Glossary Flashcards
The study of the economy as system in which feedbacks among sectors determine national output, employment and prices.
Macroeconomics
The study of individual behavior in the context of scarcity.
Microeconomics
Goods and services are supplied both by private suppliers and government.
Mixed Economies
A formalization of theory that facilitates scientific inquiry.
Model
A logical view of how things work, and is frequently formulated on the basis of observation.
Theory
What must be sacrificed when a choice is made.
Opportunity Cost
The quantity of a good or service that buyers wish to purchase at each possible price, with all other influences on demand remaining unchanged.
Demand
The quantity of a good or service that sellers are willing to sell at each possible price, with all other influences on supply remaining unchanged.
Supply
The amount purchased at a particular price.
Quantity demanded
The amount supplied at a particular price.
Quantity supplied
Other things being equal.
Ceteris paribus
The price at which quantity demanded equals the quantity supplied.
Equilibrium price
When the quantity supplied exceeds the quantity demanded at the going price.
Excess supply
When the quantity demanded exceeds the quantity supplied at the going price.
Excess demand
Determines outcomes at prices other than the equilibrium.
Short side of the market
Graphical expression of the relationship between price and quantity demanded, with other influences remaining unchanged.
Demand curve
Graphical expression of the relationship between price and quantity supplied, with other influences remaining unchanged.
Supply curve
When a price reduction (rise) for a related product reduces (increases) the demand for a primary product, it is this type of good for the primary product.
Substitute goods
When a price reduction (rise) for a related product increases (reduces) the demand fora primary product, it is this type of good for the primary product.
Complementary goods
One whose demand falls in response to higher incomes.
Inferior good
One whose demand increases in response to higher incomes.
Normal good
It is easier to communicate if equipment is compatible, and it costs less to maintain infrastructure where the variety is less.
Network economies
Compares an initial equilibrium with a new equilibrium, where the difference is due a change in one of the other things that lie behind the demand curve or the supply curve.
Comparative static analysis
The difference between revenues and actual explicit costs incurred.
Accounting profits.
Occurs when incomplete or asymmetric information describes an economic relationship.
Adverse selection.
Where at least one party in an economic relationship has less than full information and has a different amount of information from another party.
Asymmetric information.
The total fixed cost per unit of output.
Average fixed cost.
The price per unit sold.
Average revenue.
The sum of all costs per unit of output.
Average total cost (ATC).
The total variable cost per unit of output.
Average variable cost (AVC).
The buildings, machinery, equipment, and software used in producing goods and services comprise the firm’s capital.
Capital.
A measurable concept of satisfaction.
Cardinal utility.
Compares an initial equilibrium with a new equilibrium, where the difference is due to a change in one of the other things that lie behind the demand curve or the supply curve.
Comparative static analysis.
When a price reduction (rise) for a related product increases (reduces) the demand for a primary product, it is this type of good for the primary product.
Complementary goods.
Occurs when marginal utility per dollar spent on the last unit of each good is equal.
Consumer equilibrium.
An organization with a legal identity separate from its owners that produces and trades.
Corporation or company.
The percentage change in the quantity demanded divided by the percentage change in price.
Price elasticity of demand.
The quantity of a good or service that buyers wish to purchase at each possible price, with all other influences on demand remaining unchanged.
Demand.
Graphical expression of the relationship between price and quantity demanded, with other influences remaining unchanged.
Demand curve.
If the price elasticity is greater than unity.
Demand is elastic.
It implies that the addition to total utility from each extra unit of a good or service consumed is declining.
Diminishing marginal utility.
Those profits measured as the difference between total revenue and total costs where the cost term includes the opportunity cost of the resources used in production.
Economic profits.
]The percentage change in quantity supplied divided by the percentage change in price.
Elasticity of supply.
It is the price at which quantity demanded equals the quantity supplied; it equilibrates the market.
Equilibrium price.
Excess demand exists when the quantity demanded exceeds quantity supplied at the going price.
Excess demand (shortage).
Exists when the quantity supplied exceeds the quantity demanded at the going price.
Excess supply (surplus).
Fixed costs are costs that are independent of the level of output.
Fixed costs.
Income elasticity of demand is the percentage change in quantity demanded divided by a percentage change in income.
Income elasticity of demand.
An inferior good is one whose demand falls in response to higher incomes. Inferior goods have a negative income elasticity.
Inferior good.
Law of demand states that, all other things being equal, more of a good is demanded the lower its price is.
Law of demand.
When increments of a variable factor (labor) are added to a fixed amount of another factor (capital), the marginal product of the variable factor must eventually decline.
Law of diminishing marginal product.
A period of time that is sufficient to enable all factors of production to be adjusted.
Long run.
Macroeconomics studies the economy as a system in which feedback among sectors determine national output, employment, and prices.
Macroeconomics.
The cost of producing each additional unit of output.
Marginal cost of pruduction.
The change in total revenue due to selling one more unit of a good.
Marginal revenue.
It is the addition to total utility created when one more unit of a good or service is consumed.
Marginal utility.
The horizontal sum of individual demands.
Market demand.
It is the study of individual behavior in the context of scarcity.
Microeconomics.
Normal good is one whose demand increases in response to higher incomes.
Normal good.
