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Econ 201 > Final Exam Terms > Flashcards

Final Exam Terms Flashcards

1
Q

Economics

A

the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society

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2
Q

Scarcity

A

the goods available are too few to satisfy individuals’ desires

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3
Q

Microeconomics

A

the study of individual choice, and how that choice is
influenced by economic forces

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4
Q

Macroeconomics

A

the study of the economy as a whole

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5
Q

TANSTAAFL

A

There Ain’t No Such Thing As A Free Lunch

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6
Q

Marginal cost

A

the additional cost to you over and above the costs you have already incurred

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7
Q

Sunk costs

A

costs that have already been incurred and cannot be recovered

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8
Q

Marginal benefit

A

the additional benefit above what you’ve already derived

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9
Q

Economic decision rule

A

if the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don’t do it

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9
Q

Opportunity cost

A

the benefit that you might have gained from choosing the next-best alternative

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10
Q

Implicit costs

A

costs associated with a decision that often aren’t included in normal accounting costs

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11
Q

Economic forces

A

the necessary reactions to scarcity

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12
Q

Market force

A

an economic force that is given relatively free rein by society to work through the market

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13
Q

Invisible hand

A

the price mechanism, the rise and fall of prices that guides our actions in the market

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14
Q

Social forces

A

forces that guide individual actions even though those actions may not be in an individual’s selfish interest

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15
Q

Political forces

A

legal directives that direct individuals’ actions

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16
Q

Economic model

A

a framework that places the generalized insights of the
theory in a more specific contextual setting

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17
Q

Economic principle

A

a commonly held economic insight stated as a law or principle

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18
Q

Experimental economics

A

a branch of economics that studies the economy through controlled experiments

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19
Q

Theorems

A

propositions that are logically true based on the assumption in a model

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19
Q

Precepts

A

policy rules that conclude a particular course of action in preferable

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20
Q

Precepts

A

achieving a goal as cheaply as possible

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21
Q

Invisible hand theorem

A

a market economy, through the price mechanism,
will tend to allocate resources efficiently

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22
Q

Economic policies

A

actions (or inaction) taken by the government to
influence economic actions

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23
Q

Positive economics

A

the study of what is, and how the economy works

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24
Q

Normative economics

A

the study of what the goals of the economy should be

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25
Q

The art of economics (political economy)

A

the application of the knowledge learned in positive economics to achieve the goals one has determined in
normative economics

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26
Q

Production possibility curve (PPC)

A

also called the Production Possibility Frontier (PPF), a curve measuring the maximum combination of outputs that can be obtained from a given number of inputs.

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27
Q

Comparative advantage

A

better suited to the production of one good than to
the production of another good

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28
Q

Productive efficiency

A

achieving as much output as possible from a given
amount of inputs or resources

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29
Q

Inefficiency

A

getting less output from inputs that, if devoted to some other activity, would produce more

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30
Q

Laissez-faire

A

an economic policy of leaving coordination of individuals’ actions to the market

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31
Q

Globalization

A

the increasing integration of economies, cultures, and
institutions across the world

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32
Q

Law of one price

A

the wages of workers in one country will not differ
significantly from the wages of (equal) workers in another institutionally similar country

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33
Q

Institutions

A

the formal and informal rules that constrain human economic behavior

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34
Q

Market economy

A

an economic system based on private property and the
market in which, in principle, individuals decide how, what, and for whom to produce

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35
Q

Private property rights

A

the control a private individual or firm has over an
asset

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36
Q

Socialism

A

an economic system based on individuals’ goodwill towards others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce

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37
Q

Capitalism

A

an economic system based on the market in which the
ownership of the means of production resides with a small group of individuals called capitalists

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38
Q

Businesses

A

private producing units in our society

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39
Q

Entrepreneurship

A

the ability to organize and get something done

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40
Q

Consumer sovereignty

A

the consumer’s wishes determine what’s produced

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41
Q

Profit

A

what’s left over from total revenues after all the appropriate costs have been subtracted

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42
Q

Sole proprietorships

A

businesses that have only one owner

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43
Q

Partnerships

A

businesses with two or more owners

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44
Q

Corporations

A

businesses that are treated as a person, and are legally owned by their stockholders, who are not liable for the actions of the corporate ‘person’

