease in demand (and vice versa)

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89
Q

quantity supplied

A

the amount of a good that sellers are willing and able to sell at different prices

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90
Q

law of supply

A

the amount of a good that sellers are willing and able to sell at different prices

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91
Q

supply schedule

A

a table that shows the relationship between the price of a good and the quantity supplied

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92
Q

supply curve

A

a graph of the relationship between the price of a good and the quantity supplied

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93
Q

Equilibrium or market price

A

the price where the quantity demanded is the same as the quantity supplied

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94
Q

Who is the nicest person you know?

A

Hector

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95
Q

Equilibrium quantity

A

the quantity bought and sold at the equilibrium price

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96
Q

Surplus

A

a situation in which the quantity supplied is greater than the quantity demanded at the going market price

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97
Q

Shortage

A

a situation in which quantity demanded is greater than quantity supplied at the going market price

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98
Q

law of supply and demand

A

the claim that the price of any good adjusts to bring the quantity supplied and the quantitydemanded for that good into balance

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99
Q

Why is Hector your best friend?

A

Because you don’t have any.

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100
Q

elasticity

A

a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants

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101
Q

Price elasticity of demand

A

a measure of how much the quantity demanded of a good responds to a change in the priceof that good, computed as the percentage change in quantity demanded divided by the percentage change in price

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102
Q

Total expenditure

A

the amount paid by buyers, computed as the price of the good times the quantity purchased

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103
Q

Income elasticity of demand

A

a measure of how much the quantity demanded of a good responds to a change inconsumers’ income, computed as the percentage change in quantity demanded divided by the percentage change in income

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104
Q

Cross–price elasticity of demand

A

a measure of how much the quantity demanded of one good responds to a changein the price of another good, computed as the percentage change in quantity demanded of the rst good divided by thepercentage change in the price of the second good

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105
Q

Price elasticity of supply

A

a measure of how much the quantity supplied of a good responds to a change in the price ofthat good, computed as the percentage change in quantity supplied divided by the percentage change in price

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106
Q

Why did the chicken cross the street?

A

The chicken got scared when he saw the size of Cyrils nose.

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107
Q

total revenue

A

the amount received by sellers of a good, computed as the price of the good times the quantity sold

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108
Q

utility

A

the satisfaction derived from the consumption of a certain quantity of a product

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109
Q

budget constraint

A

the limit on the consumption bundles that a consumer can afford

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110
Q

Choice set

A

the set of alternatives available to the consumer

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111
Q

What’s the capital of Bahamas?

A

Nassau… bet you didn’t know that.

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112
Q

indifference curve

A

a curve that shows consumption bundles that give the consumer the same level of satisfaction

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113
Q

TheAxiom of Comparison

A

Given any two bundles of goods, A and B,representingconsumptionchoices,a consumer can compare these bundles such that A is preferred to B, B is preferred to A or the consumeris indifferent between A and B.

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114
Q

The Axiom of Transitivity

A

Given any three bundles of goods, A, B and C, if the consumer prefers A to Band prefers B to C then he must prefer A to C. Equally, if the consumer is indifferent between A and B andis also indifferent between B and C then they must be indifferent between A and C.

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115
Q

Properties of indifference curves

A

Property 1: Higher indifference curves (further to the upper right) are preferred to lower ones.
Property 2:Indifference curves are downwards sloping.
Property3:Indifference curves do not cross.
Property 4: Indifference curves are bowed inward.

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116
Q

total utility

A

the satisfaction gained from the consumption of a good

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117
Q

marginal utility

A

the addition to total utility as a result of consuming one extra unit of a good

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118
Q

diminishing marginal utility

A

refers to the tendency for the additional satisfaction from consuming extra units of agood to fall

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119
Q

marginal rate of substiution

A

the rate at which a consumer is willing to trade one good for another

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120
Q

perfect substitution

A

two goods with straight line indifference curves

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121
Q

perfect compliments

A

two goods with right–angle indifference curves

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122
Q

income effect

A

the change in consumption that results when a price change moves the consumer to a higher or lowerindifference curve

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123
Q

substitution effect

A

the change in consumption that results when a price change moves the consumer along a givenindifference curve to a point with a new marginal rate of substitution

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124
Q

What will you give Hector in return for the flashcards?

A

A Beer would be nice.

