FSOT Master 12 Flashcards
Perfectly discriminating monopolist
A firm that charges each buyer exactly his or her reservation price.
Perfectly elastic demand
The demand for a good is perfectly elastic with respect to price if its price elasticity of demand is infinite.
Perfectly elastic supply
The supply of a good is perfectly elastic with respect to price if its price elasticity of supply is infinite.
Perfectly elastic supply curve
A supply curve whose elasticity with respect to price is infinite.
Perfectly inelastic demand
The demand for a good is perfectly inelastic with respect to price if its price elasticity of demand is zero.
Perfectly inelastic supply
The supply of a good is perfectly inelastic with respect to price if its price elasticity of supply is zero.
Perfectly inelastic supply curve
A supply curve whose elasticity with respect to price is zero.
Perhaps the most common political argument for government intervention into the free flow of trade is that
it is necessary for protecting jobs and industries from foreign competition.
Personal Consumption Expenditure (PCE) Deflator
A measure of prices of goods that consumers buy that allows yearly changes in the basket of goods that reflect actual consumer purchasing habits.
Personal Responsibility Act
The 1996 federal law that transferred responsibility for welfare programs from the federal level to the state level and placed a five-year lifetime limit on payment of afdc benefits to any given recipient.
Phillips Curve
Describes the general inverse relationship between unemployment and inflation.
Planned aggregate expenditure (PAE)
Total planned spending on final goods and services.
Policy reaction function
Describes how the action a policymaker takes depends on the state of the economy.
Political Union
the evolution of a complete political entity cf: U.S.A. vs
the European Union.
Pork barrel spending
A public expenditure that is larger than the total benefit it creates but that is favored by a legislator because his or her constituents benefit from the expenditure by more than their share of the resulting extra taxes.
PORTER’S DIAMOND OF NATIONAL ADVANTAGE?
Porter’s notion is that 6 sets of variables shape the environment in which firms compete:
- Factor endowments
- Demand conditions
- Related and supporting industries
- Firm’s structure, strategy, and rivalry
- Chance
- Government Actions
Portfolio allocation decision
The decision about the forms in which to hold one’s wealth.
Positional arms control agreement
An agreement in which contestants attempt to limit mutually offsetting investments in performance enhancement.
Positional arms race
A series of mutually offsetting investments in performance enhancement that is stimulated by a positional externality.
Positional externality
Occurs when an increase in one person’s performance reduces the expected reward of another’s in situations in which reward depends on relative performance.
Positive analysis
Addresses the economic consequences of a particular event or policy, not whether those consequences are desirable.
Positive economic principle
One that predicts how people will behave.
Positive externality
See External benefit.
positive sum game?
A situtation where all countries can benefit from trade.
potental money multiplier
the reciprocal of the required reserve ratio, assuming no leakages into currency and no excess reserves
Potential Income
the level of income that the economy technically is capable of producing with out generating accelerating inflation.
Potential Output Level
The output of an economy when all of the productive factors, including labor, are used at their normal rate. In terms of unemployment, this corresponds to a 6% unemployment rate.
Poverty
The state of being poor, variously defined. Sometimes defined relatively — by reference, for example, to the average household income in a nation or region. Sometimes defined absolutely — by reference, for example, to the income needed to provide for adequate food, housing, and clothing in a nation or region.
Poverty Threshold
The income below which a family is considered to live in poverty.
precautionary demand
holding money to meet unplanned expenditures and emergencies
Precautionary saving
Saving for protection against unexpected setbacks, such as the loss of a job or a medical emergency.
Predatory Pricing
Practice of pricing to drive current competitors out of business and to discourage new entrants in a market so that a firm can enjoy future profits
Present value of a perpetual annual payment
For an annual interest rate r, the present value (PV) of a perpetual annual payment (M) is the amount that would have to be deposited today at that interest rate to generate annual interest earnings of M: PV = M / r.
Price
The amount of money that people pay when they buy a good or service; the amount they receive when they sell a good or service.
Price Ceiling
A government-imposed limit on how high a price can be charged.
