Glossary nur Micro Flashcards
ability to pay principle
the idea that taxes should be levied on a person according to how well that person can shoulder the burden
abnormal profit
the profit over and above normal profit
absolute advantage
exists where a producer can produce a good using fewer factor inputs than another
accounting profit
total revenue minus total explicit cost
ad valorem tax
a tax levied as a percentage of the price of a good
allocative efficiency
a resource allocation where the value of the output by sellers matches the value placed on that output by buyers
arbitrage
the process of buying a good in one market at a low price and selling it in another market at a higher price in order to profit from the price difference
average fixed cost
fixed costs divided by the quantity of output
average revenue
total revenue divided by the quantity sold
average tax rate
total taxes paid divided by total income
average total cost
total cost divided by the quantity of output
average variable cost
variable costs divided by the quantity of output
bargaining process
an agreed outcome between two interested and competing economic agents barriers to entry
refers to the interaction between two or more parties (often businesses, workers, or governments) who negotiate terms of exchange—such as prices, wages, or trade agreements—to reach a mutually acceptable outcome.
The mention of “barriers to entry” could be an additional note, possibly reminding the learner that certain market conditions or economic factors can affect the bargaining process, such as barriers that prevent new competitors from entering a market.
benefits principle
the idea that people should pay taxes based on the benefits they receive from government services
bounded rationality
the idea that humans make decisions under the constraints of limited - and sometimes unreliable - information
brand proliferation
a strategy designed to deter entry to a market by producing a number of products within a product line as different brands branding
budget constraint
the limit on the consumption bundles that a consumer can afford
capital
the equipment and structures used to produce goods and services
capitalist economic system
a system which relies on the private ownership of factors of production to produce goods and services which are exchanged through a price mechanism and where production is operated primarily for profit
cartel
a group of firms acting in unison
= einklang
ceteris paribus (other things being equal)
a term used to describe analysis where one variable in the model is allowed to vary while others are held constant
choice set
the set of alternatives available to the consumer
club goods
goods that are excludable but non-rival in consumption Coase theorem
collusion
an agreement among firms in a market about quantities to produce or prices to charge
common resources
goods that are rival but not excludable
comparative advantage
the comparison among producers of a good according to their opportunity cost. A producer is said to have a comparative advantage in the production of a good if the opportunity cost is lower than that of another producer
comparative statics
the comparison of one initial static equilibrium with another
competitive market
a market in which there are many buyers and sellers so that each has a negligible impact on the market price
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
concentration ratio
the proportion of total market share accounted for by a particular number of firms
• A high concentration ratio indicates that a few firms dominate the market, suggesting less competition (e.g., oligopoly or monopoly).
• A low concentration ratio suggests a more competitive market with many smaller firms (e.g., perfect competition).
For example, a 4-firm concentration ratio of 75% means the top 4 firms together control 75% of the market.
constant returns to scale
the property whereby long-run average total cost stays the same as the quantity of output changes
consumer surplus
a buyer’s willingness to pay minus the amount the buyer actually pays
copyright
the right of an individual or organization to own things they create in the same way as a physical object - to prevent others from copying or reproducing the creation
cost
the value of everything a seller must give up to produce a good
cost-benefit analysis
a study that compares the costs and benefits to society of providing a public good
counterfactual
analysis is based on a premise of what would have occurred if something had not happened
cronyism
a situation where the allocation of resources in the market is determined in part by political decision-making and favours rather than by economic forces cross-price elasticity of demand
deadweight loss
the fall in total surplus that results from a market distortion - such as a tax
demand curve
a graph of the relationship between the price of a good and the quantity demanded
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
de-merit goods
goods that are over-consumed if left to the market mechanism and which generate both private and social costs which are not taken into account by the decision maker
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases diminishing marginal utility
direct taxes
a tax levied on income and wealth
diseconomies of scale
the property whereby long-run average total cost rises as the quantity of output increases
dominant strategy
a strategy that is best for a player in a game regardless of the strategies chosen by the other players
economic activity
how much buying and selling goes on in the economy over a period of time
economic agents
an individual - firm or organization that has an impact in some way on an economy
economic growth
the increase in the amount of goods and services in an economy over a period of time
economic profit
total revenue minus total cost - including both explicit and implicit costs
economic system
the way in which resources are organized and allocated to provide for the needs of an economy’s citizens
economics
the study of how society manages its scarce resources
economies of scale
the property whereby long-run average total cost falls as the quantity of output increases
economy
all the production and exchange activities that take place
efficiency
the property of a resource allocation
elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants
endogenous variable
a variable whose value is determined within the model
Engel curve
a line showing the relationship between demand and levels of income
equilibrium or market price
the price where the quantity demanded is the same as the quantity supplied
equilibrium quantity
the quantity bought and sold at the equilibrium price
equity
the property of distributing economic prosperity (=Wohlstand) fairly among the members of society
excludable
the property of a good whereby a person can be prevented from using it when they do not pay for it
exogenous variable
a variable whose value is determined outside the model
expected utility theory
the idea that preferences can and will be ranked by buyers
explicit costs
input costs that require an outlay of money by the firm
exports
goods produced domestically and sold abroad leading to an inflow of funds into a country
external economies of scale
the advantages of large-scale production that arise through the growth and concentration of the industry
externality
the cost or benefit of one person’s decision on the well-being of a bystander (a third party) which the decision maker does not take into account when making the decision
falsifiability
the possibility of a theory being rejected as a result of the new observations or new data
fixed costs
costs that are not determined by the quantity of output produced
framing effect
the differing response to choices dependent on the way in which choices are presented
free rider
a person who receives the benefit of a good but avoids paying for it
game theory
the study of how people behave in strategic situations
generalization
the act of formulating general concepts or explanations by inferring from specific instances of an event or behaviour
Giffen good
a good for which an increase in the price raises the quantity demanded
government failure
a situation where political power and incentives distort decision-making so that decisions are made which conflict with economic efficiency
gross domestic product (GDP)
the market value of all final goods and services produced within a country in a given period of time
gross domestic product per capita
the market value of all goods and services produced within a country in a given period of time divided by the population of a country to give a per capita figure
heuristics
short cuts or rules of thumb that people use in decision-making
horizontal equity
the idea that taxpayers with similar abilities to pay taxes should pay the same amount
hypothesis
an assumption - tentative prediction - explanation - or supposition for something
imperfect competition
exists where firms are able to differentiate their product in some way and so can have some influence over price implicit costs
income elasticity of demand
a measure of how much quantity demanded of a good responds to a change in consumers’ income - computed as the percentage change in quantity demanded divided by the percentage change in income
indifference curve
a curve that shows consumption bundles that give the consumer the same level of satisfaction
indirect tax
a tax levied on the sale of goods and services
inference
a conclusion or explanation derived from evidence and reasoning inferior good
inflation
an increase in the overall level of prices in the economy
internal economies of scale
the advantages of large-scale production that arise through the growth of the firm
internalizing an externality
altering incentives so that people take account of the external effects of their actions
intertemporal choice
where decisions made today can affect choices facing individuals in the future
isocost line
a line showing the different combination of factor inputs which can be purchased with a given budget
labour
the human effort - both mental and physical - that goes into production
land
all the natural resources of the earth law of demand
logrolling
the agreement between politicians to exchange support on an issue
lump-sum tax
a tax that is the same amount for every person
macroeconomics
the study of economy-wide phenomena - including inflation - unemployment and economic growth
marginal abatement cost
the cost expressed in terms of the last unit of pollution not emitted (abated) marginal changes
marginal rate of substitution
the rate at which a consumer is willing to trade one good for another
marginal rate of technical substitution
the rate at which one factor input can be substituted for another at a given level of output
marginal revenue
the change in total revenue from an additional unit sold
marginal tax rate
the extra taxes paid on an additional unit of income
marginal utility
the addition to total utility as a result of consuming one extra unit of a good
market
a group of buyers and sellers of a particular good or service
market economy
an economy that addresses the three key questions of the economic problem by allocating resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
market failure
a situation where scarce resources are not allocated to their most efficient use
market power
the ability of a single economic agent (or small group of agents) to have a substantial influence on market prices or output
market segments
the breaking down of customers into groups with similar buying habits or characteristics
market share
the proportion of total sales in a market accounted for by a particular firm
merit goods
goods which can be provided by the market but may be under-consumed as a result of imperfect information about the benefits microeconomics
monopolistic competition
a market structure in which many firms sell products that are similar but not identical
monopoly
a firm that is the sole seller of a product without close substitutes
Nash equilibrium
a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen
natural monopoly
a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
negative externality
the costs imposed on a third party of a decision
normal good
a good for which - ceteris paribus - an increase in income leads to an increase in demand (and vice versa)
normal profit
the minimum amount required to keep factors of production in their current use normative statements
objective well-being
measures of the quality of life using specified indicators.