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125
Q

Price–consumption curve

A

a line showing the consumer optimum for two goods as the price of one of the goodschanges, assuming incomes and the price of the good are held constant

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126
Q

Giffen good

A

a good for which an increase in the price raises the quantity demanded

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127
Q

Engel curve

A

curve a line showing the relationship between demand and levels of income

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128
Q

Bounded rationality

A

the idea that humans make decisions under the constraints of limited, and sometimes unreliable,information

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129
Q

heuristics

A

short cuts or rules of thumb that people use in decision making

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130
Q

expected utility theory

A

the idea that preferences can and will be ranked by buyers

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131
Q

explicit costs

A

input costs that require an outlay of money by the firm

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132
Q

implicit costs

A

input costs that do not require an outlay of money by the firm

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133
Q

the short run

A

the period of time in which some factors of production cannot be changed

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134
Q

the long run

A

the period of time in which all factors of production can be altered

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135
Q

production function

A

the relationship between the quantity of inputs used to make a good and the quantity of outputof that good

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136
Q

marginal product

A

the increase in output that arises from an additional unit of input

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137
Q

diminishing marginal product

A

the property whereby the marginal product of an input declines as the quantity of theinput increases

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138
Q

fixed costs

A

costs that are not determined by the quantity of output produced

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139
Q

variable costs

A

costs that are dependent on the quantity of output produced

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140
Q

average total cost

A

total cost divided by the quantity of output

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141
Q

average fixed cost

A

fixed costs divided by the quantity of output

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142
Q

average variable cost

A

variable costs divided by the quantity of output

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143
Q

marginal cost

A

the increase in total cost that arises from an extra unit of production

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144
Q

efficient scale

A

the quantity of output that minimizes average total cost

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145
Q

constant returns to scale

A

the property whereby long–run average total cost stays the same as the quantity of output changes

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146
Q

economies of scale

A

the property whereby long–run average total cost falls as the quantity of output increases

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147
Q

What’s round and hates jews?

A

the entire world.

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148
Q

diseconomies of scale

A

the property whereby long–run average total cost rises as the quantity of output increases

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149
Q

meaning of competition

A

Where more than one rm offers the same or a similar product there is competition. ● Competition can also manifest itself where substitutes exist: for example, gas and electricity are separ–ate markets but there is the opportunity for consumers to substitute gas cookers for electric ones and so some element of competition exists. ● The closer the degree of substitutability the greater will be the competition that exists. ● Firms may in uence the level of competition through the way they build relationships with consumers, encourage purchasing habits, provide levels of customer service and after sales service, and so on.

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150
Q

perfectly competitive

A

There are many buyers and many sellers in the market. ● The goods offered by the various sellers are largely the same (if identical the goods are described as being ‘homogenous’). ● Firms have to accept the price determined by the market as a whole – no individual rm can in uence supply and thus price. Firms are referred to as being ‘price takers’. Each seller can sell all he wants at the going price, he has little reason to charge less, and if he charges more buyers will go elsewhere.
CONTINOUS

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151
Q

● There are no restrictions (called barriers to entry) on rms entering or exiting a market. Any rm is free to set up and conduct business and equally there are no reasons why they cannot just close down and leave the industry. ● There is a high degree of information available to buyers and sellers in the market.

A

Cheers

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152
Q

Average revenue

A

total revenue divided by the quantity sold

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153
Q

marginal revenue

A

the change in total revenue from an additional unit sold

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154
Q

economic profit

A

total revenue minus total cost, including both explicit and implicit costs

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155
Q

accounting profit

A

total revenue minus total explicit cost

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156
Q

normal profit

A

the minimum amount required to keep factors of production in their current use

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157
Q

Scarcity

A

Is the limited nature of society’s resources

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158
Q

Economics

A

economics the study of how society manages its scarce resources

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159
Q

the economy

A

the economy all the production and exchange activities that take place every day

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160
Q

economic activity

A

economic activity how much buying and selling goes on in the economy over a period of time

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161
Q

Equity

A

Equity the property of distributing economic prosperity fairly among the members of society

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162
Q

opportunity cost

A

Opportunity Cost on whatever must be given up to obtain some item; the value of the bene ts foregone (sacrificed)

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163
Q

Marginal changes

A

marginal changes small incremental adjustments to a plan of action

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164
Q

Market economy

A

market economy an economy that addresses the three key questions of the economic problem through allocatingresources through the decentralized decisions of many rms and households as they interact in markets for goods and services

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165
Q

Market Failure

A

market failure a situation where scarce resources are not allocated to their most ef cient use

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166
Q

Externality

A

externality the cost or bene t of one person’s decision on the well–being of a bystander (a third party) which the decisionmaker does not take into account in making the decision

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167
Q

Market Power

A

market power the ability of a single economic agent (or small group of agents) to have a substantial in uence on market prices

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168
Q

Microeconomics

A

microeconomics the study of how households and rms make decisions and how they interact in markets

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169
Q

Macroeconomics

A

the study of economy–wide phenomena, including in ation, unemployment and economic growth

170
Q

Economic Growth

A

the increase in the amount of goods and services in an economy over a period of time

171
Q

Gross domestic product per capita

A

the market value of all goods and services produced within a country ina given period of time divided by the population of a country to give a per capita figure

172
Q

Standart of living

A

refers to the amount of goods and services that can be purchased by the population of a country.Usually measured by the in ation–adjusted (real) income per head of the population

173
Q

Productivity

A

the quantity of goods and services produced from each hour of a worker or factor of production’s time

