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MICROECONOMICS > Key terms > Flashcards

Key terms Flashcards

1
Q

Absolute advantage

A

The ability to produce a good using fewer inputs than another producer

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2
Q

Comparative advantage

A

The ability to produce a good at a lower opportunity cost than another producer

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3
Q

Gains from trade

A

The increase in total production due to specialization allowed by trade

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4
Q

Opportunity cost

A

Whatever is given up to obtain some item

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5
Q

Imports

A

Goods produced abroad and sold domestically

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6
Q

Exports

A

Goods produced domestically and sold abroad

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7
Q

Market

A

A group of buyers and sellers of a particular good or service

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8
Q

Competitive market

A

A market in which there are many buyers and sellers so that each has a negligible impact on the market price

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9
Q

Monopoly

A

Market with only one seller

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10
Q

Quantity demanded

A

The amount of a good that buyers are willing and able to purchase

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11
Q

Law of demand

A

The claim that, other things equal, the quantity demanded of a good falls when the price of the good
rises

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12
Q

Demand schedule

A

A table that shows the relationship between the price

of a good and the quantity demanded

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13
Q

Demand curve

A

A graph of the relationship between the price of a good and the quantity demanded

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14
Q

Normal good

A

A good for which, other equal, an increase in

income leads to an increase in demand

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15
Q

Inferior good

A

A good for other things an increase in income leads to a decrease in demand

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16
Q

Substitutes

A

Two goods for which an increase in the price of one leads to an increase in the demand for the other

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17
Q

Complements

A

Two goods for which an increase in the price of one

leads to a decrease in the demand for the other

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18
Q

Quantity supplied

A

The amount of a good that sellers are willing and able to sell

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19
Q

Law of supply

A

The claim that. other things equal, the quantity supplied of a good rises when the price of the good rIses

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20
Q

Supply schedule

A

A table that shows the relationship between the price of a good and the quantity supplied

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21
Q

Supply curve

A

A good for which, other equal, an increase in income leads to an increase in demand

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22
Q

Equilibrium

A

A situation in which the has reached the level where quantity supplied equals quantity demanded

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23
Q

Equilibrium price

A

The price that balances quantity supplied and quantity demanded

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24
Q

Equilibrium quantity

A

The quantity supplied and the quantity demanded at

the equilibrium price

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25
Q

Surplus

A

A situation in which quantity supplied is greater than

quantity demanded

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26
Q

Shortage

A

A situation in which quantity demanded is greater than quantity supplied

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27
Q

Law of supply and demand

A

The claim that the price of any good adjusts to bring
the quantity supplied and quantity demanded for that
good into balance

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28
Q

Elasticity

A

A measure of the responsiveness of the quantity demanded or quantity supplied to one of its determinants

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29
Q

Price elasticity of demand

A

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

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30
Q

Elastic

A

When the quantity demanded or supplied responds substantially to a change in one of its determinants.

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31
Q

Inelastic

A

When the quantity demanded or supplied responds only slightly to a change in one of its determinants.

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32
Q

Total revenue

A

The amount paid by buyers and received by sellers of a good computed as P x Q.

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33
Q

Income elasticity of demand

A

A measure of how much the quantity demanded of a good responds to a change in consumers’ income

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34
Q

Cross-price elasticity of demand

A

A measure of how much the quantity demanded of one good respond to a change in the price of another good.

35
Q

Price elasticity of supply

A

A measure of how much the quantity supplied of a good responds to a change in the price of that good.

36
Q

Normal good

A

A good characterized by a positive income elasticity.

37
Q

Inferior good

A

A good characterized by a negative income elasticity.

38
Q

Price ceiling

A

A legal maximum on the price at which a good can be sold

39
Q

Price floor

A

A legal minimum on the price at which a good can be sold

40
Q

Tax incidence

A

The manner in which the burden of a tax is shared among participants in a market

41
Q

Tax wedge

A

The difference between what the buyer pays and the seller receives after a tax has been imposed

42
Q

Welfare economics

A

The study ofhow the allocation of resources affects economic well being

43
Q

Willingness to pay

A

The maximum amount that a buyer will pay for a good

44
Q

Consumer surplus

A

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

45
Q

Cost

A

The value of everything a seller must give up to produce a good

46
Q

Producer surplus

A

The amount a seller is paid for a good minus the seller’s cost of providing it

47
Q

Efficiency

A

The property ofa resource allocation of maximizing the total surplus

48
Q

Equality

A

The property of distributing prosperity uniformly among the members of society

49
Q

Market failure

A

The inability ofsome unregulated markets to allocate resources efficiently

50
Q

Tax wedge

A

The difference between what the buyer pays and the seller receives when a tax is placed in a market

51
Q

Deadweight loss

A

The reduction in total surplus that results from a tax

52
Q

Laffer curve

A

A graph showing the relationship between the size of a tax and the tax revenue collected

53
Q

Total revenue

A

The amount a firm receives for the sale of its output

54
Q

Total cost

A

The market value ofthe inputs a firm uses in production

55
Q

Profit

A

Total revenue minus total cost

56
Q

Explicit costs

A

Input costs that require an outlay of money by the firm

57
Q

Implicit costs

A

Input costs that do not require an outlay of money by the firm

58
Q

Economic profit

A

Total revenue minus total cost, including both explicit and implicit costs

59
Q

Accounting profit

A

Total revenue minus total explicit cost

60
Q

Production function

A

The relationship between quantity of inputs used to make a good and the quantity of output of that good

61
Q

Marginal product

A

The increase in output that arises from an additional unit of input

62
Q

Diminishing marginal product

A

The property whereby the marginal product of an input declines as the quantity of the input Increases

63
Q

Fixed costs

A

Costs that do not vary with the quantity of output produced

64
Q

Variable costs

A

Costs that vary with the quantity of output produced

65
Q

Average total cost

A

Total cost divided by the quantity of output

66
Q

Average fixed cost

A

Fixed costs divided by the quantity of output

67
Q

Average variable cost

A

Variable costs divided by the quantity of output

68
Q

Marginal cost

A

The increase in total cost that arises from an extra unit of production

69
Q

Efficient scale

A

The quantity of output that minimizes average total cost

70
Q

Economies of scale

A

The property whereby long-run average total cost falls as the quantity of output increases

71
Q

Diseconomies of scale

A

The property whereby long run average total cost rises

as the quantity ofoutput increases

72
Q

Constant returns to scale

A

The property whereby long run average total cost stays the same as the quantity of output changes

73
Q

Price takers

A

Buyers and sellers in a competitive market that must

accept the price that the market determInes

74
Q

Competitive market

A

A market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

75
Q

Average revenue

A

Total revenue divided by the quantity sold

76
Q

Marginal revenue

A

The change in total revenue from an additiobal unit sold

77
Q

Shut down

A

A short-run decision to temporarily cease production during a specific period of time due to current market conditions

78
Q

Exit

A

A long-run decision to permanently cease production and leave the market

79
Q

Sunk cost

A

A cost to which one is already committed and is not recoverable

80
Q

Monopoly

A

A firm that is the sole seller ofa product without close substitutes

81
Q

Natural monopoly

A

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

82
Q

Price discrimination

A

The business practice ofselling the same good at different prices to different customers

83
Q

Arbitrage

A

The process ofbuying a good in one market at a low price and selling it in another market at a higher price

84
Q

Perfect price discrimination

A

A situation in which the monopolist is able to charge each customer precisely his willingness to pay

MICROECONOMICS (5 decks)

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