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45
Q

Households

A

groups of individuals living together and making joint decisions

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46
Q

Macroeconomic externalities

A

externalities that affect the levels of unemployment, inflation, or growth in the economy as a whole

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47
Q

Public good

A

a good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual

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48
Q

Private good

A

a good that, when consumed by one individual, cannot be consumed by another individual

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49
Q

Demerit goods or activities

A

goods or activities that the government believes are
bad for people even though they choose to use the goods or engage in the activities

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50
Q

Merit goods or activities

A

goods or activities that government believes are
good for you even though you may not choose to engage in the activities or to consume the goods

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51
Q

Market failures

A

situations in which the market does not lead to the desired result

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52
Q

Government failures

A

situations in which the government intervenes and
makes things worse

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53
Q

Law of demand

A

quantity demanded rises as price falls, other things
constant. Quantity demanded falls as price rises, other things constant.

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53
Q

Global corporations

A

corporations with substantial operations on both the
production and sales sides in more than one country

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54
Q

Demand curve

A

the graphic representation of the relationship between price and quantity demanded

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54
Q

Quantity demanded

A

a specific amount that will be demanded per unit of
time at a specific price, other things constant

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54
Q

Demand

A

a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant

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55
Q

Movement along a demand curve

A

the graphical representation of the effect
of a change in price on the quantity demanded

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55
Q

Shift in demand

A

the graphical representation of the effect of anything other than price on demand

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56
Q

Market demand curve

A

the horizontal sum of all individuals demand curves

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57
Q

Law of supply

A

quantity supplied rises as price rises, other things constant. Quantity supplied falls as price falls, other things constant.

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58
Q

Supply curve

A

the graphical representation of the relationship between price and quantity supplied

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59
Q

Supply

A

a schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant

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60
Q

Quantity supplied

A

a specific amount that will be supplied at a specific price

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60
Q

Movement along the supply curve

A

the graphical representation of the
effect of a change in price on the quantity supplied

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61
Q

Shift in supply

A

the graphical representation of the effect of a change in a factor other than price on supply

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61
Q

Equilibrium

A

a concept in which opposing dynamic forces cancel each other out

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61
Q

Equilibrium quantity

A

the amount bought and sold at the equilibrium price

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62
Q

Equilibrium price

A

the price toward which the invisible hand drives the
market

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63
Q

Excess supply (surplus)

A

quantity supplied is greater than quantity demanded

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64
Q

Excess demand (shortage)

A

quantity demanded is greater than quantity
supplied

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65
Q

Fallacy of composition

A

the false assumption that what is true for a part will
also be true for the whole

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66
Q

Price ceiling

A

a government-imposed limit on how high a price can be
charged

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67
Q

Rent control

A

a price ceiling on rents, set by the government

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68
Q

Price floors

A

a government-imposed limits on how low a price can be
charged

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69
Q

Minimum wage laws

A

laws specifying the lowest wage a firm can legally pay
an employee

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70
Q

Excise tax

A

a tax that is levied on a specific good

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71
Q

Tariff

A

an excise tax on an imported good

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72
Q

Third-party-payer markets

A

a market in which the person who receives the
good differs from the person paying for the good

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73
Q

Price elasticity of demand

A

the percentage change in quantity demanded divided by the percentage change in price

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74
Q

Price elasticity of supply

A

the percentage change in quantity demanded divided by the percentage change in price

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75
Q

Elastic

A

the percentage change in quantity is greater than the percentage change in price (E>1)

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76
Q

Inelastic

A

the percentage change in quantity is less than the percentage change in price (E<1

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77
Q

Perfectly inelastic

A

quantity does not respond at all to changes in price (E=0)

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78
Q

Perfectly elastic

A

quantity responds enormously to changes in price (E=∞)

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79
Q

Unit elastic

A

the percentage change in quantity equals the percentage change in price (E=1)

80
Q

Luxuries

A

goods that have an income elasticity greater than 1

80
Q

Income elasticity of demand

A

the percentage change in demand divided by the percentage change in income

81
Q

Normal goods

A

goods whose consumption increases with an increase in
income

82
Q

Necessity

A

a good that has an income elasticity between 0 and 1

83
Q

Inferior goods

A

goods whose consumption decreases when income increases

83
Q

Cross-price elasticity of demand

A

the percentage change in demand divided by the percentage change in the price of a related good