oligopoly
competition amongst the few – a market structure in which only a few sellers offer similar or identical products and dominate the market
opportunity cost
whatever must be given up to obtain some item; the value of the benefits foregone (sacrificed)
Pareto improvement
when an action makes at least one economic agent better off without harming another economic agent
patent
the right conferred on the owner to prevent anyone else making or using an invention or manufacturing process without permission
payoff matrix
a table showing the possible combination of outcomes (payoffs) depending on the strategy chosen by each player
perfect complements
two goods with right-angle indifference curves perfect price discrimination
perfect substitutes
two goods with straight line indifference curves
Pigovian tax
a tax enacted to correct the effects of a negative externality planned economic systems
positional arms race
a situation where individuals invest in a series of measures designed to gain them an advantage but which simply offset each other positional externality
positive externality
the benefits to a third party of a decision
positive statements
claims that attempt to describe the world as it is
Prebisch–Singer hypothesis
a hypothesis suggesting that the rate at which primary products exchange for manufactured goods declines over time meaning that countries specialising in primary good production become poorer
predatory or destroyer pricing
a situation where firms hold price below average cost for a period to try and force out competitors or prevent new firms from entering the market
price ceiling
a legal maximum on the price at which a good can be sold
price–consumption curve
a line showing the consumer optimum for two goods as the price of one of the goods changes - assuming incomes and the price of the good are held constant
price discrimination
the business practice of selling the same good at different prices to different customers
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good - computed as the percentage change in quantity demanded divided by the percentage change in price
price elasticity of supply
a measure of how much the quantity supplied of a good responds to a change in the price of that good - computed as the percentage change in quantity supplied divided by the percentage change in price
price floor
a legal minimum on the price at which a good can be sold
prisoner’s dilemma
a particular ‘game’ between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
private goods
goods that are both excludable and rival
private sector
that part of the economy where business activity is owned - financed and controlled by private individuals
privatization
the transfer of publicly owned assets to private sector ownership
producer surplus
the amount a seller is paid for a good minus the seller’s cost production function
production isoquant
a function representing all possible combinations of factor inputs that can be used to produce a given level of output production possibilities frontier
productivity
the quantity of goods and services produced from each hour of a worker or factor of production’s time
progressive tax
a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers
property rights
the exclusive right of an individual - group or organization to determine how a resource is used
proportional tax (or flat tax)
a tax for which high-income and low-income taxpayers pay the same fraction of income
public choice theory
the analysis of governmental behavior - and the behaviour of individuals who interact with government
public goods
goods that are neither excludable nor rival
public interest
making decisions based on a principle where the maximum benefit is gained by the largest number of people at minimum cost
public sector
that part of the economy where business activity is owned - financed and controlled by the state - and goods and services are provided by the state on behalf of the population as a whole
quantity demanded
the amount of a good that buyers are willing and able to purchase at different prices
quantity supplied
the amount of a good that sellers are willing and able to sell at different prices
rational
the assumption that decision-makers can make consistent choices between alternatives
rational ignorance effect
the tendency of a voter to not seek out information to make an informed choice in elections
regressive tax
a tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers
rent seeking
where individuals or groups take actions to redirect resources to generate income (rents) for themselves or the group
rival
the property of a good whereby one person’s use diminishes other people’s use
scarcity
the limited nature of society’s resources
sequential move games
games where players make decisions in sequence with some players able to observe the strategic choices of others
shortage
a situation in which quantity demanded is greater than quantity supplied at the going market price short run
social welfare function
the collective utility of society which is reflected by consumer and producer surplus
special interest effect
where benefits to a minority special interest group are outweighed by the costs imposed on the majority specific tax
standard of living
refers to the amount of goods and services that can be purchased by the population of a country. Usually measured by the inflation-adjusted (real) income per head of the population
subjective well-being
the way in which people evaluate their own happiness subsidy
substitution effect
the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
sunk cost
a cost that has already been committed and cannot be recovered
supply curve
a graph of the relationship between the price of a good and the quantity supplied
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
surplus
a situation in which the quantity supplied is greater than the quantity demanded at the going market price
synergies
where the perceived benefits of the combined operations of a merged organization are greater than those which would arise if the firms stayed separate
tacit collusion
when firm behaviour results in a market outcome that appears to be anti-competitive but has arisen because firms acknowledge that they are interdependent
tariff
a tax on goods produced abroad and sold domestically tax incidence
total expenditure
the amount paid by buyers - computed as the price of the good times the quantity purchased
total revenue
the amount received by sellers of a good - computed as the price of the good times the quantity sold
total surplus
the total value to buyers of the goods - as measured by their willingness to pay - minus the cost to sellers of providing those goods
total utility
the satisfaction gained from the consumption of a good
trade-off
the loss of the benefits from a decision to forego or sacrifice one option - balanced against the benefits incurred from the choice made
Tragedy of the Commons
a parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole transaction costs
utility
the satisfaction derived from the consumption of a certain quantity of a product
value
the worth to an individual of owning an item represented by the satisfaction derived from its consumption and their willingness to pay to own it
variable costs
costs that are dependent on the quantity of output produced
vertical equity
the idea that taxpayers with a greater ability to pay taxes should pay larger amounts
welfare economics
the study of how the allocation of resources affects economic well-being
willingness to pay
the maximum amount that a buyer will pay for a good
world price
the price of a good that prevails in the world market for that good
x-inefficiency
the failure of a firm to operate at maximum efficiency due to a lack of competitive pressure and reduced incentives to control costs
