Exam 1 Flashcards
A science that deals with using resources in the most efficient way.
Economics
Gives satisfaction now.
Consumer Good
Aids future production. Facilitates the production of consumer goods and services.
Capital Good
Output divided by input = 1.
Efficiency
Efficiency plus market force.
Effectiveness
What the owners of a business give up to use the resource.
Opportunity Cost
2 kinds of resources.
Market Supplied
Owner Supplied
Resources owned by others and are hired, rented or leased by the business, e.g., labor, raw materials, capital equipment.
Explicit Costs
Market Supplied
Equity capital provided by owner; time and labor provided by owner; equipment, land and buildings provided by owner.
Implicit Costs
Owner Supplied
Extra, additional
Marginal Analysis
What is
Positive Economics
What ought to be
Normative Economics
Refers to the ownership of property and the method of making economic decisions.
Economic System
Refers to the way in which public issues are settled.
Political System
2 general parts to economics
Micro
Macro
Study of economic actions of individuals and well-defined groups of individuals. Prices play a large role.
Micro
Study of broad aggregates such as inflation, employment, budget deficits, national income, trade, exchange rates, etc.
Macro
4 different market structures
Competition (Pure)
Monopolistic
Monopolistic Competition
Oligopoly
A market structure characterized by a large number of firms in an industry, an undifferentiated product, ease of entry into the market, and complete information available to participants.
Pure Competition
A market structure characterized by a single firm producing a product with no close substitutes.
Monopoly
A market structure characterized by a large number of small firms that have some market power as a result of producing differentiated products.
This market structure can be competed away over time.
Monopolistic Competition
A market structure characterized by competition among a small number of large firms that have market power, but that must take their rivals’ actions into account when developing their own competitive strategies.
Oligopoly
A characteristic of a perfectly competitive firm in which the firm cannot influence the price of its product, but can sell any amount of its output at the price established by the market.
Price-Taker
The ability of a firm to influence the prices of its products and develop other competitive strategies that enable it to earn large profits over longer periods of time.
Monopolistic competition, oligopoly, and monopoly
Also known as market power.
Price-Setter
The macroeconomic model that portrays the level of economic activity as a flow of expenditures from consumers to firms, or producers, as consumers purchase goods and services produced by these firms.
This flow then returns to consumers as income received from the production process.
Circular Flow Model
Product price and quantity demanded are inversely related.
Law of Demand
A good for which consumers will have a greater demand as their incomes increase, all else held constant, and a smaller demand if their incomes decrease, other factors held constant.
Normal Good
A good for which consumers will have a smaller demand as their incomes increase, all else held constant, and a greater demand if their incomes decrease, other factors held constant.
Inferior Good
If an increase in the price of good Y caused consumers to increase their demand for good X or if a decrease in the price of good Y causes consumers to decrease their demand for good X.
Substitute Goods
If an increase in the price of good Y causes consumers to decrease their demand for good X or if a decrease in the price of good Y causes consumers to increase their demand for good X.
Complementary Goods
The variables in a demand function that are held constant when defining a given demand curve, but would shift the demand curve if their values changed.
Demand Shifters
The change in quantity consumers purchase when the price of the good changes, all other factors held constant, pictured as a movement along a given demand curve.
Caused by a change in supply.
Change in Quantity Demanded
The change in quantity purchased when one or more of the demand shifters change, pictured as a shift of the entire demand curve.
Change in Demand
Product price and quantity are directly related.
Law of Supply
The change in amount of a good supplied when the price of the good changes, all other factors help constant, pictured as a movement along a given supply curve.
Caused by a change in demand.
Change in Quantity Supplied
The change in the amount of a good supplied when one or more of the supply shifters change, pictured as a shift of the entire supply curve.
Change in Supply
The price that actually exists in the market of toward which the market is moving where the quantity demanded by consumers equals the quantity supplied by producers.
Equilibrium Price
The quantity of a good, determined by the equilibrium price, where the amount of output that consumers demand is equal to the amount that producers want to supply.
Equilibrium Quantity
Positive price of related good.
Substitute
Negative price of related good.