84
Q

Substitutes

A

goods that can be used in place of one another

85
Q

Complements

A

goods that are used in conjunction with other goods

86
Q

Consumer surplus

A

the value the consumer gets from buying a product less
its price

87
Q

Producer surplus

A

the price the producer sells a product for less the cost

88
Q

Dead-weight loss

A

loss of consumer and producer surplus from a tax

89
Q

Welfare loss triangle

A

a geometric representation of the welfare cost in
terms of misallocated resources caused by a deviation from a supply/demand equilibrium

90
Q

Price ceiling

A

a government-set price below the market equilibrium price

91
Q

Price floors

A

government-set prices above equilibrium price

92
Q

Utility

A

the pleasure or satisfaction people get from doing or consuming something

92
Q

Rent-seeking activities

A

activities designed to transfer surplus from one
group to another

92
Q

Public choice economists

A

economists who integrate an economic analysis of
politics with their analysis of the economy

93
Q

Total utility

A

the total satisfaction one gets from consuming a product

94
Q

Marginal utility

A

the satisfaction one gets from consuming one additional unit of a product above and beyond what one has consumed up to that point

94
Q

Principle of diminishing marginal utility

A

As you consume more of a good, after some point, the marginal utility received from each additional unit of a
good decreases with each additional unit consumed, other things equal

95
Q

Principal of rational choice

A

Spend your money on those goods that give you
the most marginal utility (MU) per dollar

96
Q

Utility-maximizing rule

A

if MUx / Px = MUy = Py, you’re maximizing utility

97
Q

Income effect

A

the reduction in quantity demanded because the increase in price makes us poorer

98
Q

Substitution effect

A

the reduction in quantity demanded because relative
price has risen

99
Q

conspicuous consumption

A

he consumption of goods not for one’s direct
pleasure, but simply to show off to others

100
Q

Ultimatum game

A

the first person only gets the money if the other person
accepts the offer. If the second person does not accept, they both get nothing

101
Q

Status quo bias

A

an individual’s actions are very much influenced by the
current situation, even when that reasonably does not seem to be very important to the decision

102
Q

Production

A

transformation of factors into goods and services

102
Q

Firm

A

an economic institution that transforms factors of production into goods and services

103
Q

Profit

A

total revenue - total cost

104
Q

Total cost

A

explicit payments to the factors of production plus the
opportunity cost of the factors provided by the owners of the firm

105
Q

Total revenue

A

the amount the firm receives for selling its product or service plus any increase in the value of the assets owned by the firm

105
Q

Long-run decision

A

a firm chooses among all possible production techniques

105
Q

Economic profit

A

(Explicit and implicit revenue) - (Explicit and implicit cost)

106
Q

Short-run decision

A

the firm is constrained in regarded to what production
decisions it can make

107
Q

Marginal product

A

the additional output that will be forthcoming from an
additional unit of input, other inputs constant

107
Q

Production table

A

a table showing the output resulting from various
combinations of factors of production or inputs

107
Q

Average product

A

output per unit of input

108
Q

Law of diminishing marginal productivity

A

as more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall

109
Q

Production function

A

the relationship between the inputs (factors of
production) and outputs

110
Q

Variable costs

A

costs that change as output changes

111
Q

Fixed costs

A

costs that are spent and cannot be changed in the period of time under consideration

112
Q

Average fixed cost

A

fixed cost divided by quantity produced. (AFC = FC/Q)

112
Q

Average total cost

A

total cost divided by the quantity produced. (ATC = TC/Q) (ATC = AFC + AVC)

113
Q

Average variable cost

A

variable cost divided by quantity produced. (AVC =
VC/Q)

114
Q

Marginal cost

A

the increase (or decrease) in total cost from increasing (or decreasing) the level of output by 1 unit

115
Q

Total cost

A

(TC = FC + VC)

116
Q

Technical efficiency

A

a production process uses as few inputs as possible to
produce a given level of output