Normal profits are required to induce suppliers to supply their goods and services. They reflect opportunity costs and can therefore be considered as a type of cost component. Normal profits are when economic profits equal zero.
Normal profits.
Normative economics offers recommendations that incorporate value judgments.
Normative economics.
Opportunity cost of a choice is what must be sacrificed when a choice is made.
Opportunity cost.
Ordinal utility assumes that individuals can rank commodity bundles in accordance with the level of satisfaction associated with each bundle.
Ordinal utility.
A business owned jointly by two or more individuals who share in the profits and are jointly responsible for losses.
Partnership.
The elasticity computed at a particular point on the demand curve.
Point elasticity of demand.
Studies objective or scientific explanations of how the economy functions.
Positive economics.
The sum of each year’s earnings divided by one plus the interest rate raised to the appropriate power.
Present value of a stream of future earnings.
Government rules or laws that inhibit the formation of market-determined prices.
Price controls.
Measured as the percentage change in quantity demanded, divided by the percentage change in price.
Price elasticity of demand.
A technological relationship that specifies how much output can be produced with specific amounts of inputs economics.
Production function.
It is the goal of proprietary firms – they seek to maximize the difference between revenues and costs.
Profit maximization.
Defines the amount purchased at a particular price.
Quantity demanded.
Refers to the amount supplied at a particular price.
Quantity supplied.
Represents the average relationship between two variables in a scatter diagram.
Regression line.
Shareholders invest in corporations and therefore are the owners. They have limited liability personally if the firm incurs losses.
Shareholders.
A period during which at least one factor of production is fixed. If capital is fixed, then more output is produced by using additional labor.
Short run.
Occurs when each firm maximizes profit by producing a quantity where marginal revenue equals marginal cost at or above average variable cost.
Short run equilibrium.
The relationship between total output produced and the amount of labor used, for a given amount of capital.
Short run total product.
A price below AVC causes a firm to shutdown in the short run.
Shutdown price.
The single owner of a business and is responsible for all profits and losses.
Sole proprietor.
When a price reduction (rise) for a related product reduces (increases) the demand for a primary product, it is a substitute for the primary product.
Substitute goods.
The quantity of a good or service that sellers are willing to sell at each possible price, with all other influences on supply remaining unchanged.
Supply.
A graphical expression of the relationship between price and quantity supplied, with other influences remaining unchanged.
Supply curve.
Describes how the burden of a tax is shared between buyer and seller.
Tax incidence.
Represents innovation that can reduce the cost of production or bring new products.
Technological change.
A logical view of how things work and is frequently formulated on the basis of observation.
Theory.
The sum of fixed cost and variable cost.
Total cost.
A measure of the total satisfaction derived from consuming a given amount of goods and services.
Total utility.
These are related to the output produced.
Variable costs.
A study that aims to understand the world without value judgments.
Positive analysis
A study that makes value judgments
Normative analysis
A normative analysis that weighs the gains and losses to different individuals to determine changes that provide greater benefits than harm.
Cost-benefit analysis
The amount a customer is willing and able to pay for a good.
Willingness-to-pay.
A normative analysis that trades off gains and losses to different individuals.
Welfare analysis.
The value that one foregoes in purchasing a product or undertaking an activity.
The value of the best foregone alternative.
Opportunity cost.
The amount of money that provides equal utility to the random payoff of the the gamble
Certainty equivalent
Field devoted to studying the buying or selling of assets and options to reduce overall risk.
Risk management.
The difference between the expected payoff and the certainty equivalent
Risk premium
Method of valuation in which each item is first evaluated separately and then the item values are added together to arrive at a total value.
Hedonic pricing.
A model of the choices that people make, presuming that they select ont he basis of their own welfare only.
Homo Economicus
Selfishness
Self-interested behavior.
A psychological tendency to invest more once one has made a significant nonrecoverable investment, even when subsequent investment isn’t warranted.
Sunk cost fallacy
A prediction that allows one to determine how one variable affects another, at least in the setting described by the model.
Comparative static.
Term meaning “the derivative of.”
Marginal.
The value of consuming a good, minus the price paid.
Consumer surplus.
Condition in which the value of the last unit declines as the number cosumed rises.
Diminishing marginal value.
Goods whose demand doesn’t increase with income.
Inferior good
Goods whose demand increases with income.
Normal good
For a given good x, a good whose consumption incrases the value of x.
Complement
For a given good x, a good whose consumption decreases the value of x.
Substitute
A good whose cost falls as the amount produced of another good rises.
Complement in supply
A good whose cost rises as the amount produced of another good rises.
Substitute in supply.
Means that the way a good or service is produced is divided into a number of tasks that are performed by different workers, instead of all the tasks being done by the same person.
Division of labor
Physical restrictions on output.
Quotas
In a price control situation, where there is excess demnand, money paid by an incoming tenant, sometimes directly to an existing tenant or to the building superintendent, or possible to a real estate broker who will “buy out” the existing tenant.
Key money
A tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT)
Ad valorem tax (Latin for “according to value”)
Describes how the burden of a tax is shared between buyer and seller.
Tax incidence
If the value lies between unity and 0.
Demand is inelastic
If the value is exactly one.
Demand is unit elastic
A mathematical condition for maximization stating that the second derivative is nonpositive.
Second-order condition
A mathematical condition for optimization stating that the first derivative is zero.
First-order condition