174
Q

Inflation

A

an increase in the overall level of prices in the economy

175
Q

Philips curve

A

a curve that shows the short run trade–off between in ation and unemployment

176
Q

business cycle

A

fuctuations in economic activity such as employment and production

177
Q

endogenous variable

A

a variable whose value is determined within the model

178
Q

exogenous variable

A

a variable whose value is determined outside the model

179
Q

circular–flow diagram

A

a visual model of the economy that shows how money and production inputs and outputs owthrough markets among households and firms

180
Q

Positive statements

A

claims that attempt to describe the world as it is

181
Q

Normative statements

A

claims that attempt to prescribe how the world should be

182
Q

Competitive market

A

a market in which there are many buyers and sellers so that each has a negligible impact on themarket price

183
Q

Law of demande

A

the claim that, other things equal (ceteris paribus) the quantity demanded of a good falls when the priceof the good rises

184
Q

Quantity demanded

A

the amount of a good that buyers are willing and able to purchase at different prices

185
Q

demand schedule

A

a table that shows the relationship between the price of a good and the quantity demanded

186
Q

demand curve

A

a graph of the relationship between the price of a good and the quantity demanded

187
Q

normal good

A

a good for which, ceteris paribus, an increase in income leads to an increase in demand (and vice versa)

188
Q

inferior good

A

a good for which, ceteris paribus, an increase in income leads to a decrease in demand (and vice versa)

189
Q

quantity supplied

A

the amount of a good that sellers are willing and able to sell at different prices

190
Q

law of supply

A

the amount of a good that sellers are willing and able to sell at different prices

191
Q

supply schedule

A

a table that shows the relationship between the price of a good and the quantity supplied

192
Q

supply curve

A

a graph of the relationship between the price of a good and the quantity supplied

193
Q

Equilibrium or market price

A

the price where the quantity demanded is the same as the quantity supplied

194
Q

Who is the nicest person you know?

A

Hector

195
Q

Equilibrium quantity

A

the quantity bought and sold at the equilibrium price

196
Q

Surplus

A

a situation in which the quantity supplied is greater than the quantity demanded at the going market price

197
Q

Shortage

A

a situation in which quantity demanded is greater than quantity supplied at the going market price

198
Q

law of supply and demand

A

the claim that the price of any good adjusts to bring the quantity supplied and the quantitydemanded for that good into balance

199
Q

Why is Hector your best friend?

A

Because you don’t have any.

200
Q

elasticity

A

a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants

201
Q

Price elasticity of demand

A

a measure of how much the quantity demanded of a good responds to a change in the priceof that good, computed as the percentage change in quantity demanded divided by the percentage change in price

202
Q

Total expenditure

A

the amount paid by buyers, computed as the price of the good times the quantity purchased

203
Q

Income elasticity of demand

A

a measure of how much the quantity demanded of a good responds to a change inconsumers’ income, computed as the percentage change in quantity demanded divided by the percentage change in income

204
Q

Cross–price elasticity of demand

A

a measure of how much the quantity demanded of one good responds to a changein the price of another good, computed as the percentage change in quantity demanded of the rst good divided by thepercentage change in the price of the second good

205
Q

Price elasticity of supply

A

a measure of how much the quantity supplied of a good responds to a change in the price ofthat good, computed as the percentage change in quantity supplied divided by the percentage change in price

206
Q

Why did the chicken cross the street?

A

The chicken got scared when he saw the size of Cyrils nose.

207
Q

total revenue

A

the amount received by sellers of a good, computed as the price of the good times the quantity sold

208
Q

utility

A

the satisfaction derived from the consumption of a certain quantity of a product

209
Q

budget constraint

A

the limit on the consumption bundles that a consumer can afford

210
Q

Choice set

A

the set of alternatives available to the consumer

211
Q

What’s the capital of Bahamas?

A

Nassau… bet you didn’t know that.

212
Q

indifference curve

A

a curve that shows consumption bundles that give the consumer the same level of satisfaction

213
Q

TheAxiom of Comparison

A

Given any two bundles of goods, A and B,representingconsumptionchoices,a consumer can compare these bundles such that A is preferred to B, B is preferred to A or the consumeris indifferent between A and B.

214
Q

The Axiom of Transitivity

A

Given any three bundles of goods, A, B and C, if the consumer prefers A to Band prefers B to C then he must prefer A to C. Equally, if the consumer is indifferent between A and B andis also indifferent between B and C then they must be indifferent between A and C.

215
Q

Properties of indifference curves

A

Property 1: Higher indifference curves (further to the upper right) are preferred to lower ones.
Property 2:Indifference curves are downwards sloping.
Property3:Indifference curves do not cross.
Property 4: Indifference curves are bowed inward.