Price Discrimination
Practice of charging different prices to different consumers for similiar goods
Price Elasticity indicates what?
Price elasticity indicates how responsive the quantity demanded is to the price.
Price elasticity of demand
The percentage change in the quantity demanded of a good or service that results from a 1 percent change in its price.
Price elasticity of supply
The percentage change in the quantity supplied that will occur in response to a 1 percent change in the price of a good or service.
Price Floor
A government-inposed limit on how low a price can be charges.
Price index
A measure of the average price of a given class of goods or services relative to the price of the same goods and services in a base year.
Price leadership
Pattern of pricing in which one firm regularly announces price changes that other firms then match
Price level
A measure of the overall level of prices at a particular point in time as measured by a price index such as the CPI.
Price Rigidity
Characteristics of oligopolistic markets by which firms are reluctant to change prices even if costs or demands change
Price setter
A firm with at least some latitude to set its own price.
Price Signaling
Form of implicit collusion in which a firm announces a price increase in the hope that other firms will follow suit
Price Support
Price set by government above free-market level and maintatined by governmental purchases of excess supply
Price taker
A firm that has no influence over the price at which it sells its product.
Principal amount
The amount originally lent.
Principal-Agent problem
Problem arising when agents purseue their own goals frather than the goals of principals
Principle
The initial amount of money given as a loan.
Prisoner’s dilemma
A game in which each player has a dominant strategy, and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategy.
Private Good
A good that, when consumed by one individual, connot be consumed by another.
Private saving
The saving of the private sector of the economy is equal to the after-tax income of the private sector minus consumption expenditures (Y − T − C); private saving can be further broken down into household saving and business saving.
Producer Price Index (PPI)
An index of prices that measures average change in the selling prices received by domestic producers of goods and services over time.
Producer Surplus
Price the producer sells a product for less the cost of producing it.
Producers
People and firms that use resources to make goods and services.
Product Life-Cycle Theory?”
Raymond Vernon… Proposed that in the life-cycle of products that their production is moved from more developed to lesser developed countries in order to lower costs.
Production
The transformation of factors into goods and services.
Production Function
Y = A f (L,K,H,N)
sets out the relationship
between the quantity of inputs used in production and the quantity of
output from production
Production possibilities curve
A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.
Productive Efficiency
Achieving as much output as possible from a given amount of inputs or resources.
Productivity
Output per unit of input.
Profit
Difference between total revenue and total cost
Profitable firm
A firm whose total revenue exceeds its total cost.
Profit-maximizing firm
A firm whose primary goal is to maximize the difference between its total revenues and total costs.
Progressive Tax
A tax whose rates increase as a person’s income increases.
Propagated in the 16th and 17th centuries, __________ advocated that countries should simultaneously encourage exports and discourage imports.
mercantilism
properties of the multiplier
the smaller the marginal propensity to save, the larger the multiplier; the larger the marginal propensity to consume, the larger the multiplier
Property Rights
Legal protection for the boundaries and possession of property. Assigning of property rights to individuals, collectives, or governments will depend on the economic system.
Proportional income tax
One under which all taxpayers pay the same proportion of their incomes in taxes.
Protectionism
The view that free trade is injurious and should be restricted.
Public Assistance
Means-testeed social programs targeted to the poor and providing financial, nutritional, medical, and housing assistance.
Public Choice Analysis
The study of decision making as it affects the organization and operation of government and other collective organizations. Involves the application of economic principles to political science topics.
public debt
the total value of all outstanding federal government securities
Public Finance
Grovernment’s taxing and spending policies.
Public Good
Nonexclusinve an nonrivla good: the marginal cost of provision ot an additional consumer is zero and people cannot be excluded from consuming it
Public saving
The saving of the government sector is equal to net tax payments minus government purchases (T − G).
Purchasing Power
The amount of goods and services that a unit of currency can buy.
Purchasing power parity (PPP)
The theory that nominal exchange rates are determined as necessary for the law of one price to hold.
Pure commons good
One for which nonpayers cannot easily be excluded and for which each unit consumed by one person means one less unit available for others.