116
Q

Economically efficient

A

the method that produces a given level of output at
the lowest possible cost

117
Q

Indivisible setup cost

A

the cost of an indivisible input for which a certain
minimum amount of production must be undertaken before the input becomes economically feasible to use

118
Q

Economies of scale

A

when long-run average total costs decrease as output
increases

119
Q

Minimum efficient level of production

A

the amount of production that spreads setup costs out sufficiently for a firm to undertake production profitably

120
Q

Diseconomies of scale

A

when long-run average total costs increase as output
increases

121
Q

Monitoring costs

A

costs incurred by the organizer of production in seeing to it that the employees do what they’re supposed to do

122
Q

Team spirit

A

the feelings of friendship and being a part of a team that bring out people’s best efforts

123
Q

Constant returns to scale

A

where long-run average total costs do not change
with an increase in output

124
Q

Entrepreneur

A

an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it

125
Q

Economies of scope

A

when the costs of producing products are
interdependent so that it’s less costly for a firm to produce one good when it’s already producing another

125
Q

Learning by doing

A

as we do something, we learn what works and what
doesn’t, and over time we become more proficient at it

126
Q

Technological change

A

an increase in the range of production techniques
that leads to more efficient ways of producing goods as well as the production of new and better goods

127
Q

Depreciation

A

a measure of the decline in value of an asset that occurs over time

128
Q

Perfectly competitive market

A

a market in which economic forces operate unimpeded

129
Q

Price taker

A

a firm or individual who takes the price determined by the market supply and demand as given

130
Q

Barriers to entry

A

social, political, or economic impediments that prevent
firms from entering a market

131
Q

Marginal revenue (MR)

A

the change in total revenue associated with a change in quantity

132
Q

Marginal cost (MC)

A

the change in total cost associated with a change in quantity

133
Q

Profit-maximizing condition (competitive equilibrium)

A

MC = MR = P

134
Q

Shutdown point

A

that point below which the firm will be better off if it
temporarily shuts down than it will if it stays in business

135
Q

Market supply curve

A

the horizontal sum of all the firms’ marginal cost curves, taking account of any changes in input prices that might occur

136
Q

Normal profit

A

the amount the owners of business would have received in the next-best scenario, see opportunity cost

137
Q

Monopoly

A

a market structure in which one firm makes up the entire market

138
Q

Patent

A

legal protection of a technical innovation that gives the person holding it sole right to use that innovation

139
Q

Price-discriminate

A

to charge different prices to different individuals or groups of individuals

140
Q

Natural monopoly

A

an industry in which a single firm can produce at a lower cost than can two or more firms

141
Q

Monopolistic competition

A

a market structure in which there are many firms selling differentiated products and few barriers to entry

142
Q

Oligopoly

A

a market structure in which there are only a few firms and firms explicitly take other firms’ likely responses into account

143
Q

Strategic decision making

A

taking explicit account of a rival’s expected response to a decision you are making

144
Q

Cartel

A

a combination of firms that acts as if it were a single firm

145
Q

Cartel model of oligopoly

A

a model that assumes that oligopolies act as if they were monopolists that have assigned output quotas to individual member firms of the oligopoly so that total output is consistent with joint profit maximization

146
Q

Implicit collusion

A

multiple firms make the same pricing decisions even
though they have not explicitly consulted with one another

147
Q

Contestable market model

A

a model of oligopoly in which barriers to entry and barriers to exit, not the structure of the market, determine a firm’s price and output decisions

148
Q

North American Industry Classification System (NAICS)

A

an industry classification that categorizes industries by type of economic activity and groups firms with like production processes

149
Q

Concentration ratio

A

the value of sales by the top firms of an industry stated
as a percentage of total industry sales

150
Q

Herfindahl index

A

an index of market concentration calculated by adding the squared value of the individual market shares of all the firms in the industry

151
Q

Judgement by performance

A

we should judge the competitiveness of the market by the performance (behavior) of firms in that market

152
Q

Antitrust policy

A

the government’s policy toward the competitive process

153
Q

Judgement by structure

A

we should judge the competitiveness of markets by
the structure of the industry

154
Q

Government failures

A

when the government intervention in the market to improve the market failure actually makes the situation worse

155
Q

Market failure

A

a situation in which the invisible hand pushes in such a way that individual decisions do not lead to socially desirable outcomes