216
Q

total utility

A

the satisfaction gained from the consumption of a good

217
Q

marginal utility

A

the addition to total utility as a result of consuming one extra unit of a good

218
Q

diminishing marginal utility

A

refers to the tendency for the additional satisfaction from consuming extra units of agood to fall

219
Q

marginal rate of substiution

A

the rate at which a consumer is willing to trade one good for another

220
Q

perfect substitution

A

two goods with straight line indifference curves

221
Q

perfect compliments

A

two goods with right–angle indifference curves

222
Q

income effect

A

the change in consumption that results when a price change moves the consumer to a higher or lowerindifference curve

223
Q

substitution effect

A

the change in consumption that results when a price change moves the consumer along a givenindifference curve to a point with a new marginal rate of substitution

224
Q

What will you give Hector in return for the flashcards?

A

A Beer would be nice.

225
Q

Price–consumption curve

A

a line showing the consumer optimum for two goods as the price of one of the goodschanges, assuming incomes and the price of the good are held constant

226
Q

Giffen good

A

a good for which an increase in the price raises the quantity demanded

227
Q

Engel curve

A

curve a line showing the relationship between demand and levels of income

228
Q

Bounded rationality

A

the idea that humans make decisions under the constraints of limited, and sometimes unreliable,information

229
Q

heuristics

A

short cuts or rules of thumb that people use in decision making

230
Q

expected utility theory

A

the idea that preferences can and will be ranked by buyers

231
Q

explicit costs

A

input costs that require an outlay of money by the firm

232
Q

implicit costs

A

input costs that do not require an outlay of money by the firm

233
Q

the short run

A

the period of time in which some factors of production cannot be changed

234
Q

the long run

A

the period of time in which all factors of production can be altered

235
Q

production function

A

the relationship between the quantity of inputs used to make a good and the quantity of outputof that good

236
Q

marginal product

A

the increase in output that arises from an additional unit of input

237
Q

diminishing marginal product

A

the property whereby the marginal product of an input declines as the quantity of theinput increases

238
Q

fixed costs

A

costs that are not determined by the quantity of output produced

239
Q

variable costs

A

costs that are dependent on the quantity of output produced

240
Q

average total cost

A

total cost divided by the quantity of output

241
Q

average fixed cost

A

fixed costs divided by the quantity of output

242
Q

average variable cost

A

variable costs divided by the quantity of output

243
Q

marginal cost

A

the increase in total cost that arises from an extra unit of production

244
Q

efficient scale

A

the quantity of output that minimizes average total cost

245
Q

constant returns to scale

A

the property whereby long–run average total cost stays the same as the quantity of output changes

246
Q

economies of scale

A

the property whereby long–run average total cost falls as the quantity of output increases

247
Q

What’s round and hates jews?

A

the entire world.

248
Q

diseconomies of scale

A

the property whereby long–run average total cost rises as the quantity of output increases

249
Q

meaning of competition

A

Where more than one rm offers the same or a similar product there is competition. ● Competition can also manifest itself where substitutes exist: for example, gas and electricity are separ–ate markets but there is the opportunity for consumers to substitute gas cookers for electric ones and so some element of competition exists. ● The closer the degree of substitutability the greater will be the competition that exists. ● Firms may in uence the level of competition through the way they build relationships with consumers, encourage purchasing habits, provide levels of customer service and after sales service, and so on.

250
Q

perfectly competitive

A

There are many buyers and many sellers in the market. ● The goods offered by the various sellers are largely the same (if identical the goods are described as being ‘homogenous’). ● Firms have to accept the price determined by the market as a whole – no individual rm can in uence supply and thus price. Firms are referred to as being ‘price takers’. Each seller can sell all he wants at the going price, he has little reason to charge less, and if he charges more buyers will go elsewhere.
CONTINOUS

251
Q

● There are no restrictions (called barriers to entry) on rms entering or exiting a market. Any rm is free to set up and conduct business and equally there are no reasons why they cannot just close down and leave the industry. ● There is a high degree of information available to buyers and sellers in the market.

A

Cheers

252
Q

Average revenue

A

total revenue divided by the quantity sold

253
Q

marginal revenue

A

the change in total revenue from an additional unit sold

254
Q

economic profit

A

total revenue minus total cost, including both explicit and implicit costs

255
Q

accounting profit

A

total revenue minus total explicit cost

256
Q

normal profit

A

the minimum amount required to keep factors of production in their current use

257
Q

abnormal profits

A

the profit over and above normal profit

258
Q

The Firm’s Short–Run Decision to Shut Down

A

Shut down if TR < VC
Shut down if TR/Q < VC/Q
Shut down if P < AVC

259
Q

sunk cost

A

a cost that has already been committed and cannot be recovered

260
Q

The Firm’s Long–Run Decision to Exit or Enter a Market

A

Exit if TR < TC
Exit if TR/Q < TC/Q
Exit if P < ATC
Enter if P > ATC

261
Q

Measuring Profit in Our Graph for the Competitive Firm

A 
Profit = TR – TC										
Profit = (TR/Q – TC/Q) × Q    
Profit = (P – ATC) × Q
262
Q