Pure monopoly
The only supplier of a unique product with no close substitutes.
Pure private good
One for which nonpayers can easily be excluded and for which each unit consumed by one person means one less unit available for others.
Pure public good
A good or service that, to a high degree, is both nonrival and nonexcludable.
Pure Strategy
Strategy in which a player makes a specific choice or takes a specific action
Quantity Demanded
the amount of a good that buyers are willing
and able to purchase; falls when the price of the good rises
Quantity equation
Money times velocity equals nominal GDP: M × V = P × Y.
Quantity Supplied
the amount of a good that sellers are willing
and able to purchase; rises when the price of the good rises
Quantity Theory of Money
The theory that says that the value of money is based on the amount of money in circulation, that is, the money supply.
quantity theory of money and prices
the hypothesis that changes in the money supply lead to equiproportional changes in the price level
Quotas
In international trade, limits on the quantity of a product that may be imported or exported, established by government laws or regulations; in command economies, more typically a production target assigned by government planning agencies to the producers of a good or service.
Rate of inflation
The annual percentage rate of change in the price level, as measured, for example, by the CPI.
Rate of Return regulation
The maximum price allowed by a regulatory agency is based on the rate of return that a firm will earn
Rational person
Someone with well-defined goals who tries to fulfill those goals as best he or she can.
Rational spending rule
Spending should be allocated across goods so that the marginal utility per dollar is the same for each good.
Rationing function of price
Changes in prices that distribute scarce goods to those consumers who value them most highly.
Real Deficit
The nominal deficit adjusted for inflation.
real diposable income
Real GDP minues net taxes, or after-tax real income (given all of the simplifying assumptions of the Keynesian model)
Real Exchange Rate
Nominal interest rate adjusted for expected inflation.
Real GDP
A measure of GDP in which the quantities produced are valued at the prices in a base year rather than at current prices; real GDP measures the actual physical volume of production.
Real Interest
The percent of the amount borrowed paid each year to the lender by the borrower in return for the use of the money adjusted for inflation.
Real price
Dollar price of a good relative to the average dollar price of all other goods and services.
Real quantity
A quantity that is measured in physical terms—for example, in terms of quantities of goods and services.
Real wage
The wage paid to workers measured in terms of purchasing power; the real wage for any given period is calculated by dividing the nominal (dollar) wage by the CPI for that period.
Recession
A decline in real output that persits for more than two consecutive quarteers of a year.
Recessionary gap
A positive output gap, which occurs when potential output exceeds actual output (Y* > Y).
recognition time lag
the time required to gather information about the current state of the economy; months may elapse before national economic problems can be identified
REGIONAL ECONOMIC INTEGRATION (TRADING GROUPS)?
Groups of Countries come together in order to improve economic conditions in their countries.
Regressive Tax
A tax whose rates decrease as income rises.
Related and supporting industries” in Porter’s Theory?
Presence of supplier and related industries
relating income to saving and consumption
saving = disposable income - consumption; or consumption + saving = disposable income
relationship between the price of existing bonds and the rate of interest
the market price of existing bonds (and all fixed-income assets) is inversely related to the rate of interest prevailing in the economy
Relative price
The price of a specific good or service in comparison to the prices of other goods and services.
Rent
The income from a factor of production that is in fixed supply.
Rent Control
A price ceiling on rents, set by government.
Rent-seeking
The socially unproductive efforts of people or firms to win a prize.
Repeated game
Game in which actions are taken and payoffs received over and over again
Repeated prisoner’s dilemma
A standard prisoner’s dilemma that confronts the same players repeatedly.
required reserve ratio
the percentage of total transactions deposits that the Fed requires dopository institutions to hold in the form of vault cash or deposits with the Fed
Reservation Prices
Maximum price that a customer is willing to pay for a good
Reserve
Money not given out in loans that is available for repaying depositors.
Resource seeking?”
to ensure that a firm can always access resources that are essential to a firm’s long run survival.
Resources
The three (or four) basic kinds of resources used to produce goods and services: land or natural resources, human resources (including labor and entrepreneurship), and capital.
