F1 - Definitions Flashcards
Firm
Organization that produces goods or services for sale
Transforms inputs into outputs
Production function
The quantity of an output released by a firm depending on the quantity of inputs
Fixed input
An input whose quantity is fixed for a period of time and cannot be varied
Variable Input
An input whose quantity the firm can vary at any time
Long run
Long period of time, most inputs can be adjusted
Short run
The time period during which at least one input is fixed
Total product curve
How the quantity of output depends on quantity of input, for a given quantity of the fixed input and given production technology
Marginal product of labour
MPL
Change in quantity of output produced by one additional unit of labour
Diminishing returns to an input
When an increase in the quantity of that input, holding the quantity of all other inputs fixed, reduces that input’s marginal product (negatively sloped MPL)
Average product of labour
Amount of output produced per unit of input employed in the production process
Average Marginal cost
Change in total cost generated by producing one more unit of output. Additional cost of each additional unit
Average total cost
Total cost divided by the quantity of output produced (total cost per unit of output)
Spreading effect
The larger the output, the greater quantity of output over which fixed cost is spread
(Lower AFC)
Diminishing returns
The larger the output, the greater the quantity of variable inputs required to produce it
(Higher AVC)
Minimum cost output
The quantity of output corresponding to minimum average total cost
Specialization
Allowing workers to specialize in certain parts of the production process. Good at increasing efficiency up to a certain point
Long-run average total curve
The relationship between output and ATC when fixed cost has been chosen to minimize average total cost for each level of output
Price taking producers
When a producer’s actions cannot affect the market price
Price taking consumer
A consumer who cannot influence the market price
Market share
Fraction of the total industry output accounted for by a single producer’s output
Entry
Arrival of new firms into an industry
Exit
Departure of firms from an industry
Marginal Revenue
Change in total revenue generated by one additional unit of output
Break-even price
Earns 0 profit
Industry supply curve
Relationship between the price and total output of an industry as a whole
Externality
When individuals impose costs or deliver benefits to others, but don’t have an economic incentive to take those costs or benefits into account when making decision
External Costs
Uncompensated cost that an individual or firm imposes on others
(Negative externalities)
External Benefits
Benefits that individuals or firms confer on others w/o compensation
(Positive externalities)
Marginal Social Cost (MSC)
Additional cost imposed on society as a whole by an additional unit of something, likely pollution
(MPC + MEC)
Marginal Private Cost (MPC)
Additional cost imposed on polluters if he creates another unit of pollution
Marginal external cost (MEC)
Additional cost imposed on others if polluter creates more pollution
Marginal Social Benefit (MSB)
Benefit to society from an additional unit of pollution
(MPB + MEB)
Marginal Private Benefit (MPB)
Additional benefit a polluter receives when creating another unit of pollution
Marginal External Benefit (MEB)
Additional benefit others receive if the polluter creates more pollution
Socially optimal point of production s
The quantity of something bad (ex, pollution) that society would choose if all the social costs and benefits were fully accounted for
Coarse theorem
The economy can always reach an efficient solution, even with externalities, provided that the costs of making a deal are sufficiently low
“Internalize the extrenality”
When producers or consumers take into account the externalities that they cause
Environmental standards
Rules that protect the env. By specifying actions by producers and consumers
Emissions Taxes
Taxes that force the producers to reduce their production of pollution
Pigouvian Taxes
Taxes used to discourage from producing negative externalities