Why the Long–Run Supply Curve Might Slope Upwards

A

Some Resources Used in Production May Be Available Only in Limited Quantities

Firms May Have Different Costs

263
Q

welfare economics

A

the study of how the allocation of resources affects economic well–being

264
Q

well–being

A

happiness or satisfaction with life as reported by individuals

265
Q

allocative efficiency

A

a resource allocation where the value of the output by sellers matches the value placed on thatoutput by buyers

266
Q

willingness to pay

A

the maximum amount that a buyer will pay for a good

267
Q

consumer surplus

A

a buyer’s willingness to pay minus the amount the buyer actually pays

268
Q

What Does Consumer Surplus Measure?

A

Conceiving of Price as a Bargaining Model

269
Q

Cost

A

the value of everything a seller must give up to produce a good

270
Q

Time for another shitty joke or comment

Turn the card around and get a surprise

A

They know that you know that they know that you know that they know that you don’t know that they suck.

271
Q

producer surplus

A

the amount a seller is paid for a good minus the seller’s cost

272
Q

general equilibrium

A

the notion that the decisions and choices of economic agents are coordinated across markets

273
Q

total surplus

A

the total value to buyers of the goods, as measured by their willingness to pay, minus the cost to sellers ofproviding those goods

Total surplus = Value to buyers − Cost to sellers

274
Q

efficiency

A

the property of a resource allocation of maximizing the total surplus received by all members of society

275
Q

pareto improvement

A

when an action makes at least one economic agent better off without harming another economic agent

276
Q

equity

A

the property of distributing economic prosperity fairly among the members of society

277
Q

social welfare function

A

the collective utility of society which is re ected by consumer and producer surplus

278
Q

price ceiling

A

a legal maximum on the price at which a good can be sold

279
Q

price floor

A

a legal minimum on the price at which a good can be sold

280
Q

direct taxes

A

a tax levied on income and wealth

281
Q

indirect tax

A

a tax levied on the sale of goods and services

282
Q

specific tax

A

a fixed rate tax levied on goods and services expressed as a sum per unit

283
Q

ad valorem tax

A

a tax levied as a percentage of the price of a good

284
Q

tax incidence

A

the manner in which the burden of a tax is shared among participants in a market

285
Q

subsidy

A

payment to buyers and sellers to supplement income or lower costs and which thus encourages consumption orprovides an advantage to the recipient

286
Q

Why did Hector have a beer in his hand

A

Because you paid him one and he’s very grateful for that. Thank you in advance

287
Q

deadweight loss

A

the fall in total surplus that results from a market distortion, such as a tax

288
Q

Adam Smith’s Four Canons of Taxation

A

● Equality – that each person should pay taxes according to their ability to pay so that the rich should paymore in taxes than the poor ● Certainty – tax payers need to know what taxes they are liable for and be able to plan ahead on thisbasis and at the same time governments should be able to have some certainty in how much they areable to collect in taxes ● Convenience – paying taxes should be made as easy as possible and tax systems should be designedto be as simple as possible in order to help maximize tax revenue ● Economic – any tax system must ensure that the cost of collecting and administering taxes is less thanthe amount collected.

289
Q

average tax rate

A

total taxes paid divided by total income

290
Q

marginal tax rate

A

the extra taxes paid on an additional unit of income

291
Q

lump–sum tax

A

a tax that is the same amount for every person

292
Q

Guillaume veut que je mets une bonne blague sur lui parce que il ne veut pas parler avec moi.. alors j’ai besoin un peu de créativité de vous.

Fini la phrase: Guillaume aime sucer….

A

.. des cornichon.

293
Q

OK ATTEND: Blague de Guillaume et elle est bien. alors.

Toc Toc Toc, Qui est la?
Ellen!
Ellen qui?

A

LN(x)

294
Q

benifits principle

A

the idea that people should pay taxes based on the bene ts they receive from government services

295
Q

ability–to–pay principle

A

the idea that taxes should be levied on a person according to how well that person can shoulderthe burden`

296
Q

vertical equity

A

the idea that taxpayers with a greater ability to pay taxes should pay larger amounts

297
Q

Horizontal equity

A

the idea that taxpayers with similar abilities to pay taxes should pay the same amount

298
Q

Proportional or flat tax

A

a tax for which high–income and low–income taxpayers pay the same fraction of income

299
Q

regressive tax

A

a tax for which high–income taxpayers pay a smaller fraction of their income than do low–income taxpayers

300
Q

progressive tax

A

a tax for which high–income taxpayers pay a larger fraction of their income than do low–income taxpayers

301
Q

public sector

A

that part of the economy where business activity is owned, nanced and controlled by the state, and goodsand services are provided by the state on behalf of the population as a whole

302
Q

private sector

A

that part of the economy where business activity is owned, nanced and controlled by private individuals

303
Q

excludable

A

the property of a good whereby a person can be prevented from using it when they do not pay for it

304
Q

rival

A

the property of a good whereby one person’s use diminishes other people’s use

305
Q

That friend that nobody invites but still shows up in front of your door step…

A

You are going to hell for laughing at this joke.