Complement
Positive income
Normal Good
Negative income
Inferior Good
When the market price is below the equilibrium price.
Shortage
When the market price is above the equilibrium price.
Surplus
A quantitative measurement showing the percentage change in the quantity demanded of a particular product relative to the percentage change in any one the variables included in the demand function for that product.
Demand Elasticity
The percentage change in the quantity demanded of a given good, X, relative to a percentage change in its own price, all other factors assumed constant.
Price Elasticity of Demand
The amount of money received by a producer for the sale of its product, calculated as the price per unit times the quantity sold.
Total Revenue
The percentage change in quantity demanded by consumers is greater than the percentage change in price.
Elastic Demand
The percentage change in quantity demanded by consumers is less than the percentage change in price.
Inelastic Demand
The percentage change in quantity demanded is exactly equal to the percentage change in price.
Unitary Elasticity
Elastic demand impact on total revenue.
Price increase results in lower total revenue.
Price decrease results in higher total revenue.
Inelastic demand impact on total revenue.
Price increase results in higher total revenue.
Price decrease results in lower total revenue.
A measurement of the price elasticity of demand where the base quantity or price is calculated as the average value of the starting and ending quantities or prices.
Arc Price Elasticity of Demand
A measurement of the price elasticity of demand calculated at a point on the demand curve using infinitesimal changes in prices and quantities.
Point Price Elasticity of Demand
The additional revenue that a firm takes in from selling an additional unit of output or the change in total revenue divided by the change in output.
Marginal Revenue
Zero elasticity of demand, illustrated by a vertical demand curve, where there is no change in quantity demanded for any change in price.
Perfectly Inelastic Demand
Infinite elasticity of demand, illustrated by a horizontal demand curve, where the quantity demanded would vary tremendously if there were any changes in price.
Perfectly Elastic Demand
The percentage change in the quantity demanded of a given good, X, relative to a percentage change in consumer income, assuming all other factors constant.
Income Elasticity of Demand
A good with an income elasticity between 0 and 1, where the expenditure on the good increases less than proportionately with changes in income.
Necessity
A good with an income elasticity greater than 1, where the expenditure on the good increases more than proportionately with changes in income.
Luxury
The percentage change in the quantity demanded of a given good, X, relative to the percentage change in the price of good, Y, all other factors held constant.
Cross-Price Elasticity of Demand
A production process that uses at least one fixed input.
Short-Run Production Function
A production process in which all inputs are variable.
Long-Run Production Function
An input whose quantity a manager cannot change during a given period of time.
Fixed Input
An input whose quantity a manager can change during a given period of time.
Variable Input
The total quantity of output produced with given quantities of fixed and variable inputs.
Total Product
The amount of output per unit of variable input.
Average Product
The additional output produced with an additional unit of variable input.
Marginal Product
The economic measure of cost that reflects the use of resources in one activity, such as a production process by one firm, in terms of the opportunities forgone in undertaking the next best alternative activity.
Opportunity Cost
A cost that is reflected in a payment to another individual, such as a wage paid to a worker, that is recorded in a firm’s bookkeeping or accounting system.
Explicit Cost
A cost that represents the value of using a resource that is not explicitly paid out and is often difficult to measure because it is typically not recorded in a firm’s accounting system.
Implicit Cost
The difference between the total revenue a firm receives from the sale of its output and the total cost of producing that output.
Profit
The difference between total revenue and total cost where cost includes only the explicit costs of production.
Accounting Profit
The difference between total revenue and total cost where cost includes both the explicit costs and any implicit costs of production.
Economic Profit
The total cost of using the fixed input, which remains constant regardless of the amount of output produced.
Total Fixed Cost
The total cost of using the variable input, which increases as more output is produced.
Total Variable Cost
The sum of the total fixed cost plus the total variable cost.
Total Cost
The total fixed cost per unit of output.
Average fixed Cost
The total variable cost per unit of output.
Average Variable Cost
The total cost per unit of output, which also equals average fixed cost plus average variable cost.
Average Total Cost
The additional cost of producing an additional unit of output, which equals the change in total cost or the change in total variable cost as output changes.
Marginal Cost