Responding to Competitive dynamics?”
achieving First Mover Advantages or to responding to a rival’s behavior in entering a new geographic market
retaliation?
A tool that some Governments use to try to force other governments to play by the rules.
Revaluation
An increase in the official value of a currency (in a fixed-exchange-rate system).
Reverse Engineering
The process of a firm buying other firms’ products, disassembling them, figuring out what;s special about them, and then copying them within the limits of the law.
Ricardian Equivalence theorem
the proposition that an increase in the government budget deficit has no effect on aggregate demand
Rise
See Slope.
Risk premium
The rate of return that financial investors require to hold risky assets minus the rate of return on safe assets.
Risk-averse person
Someone who would refuse any fair gamble.
Risk-neutral person
Someone who would accept any gamble that is fair or better.
Robert Reich’s suggestion about the global economy?
economic national identity is becoming increasingly superfluous, increases in outsourcing is leading to the emergence of Global Products rather than defining products with a “National identity”
Roles of Central Banks
perform banking functions for their nations’ governments; provide financial services for private banks; conduct their nations’ monetary policies
Rule of 70’
if something grows at a rate of x% a year, it will double in approximately 70/x years.
Rule of 72
The number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of interest.
Run
See Slope.
Salary
Payments for labor resources; unlike wages, not explicitly based on the number of hours worked. See also Wages.
Saving
Current income minus spending on current needs.
saving function
the complement of the consumption function
Saving rate
Saving divided by income.
savings deposits
interest-earning funds that can be withdrawn at any time without payment of a penalty
Say’s Law
A law that staes that supply creates its own demand.
Scarcity
The condition that exists when human wants exceed the capacity of available resources to satisfy those wants; also a situation in a resource has more than one valuable use. The problem of scarcity faces all individuals and organizations, including firms and government agencies.
Second Degree price discrimination
Practice of chargin diferent prices per unit for different quanitities of the same good or service
Secure Debt
Credit with collateral (a house or a car, e.g.) for the lender
Seller’s reservation price
The smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost.
Seller’s surplus
The difference between the price received by the seller and his or her reservation price.
Sequential game
Game in which players move in turn, responding to each other’s actions and reactions
Services
Activities performed by people, firms, or government agencies to satisfy economic wants.
Share Distribution of Income
The relative division of total income amoung income groups.
Shared consumption
A property of a good or service such that it can be used by many without diminishing another’s ability to consume the same good; examples include street lights or radio broadcasts.
Sherman Antitrust Act
A U.S. law designed to regulate the competitive process.
Shoeleather Cost of Inflation
Costs of expected inflation caused by people having to make more trips to the bank to make withdrawals because they do not want to keep cash on hand.
Short run
A period of time sufficiently short that at least some of the firm’s factors of production are fixed.
Shortage
The situation that results when the quantity demanded for a product exceeds the quantity supplied. Generally happens because the price of the product is below the market equilibrium price.
Short-Run Aggregate Supply (SAS) Curve
A curve that specifies how a shift in the aggregate demand curve affects the price level and real output in the short run, other things constant.
Short-run aggregate supply (SRAS) line
A horizontal line showing the current rate of inflation, as determined by past expectations and pricing decisions.
Short-run equilibrium
A situation in which inflation equals the value determined by past expectations and pricing decisions, and output equals the level of short-run equilibrium output that is consistent with that inflation rate; graphically, short-run equilibrium occurs at the intersection of the AD curve and the SRAS line.
Shutdown Point
The point below which the firm will be better off if it temporarily shuts down than it will if it stays in business.
Side-effects from taxes
Inefficiency
Prevention of some mutually beneficial transactions from occurring.
Signaling
An action taken by an infomed party that reveals information to an uninformed party and thereby partially offsets adverse selection.
simplifying assumptions of Keynesian model
businesses pay no indirect taxes (ex. sales taxes); businesses distribute all of their profits to shareholders; there is no depreciations (capital consumption allowance), so gross private domestic investment = net investment; the economy is closed (there is no foreign trade)
Sin Tax
A tax that discourages activities society believes are harmful (sinful).