306
Q

private goods

A

goods that are both excludable and rival

307
Q

public goods

A

goods that are neither excludable nor rival

308
Q

common resources

A

goods that are rival but not excludable

309
Q

natural monopoly

A

a good which is excludable but non–rival

310
Q

free rider

A

a person who receives the bene t of a good but avoids paying for it

311
Q

Some Important Public Goods

A

Natural Defence
Basic Research
Fighting Poverty

312
Q

Cost–benefit analysis

A

a study that compares the costs and bene ts to society of providing a public good

313
Q

Tragedy of the commons

A

a parable that illustrates why common resources get used more than is desirable from thestandpoint of society as a whole

314
Q

Some Important Common Resources

A

Clean air and water
congested roads
fish, whales and other wildlife

315
Q

merit goods

A

goods which can be provided by the market but may be under–consumed as a result

316
Q

intertemporal choice

A

where decisions made today can affect choices facing individuals in the future

317
Q

de–merit goods

A

goods that are over–consumed if left to the market mechanism and which generate both private andsocial costs which are not taken into account by the decision maker

318
Q

externality

A

the cost or bene t of one person’s decision on the well–being of a bystander (a third party) which the decisionmaker does not take into account when making the decision

319
Q

negative externality

A

the costs imposed on a third party of a decision

320
Q

positive externality

A

the benefits to a third party of a decision

321
Q

Time to take a break and think…

A

when you will give that beer to Hector

322
Q

] Types of Externalities

A

Economics, 3rd Edition The exhaust from cars is a negative externality because it creates smog that other people have tobreathe. Drivers do not take into consideration this externality and so tend to drive too much, thusincreasing pollution. The government attempts to solve this problem by setting emission standardsfor cars. It may also tax petrol and vehicle ownership in order to reduce the amount that people drive. ●

323
Q

Restored historic buildings convey a positive externality because people who walk or drive by them can enjoy their beauty and the sense of history that these buildings provide. Building owners do not get the full benefit of restoration and, therefore, tend to discard older buildings too quickly. Many national gov– ernments respond to this problem by regulating the destruction of historic buildings and by providing tax incentives to owners who restore them. IT CONTINOUS

A

Economics, 3rd Edition Barking dogs create a negative externality because neighbours are disturbed by the noise. Dog ownersdo not bear the full cost of the noise and, therefore, tend to take too few precautions to prevent theirdogs from barking. The government may address this problem by making it illegal to ‘disturb the peace’. IT CONTINOUS

324
Q

Economics, 3rd Edition Research into new technologies provides a positive externality because it creates knowledge that otherpeople can use. Because inventors cannot capture the full benefits of their inventions, they tend todevote too few resources to research. The government addresses this problem partially through thepatent system, which gives inventors an exclusive use over their inventions for a period of time.
IT CONTINOUS

A

Economics, 3rd Edition A programme of vaccination against a flu virus or any other communicative disease protects those whoreceive it from the risk of contracting the virus. Those who are not vaccinated, however, may receive somebenefit too because the prevalence of the virus is lower and so there is a reduced risk that they will contractthe illness. Health services also benefit because they do not have to devote resources to treating those withillnesses. Governments encourage vaccinations because there are positive benefits to society as a whole. IT CONTINOUS

325
Q

internalising and externality

A

altering incentives so that people take account of the external effects of their actions

326
Q

The Types of Private Solution

A

Social Norms of Moral Behaviour
Charities
Self–interest
Social Contracts

327
Q

Coase Theorem

A

the proposition that if private parties can bargain without cost over the allocation of resources, they cansolve the problem of externalities on their own

328
Q

Why Private Solutions Do Not Always Work

A

Transaction Costs
Bargaining Problems
Coordinating Interested Parties

Asymmetric Information and the Assumption of Rational Behaviour

329
Q

transaction costs

A

the costs that parties incur in the process of agreeing and following through on a bargain

330
Q

positional externality

A

a situation which exists when the payoff to one individual is dependent on their relativeperformance to others

331
Q

Positional arms races

A

a situation where individuals invest in a series of measures designed to gain them an advantagebut which simply offset each other

332
Q

Pigovian Tax

A

a tax enacted to correct the effects of a negative externality

333
Q

marginal abatement cost

A

the cost expressed in terms of the last unit of pollution not emitted (abated)

334
Q

property rights

A

the exclusive right of an individual, group or organization to determine how a resource is used

335
Q

Property Rights

A

Government Solutions to the Absence of Property Rights

Difficulties in Establishing Property Rights

336
Q

Goverment failure

A

a situation where political power and incentives distort decision making so that decisions are madewhich con ict with economic ef ciency

