ECON CHAP 9&11 Flashcards
Tariff
A tax imposed by a government on imports of goods into a country
Imports
Goods and services bought domestically but produced in other countries
Exports
Goods and services produced domestically but sold in other countries
China
Is the worlds largest exporter
The U.S is a major exporter of goods and services
This trade is less important to the U.S economy because of our size
Comparative Advantage
The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors. The country has a lower relative cost than other countries.
Opportunity Cost
The highest valued alternative that must be given up to engage in an activity
Absolute Advantage
The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources
Autarky
A situation in which a country does not trade with other countries
Terms of trade
The ratio at which country can trade its exports for imports from other countries
Not all good and services can be traded internationally
Medical services for example
Production of many goods involves increasing opportunity cost
So small amounts of production are likely to take place in several countries
Tastes for products differ
Countries might have comparative advantage in different subtypes of products
Some individual firms and consumers
Will lose out due to international trade
In the example- China would lose wheat farm workers and U.S would lose smartphone firms and workers
Comparative Advantage can derive form a variety of sources
1) Climate and natural resource
2) Relative abduance of labor and capital
3) Technology
4) External Economics
Free trade
Trade between countries that is without government restrictions
Overall economic surplus falls by C+D:
Deadweight Loss
Quota
Are imposed unilaterally (one country imposes restrictions on another country), whereas VERs are negotiated agreements (countries work together).
Technology
The processes a firm uses to turn inputs into outputs of good and services
Technological Change
A positive and negative change in the ability of a firm to produce a given level of output with a given or set quantity of inputs
Short run
The period of time during which at least one of a firms inputs is fixed
Long run
The firm can vary all of its inputs adopt new technology and increase or decrease the size of its physical plant
Variable Cost
Costs that change as outputs changes
Fixed costs
Costs that remain constant as output changes
Total costs
The cost of all the inputs a firm uses in production
Total cost= Fixed cost + Variable Cost
TC= FC+ VC
TC/Q=FC/Q + VC/Q
In the long run all of a firms costs are
Variable costs
Explicit Costs
Costs that involve spending money
Implicit costs
Nonmonetary opportunity costs
Economic Depreciation
Decrease in resale value
Production Function
The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs
Average Total Cost (no change)
Divide the total cost of the pizzas by the quantity of pizzas to get the average cost of the pizzas.
MC formula (Has change)
MC=Change in total cost/ Change in output
By hiring another worker tasks could be divided up allowing for some
Specialization
Division of labor
Splitting a job into smaller interconnected tasks
Marginal product of labor
The additional output a firm produces as a result of hiring one more worker holding everything else constant
Law of Diminishing Returns
The principle states at some point adding more variable inputs such as labor to the same amount of a fixed input such as capital will cause the marginal product of the variable input to decline
If Average cost looks like U shaped-
It follows the Marginal Cost curve
Average Product of Labor
Total output by a firm/ the quantity of workers.
Long Run Average Cost
Shows the lowest cost at which a firm can produce a given quantity of output in the long run when no inputs are fixed
Economies of scale
The firms long run average costs falls as it increases the quantity of output it produces
Minimum Efficient Scale
The level of output at which all economies of scale are exhausted
Constant Returns to Scale
The situation in which a firms Long Run Average Costs remains unchanged as it increases output
Diseconomies of scale
(Upward curve) A situation in which a firms Long Run Average Costs rise as the firm increases output
Protectionism
Saving jobs, Protecting domestic industries, protecting national security