Since the 1960s, there have been two notable trends in the demographics of the multinational enterprise. These two trends have been:
the rise of non-U.S. multinationals and the growth of mini-multinationals
Skill-biased technological change
Technological change that affects the marginal products of higher-skilled workers differently from those of lower-skilled workers.
Slope
In a straight line, the ratio of the vertical distance the straight line travels between any two points (rise) to the corresponding horizontal distance (run).
Social Capital
The habitual way of doing things that guides people in how they approach production.
Social Security System
A social insurance program that provides financial benefits to the elderly and disabled and to their eligible dependents and/or survirors.
Socialism
an economic system based on individuals’ goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce.
Socially optimal quantity
The quantity of a good that results in the maximum possible economic surplus from producing and consuming the good.
Sole Proprietorship
A buisness htat has only one owner.
specific tariff?
A Tariff of a certain amount of money per weight unit of good.
Specific Tax
Tax of a certain amount of money per unit sold
Specil Interest Group
An organization of people with a particular legislative concern. They work together to gather information, lobby politicians, and publicize their concern.
Speculative attack
A massive selling of domestic currency assets by financial investors.
Stabilization policies
Government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps.
Stackelberg Model
Oligopoly model in which one firm set its output before other firms do.
Stagflation
The combination of high and accelerating inflation and high unemployment.
Standard & Poor’s ?
A subsidiary of McGraw-Hill that publishes financial research and analysis on stocks and bonds. It is one of the top three players in this business, along with Moody’s and Fitch Ratings. As a credit rating agency, Standard & Poor’s issues credit ratings for the debt of companies. As such, it is designated a Nationally Recognized Statistical Rating Organization by the U.S. Securities and Exchange Commission. It issues both short-term and long-term credit ratings. Also compiles the S&P 500.
Statistical discrimination
The practice of making judgments about the quality of people, goods, or services based on the characteristics of the groups to which they belong.
Stock (or equity)
A claim to partial ownership of a firm.
Stock of FDI?”
total value of FDI at a given point in time
store of value
the ability to hold value over time (a function of money), also known as purchasing power
Strategic Behavior theory?
In the case of oligopolistic industries, the theory is that if one firm engages in FDI in another country (region), then others should follow.
STRATEGIC TRADE POLICY (also known as (aka) industrial policy?
Policies that make an effort to achieve national competitive advantage, and through this world dominance in this industry, through first mover advantages.
STRATEGIC(NEW) TRADE THEORY?
Paul Krugman
many industries where the world market can only support a certain number of firms. Firms which enter the industry at the beginning, capture:
first mover advantages to achieve: economies of scale and scope, benefit from learning curve effects. Firms develop a competitive advantage over any potential rivals. This creates barriers to entry for other prospective firms.
Structural policy
Government policies aimed at changing the underlying structure, or institutions, of the nation’s economy.
Structural Unemployment
Unemployment due to a mismatch between workers’ skills and firms’ needs.
subsidies?
Government payments to domestic producers. They take the form of cash grants, low interest loans, tax breaks, and government equity participation
Subsidy
Payment reducing the buyer’s price below the seller’s price
Substitutes
Two goods are substitutes if an increase in the price of one makes consumers more willing to buy the other.
Substitution effect
The change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes.
Sunk cost
A cost that is beyond recovery at the moment a decision must be made.
Supplemental Security Income (SSI)
A federal program that pays benefits, based on need, to the elderly, blind and disabled.
Supply
A schedule of quanitites a seller is willing to sell per unit of tiome at various prices, other things constant.
Supply and Demand?
It is a model of how a market behaves that is useful for understanding COMPETITIVE markets.
supply-side economics
the suggestion that creating incentives for individuals and firms to increase productivity will cause the aggregate supply curve to shift outward
surplus
The situation that results when the quantity supplied of a product exceeds the quantity demanded. Generally happens because the price of the product is above the market equilibrium price.
sweep acount
a despository institutions account that entails regular shifts of funds from transactions deposits that are subject to reserve requirements to savings deposits that are exempt from reserve requirements