337
Q

public interest

A

making decisions based on a principle where the maximum bene t is gained by the largest number ofpeople at minimum cost

338
Q

public choice theory

A

the analysis of governmental behaviour, and the behaviour of individuals who interact withgovernment

339
Q

rational ignorance effect

A

the tendency of a voter to not seek out information to make an informed choice in elections

340
Q

special–interst effect

A

where bene ts to a minority special–interest group are outweighed by the costs imposed onthe majority

341
Q

logrolling

A

the agreement between politicians to exchange support on an issue

342
Q

rent seeking

A

where individuals or groups take actions to redirect resources to generate income (rents) for themselves orthe group

343
Q

privatisation

A

the transfer of publicly owned assets to private sector ownership

344
Q

cronyism

A

a situation where the allocation of resources in the market is determined in part by political decision making andfavours rather than by economic forces

345
Q

What’s Hector’s favourite Bar?

A

The elephant. Why? 14$ pitcher.. that you will give to him.

346
Q

production isoquant

A

a function representing all possible combinations of factor inputs that can be used to produce agiven level of output

347
Q

marginal rate of technical substitution

A

the rate at which one factor input can be substituted for another at a givenlevel of output

348
Q

isocost line

A

a line showing the different combination of factor inputs which can be purchased with a given budget

349
Q

imperfect competiton

A

exists where rms are able to differentiate their product in some way and so can have somein uence over price

350
Q

Market share

A

Economics, 3rd Edition the proportion of total sales in a market accounted for by a particular firm

351
Q

market power

A

where a rm is able to raise the price of its product and not lose all its sales to rivals

352
Q

monopoly

A

a firm that is the sole seller of a product without close substitutes

353
Q

barriers to entry

A

anything which prevents a rm from entering a market or industry

354
Q

Barriers to entry

A

Economics, 3rd Edition ● A key resource is owned by a single firm. ● The government gives a single firm the exclusive right to produce some good or service. ● The costs of production make a single producer more efficient than a large number of producers. ● A firm is able to gain control of other firms in the market and thus grow in size.

355
Q

patent

A

the right conferred on the owner to prevent anyone else making or using an invention or manufacturing processwithout permission

356
Q

copyright

A

the right of an individual or organization to own things they create in the same way as a physical object toprevent others from copying or reproducing the creation

357
Q

natural monopoly

A

a monopoly that arises because a single rm can supply a good or service to an entire market at asmaller cost than could two or more firms

358
Q

arbitrage

A

the process of buying a good in one market at a low price and selling it in another market at a higher price inorder to pro t from the price difference

359
Q

perfect price discrimination

A

a situation in which the monopolist knows exactly the willingness to pay of eachcustomer and can charge each customer a different price

360
Q

Examples of Price Discrimination

A

Cinema Tickets
Airline Prices
Discount coupons
Quantity Discounts

361
Q

PUBLIC POLICY TOWARDS MONOPOLIES

A

● trying to make monopolized industries more competitive ● regulating the behaviour of the monopolies ● turning some private monopolies into public enterprises ● doing nothing at all.

362
Q

Pourqoui est–ce–que Guillaume a pas passer ces examins?

A

Il a passe trop de temp sur tinder.

363
Q

Synergies

A

where the perceived bene ts of the combined operations of a merged organization are greater than those whichwould arise if the rms stayed separate

364
Q

monopolistic competition

A

a market structure in which many rms sell products that are similar but not identical

365
Q

Monopolistic versus Perfect Competition

A

Excess Capacity

Mark–Up over Marginal Cost

366
Q

Branding

A

the means by which a business creates an identity for itself and highlights the way in which it differs from its rivals

367
Q

Entry limit pricing

A

a situation where a rm will keep prices lower than they could be in order to deter new entrants

368
Q

predatory or destroyer pricing

A

a situation where rms hold price below average cost for a period to try and force outcompetitors or prevent new rms from entering the market

369
Q

competitive advantage

A

the advantages rms can gain over another which have the characteristics of being bothdistinctive and defensible

370
Q

cream–skimming

A

a situation where a firm identifies parts of a market that are high in value added and seeks to exploit those markets.

371
Q

Oligopoly

A

competition amongst the few – a market structure in which only a few sellers offer similar or identical productsand dominate the market

372
Q

Concentration ratio

A

the proportion of total market share accounted for by a particular number of rms

373
Q

Almost there.

A

Time for a beer

374
Q

market segments

A

the breaking down of customers into groups with similar buying habits or characteristics

375
Q

Collusion

A

an agreement among rms in a market about quantities to produce or prices to charge

376
Q

Cartel

A

a group of firms acting in unions

377
Q

Nash equilibrium

A

a situation in which economic actors interacting with one another each choose their best strategygiven the strategies that all the other actors have chosen

378
Q

How the Size of an Oligopoly Affects the Market Outcome

A

The output effect. Because price is above marginal cost, selling one more litre of water at the goingprice will raise profit. ● The price effect. Raising production will increase the total amount sold, which will lower the price ofwater and lower the profit on all the other litres sold.