156
Q

Externalities

A

the effects of a decision on a third party that are not taken into account by the decision maker

157
Q

Negative externalities

A

when the effects of a decision not taken into account by the decision maker are detrimental to others

158
Q

Positive externalities

A

when the effects of a decision not taken into account by the decision maker are beneficial to others

159
Q

Marginal social cost

A

the marginal private costs of production plus the cost of the negative externalities associated with that production

160
Q

Marginal social benefit

A

the marginal private benefit of consuming a good plus the benefits of the positive externalities resulting from consuming that good

161
Q

Direct regulation

A

the amount of a good people are allowed to use is directly limited by the government

162
Q

Efficient

A

achieving a goal at the lowest cost in total resources without consideration as to who pays those costs

163
Q

Inefficient

A

achieving a goal in a more costly manner than necessary

164
Q

Tax incentive program

A

a program using a tax to create incentives for individuals to structure their activities in a way that is consistent with the desired ends

164
Q

Effluent fees

A

charges imposed by government on the level of pollution created

165
Q

Market incentive plan

A

a plan requiring market participants to certify that they have reduced total consumption— not necessarily their own individual consumption— by a specific amount

165
Q

Free rider problem

A

individuals’ unwillingness to share in the cost of a public
good

166
Q

Optimal policy

A

one in which the marginal cost of undertaking the policy
equals the marginal benefit of that policy

167
Q

Public good

A

a good that is nonexclusive (no one can be excluded from its benefits) and nonrival (consumption by one does not preclude consumption by others)

168
Q

Adverse selection problem

A

a problem that occurs when buyers and sellers have different amounts of information about the good for sale and use that information to the detriment of the other

169
Q

Moral hazard problem

A

a problem that arises when people don’t have to bear
the negative consequences of their actions

170
Q

Signaling

A

an action taken by an informed party that reveals information to an uninformed party that offsets the false signal that caused the adverse selection problem in the first place

171
Q

Screening

A

an action taken by the uninformed party that induces the informed party to reveal information

172
Q

Labor market

A

a factor market in which individuals supply labor services for wages to other individuals and to firms that need (demand) labor services

173
Q

Incentive effect

A

how much a person will change his or her hours worked in response to a change in the wage rate

174
Q

Derived demand

A

the demand for factors of production by firms, which
depends on consumers’ demands

175
Q

Entrepreneurship

A

labor that involves high degrees of organizational skills,
concern, oversight responsibility, and creativity

176
Q

Monopsony

A

a market in which a single firm is the only buyer

177
Q

Bilateral monopoly

A

a market with only a single seller and a single buyer

178
Q

Marginal factor cost

A

the additional cost to a firm of hiring another worker

179
Q

Efficiency wages

A

wages paid above the going market wage to keep workers happy and productive

180
Q

Comparable worth laws

A

laws mandating comparable pay for comparable
work

181
Q

Closed shops

A

firms where the union controls hiring

182
Q

Union shops

A

firms in which all the workers must join the union

183
Q

Lorenz curve

A

a geometric representation of the share distribution of income among families in a given country at a given time

184
Q

Poverty threshold

A

the income below which a family is considered to live in
poverty

185
Q

Wealth

A

the value of the things individuals own less the value of what they owe

186
Q

Income

A

payments received plus or minus changes in value in a person’s assets in a specified time period

187
Q

Progressive tax

A

the average tax rate increases with income

188
Q

Proportional tax

A

the average rate of tax is constant regardless of income
level

189
Q

Regressive tax

A

the average tax rate decreases as income increase

190
Q

Social Security System

A

a social insurance program that provides financial benefits to the elderly and disabled and to their eligible dependents and/or survivors

191
Q

Medicare

A

a multibillion-dollar medical insurance system

192
Q

Public assistance programs

A

means-tested social programs targeted to the poor, providing financial, nutritional, medical, and housing assistance

193
Q

Supplemental Security Income (SSI)

A

a federal program that pays benefits, based on need, to the elderly, blind, and disabled

194
Q

Unemployment compensation

A

short-term financial assistance, regardless of need, to eligible individuals who are temporarily out of work

Econ 201 (1 decks)

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