379
Q

non–price competition

A

a situation where two or more rms seek to increase demand and market share by methodsother than through changing price

380
Q

Game Theory

A

the study of how people behave in strategic situations

381
Q

Payoff matrix

A

a table showing the possible combination of outcomes (payoffs) depending on the strategy chosen byeach player

382
Q

Prisoners dilemma

A

a particular ‘game’ between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneifcial

383
Q

Dominant strategy

A

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

384
Q

tacit collusion

A

when firm behaviour results in a market outcome that appears to be anti–competitive but has arisenbecause firms acknowledge that they are interdependent

385
Q

residual demand

A

the difference between the market demand curve and the amount supplied by other firms in the market

386
Q

reaction function

A

the decision of one firm on a particular issue such as the pro t maximizing output in response to theprofit maximizing output decisions of its rivals

387
Q

Controversies over Competition Policy

A

Resale Price Maintenance
Predatory Pricing
Tying

388
Q

derived demand

A

a situation where demand is determined by the supply in another market

389
Q

The Competitive Profit–Maximizing Firm

A

1: Competitive Conditions
2: Firms Are Profit Maximisers

390
Q

marginal product of labour

A

the increase in the amount of output from an additional unit of labour

391
Q

value of the marginal product

A

the marginal product of an input times the price of the output

392
Q

marginal revenue product

A

the extra revenue a rm gets from hiring an additional unit of a factor of production

393
Q

What Causes the Labour Demand Curve to Shift?

A

The Output Price
Technological Change
The Supply of Other factors

394
Q

What Causes the Labour Supply Curve to Shift?

A

Changes in Tastes
Changes in Alternative Opportunities
Immigration

395
Q

how wages are determined in competitive labour markets

A

The wage adjusts to balance the supply and demand for labour. ● The wage equals the value of the marginal product of labour.

396
Q

Monopsony

A

a market with a single buyer

397
Q

compensating differential

A

a difference in wages that arises to offset the non–monetary characteristics of different jobs
● Workers, who maintain and repair major roads such as motorways, are paid more than other publicsector workers who repair roads in towns and cities. This is because the danger level of working onmajor roads is much higher, not to mention the fact that they often have to work unsociable hours(when drivers are not using the motorways).

398
Q

human capital

A

the accumulation of investments in people, such as education and on–the–job training

399
Q

The Superstar Phenomenon

A

● Every customer in the market wants to enjoy the good supplied by the best producer. ● The good is produced with a technology that makes it possible for the best producer to supply every customer at low cost.

400
Q

minimum wage

A

the lowest price an employer may legally pay to a worker

401
Q

Union

A

a worker association that bargains with employers over wages and working conditions

402
Q

strike

A

the organized withdrawal of labour from a firm by a union

403
Q

efficiency wages

A

above–equilibrium wages paid by firms in order to increase worker productivity

404
Q

discrimination

A

the offering of different opportunities to similar individuals who differ only by race, ethnic group, sex, ageor other personal characteristics

405
Q

economic rent

A

the amount a factor of production earns over and above its transfer earnings

406
Q

transfer earnings

A

the minimum payment required to keep a factor of production in its current use

407
Q

Lorenz curve

A

the relationship between the cumulative percentage of households and the cumulative percentage of income

408
Q

Gini coefficient

A

a measure of the degree of inequality of income in a country

409
Q

Problems in Measuring Inequality

A

The economic life cycle

Transitory versus Permanent income

410
Q

Life cycle

A

the regular pattern of income variation over a person’s life

411
Q

permanent income

A

a person’s normal income

412
Q

poverty rate

A

the percentage of the population whose family income falls below an absolute level called thepoverty line

413
Q

poverty line

A

an absolute level of income set by the government below which a family is deemed to be in poverty. In the UKand Europe this is measured by earnings less than 60 per cent of median income

414
Q

absolute poverty

A

a level of poverty where an individual does not have access to the basics of life – food, clothing andshelter

415
Q

relative poverty

A

a situation where an individual is not able to access what would be considered acceptable standards ofliving in society

416
Q

Okey, you are almost done. For the last time I ask you to think long and hard.. What will you give Hector in exchange for the flash cards?

A

HEY! You got it right. Cheers.

417
Q

utilitarianism

A

political philosophy according to which the government should choose policies to maximize the totalutility of everyone in society

418
Q

liberalism

A

the political philosophy according to which the government should choose policies deemed to be just, asevaluated by an impartial observer behind a ‘veil of ignorance’

419
Q

maximin criterion

A

the claim that the government should aim to maximize the well–being of the worst–off person in society

420
Q

libertarianism

A

the political philosophy according to which the government should punish crimes and enforce voluntaryagreements but not redistribute income

Econ (7 decks)

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