Second exam Flashcards
the amount a firm receives for the sale of its output
total revenue
the market value of the inputs a firm uses in production
total cost
total revenue - total cost
profit
input costs that require an outlay of money by the firm
explicit cost
input costs that do not require an outlay of money by the firm
implicit cost
total revenue minus total cost, including both explicit and implicit costs
economic profit
total revenue - total explicit cost
accounting profit
the relationship between quantity of inputs used to make a good and the quantity of output of that good
production function
the increase in output that arises from an additional unit of input
marginal product
the property whereby the marginal product of an output declines as the quantity of the input increases
diminishing marginal product
costs that do not vary with the quantity of output produced
fixed costs
costs that vary with the quantity of output produced
variable costs
total cost divided by the quantity of output
average total cost
fixed cost divided by the quantity of output
average fix cost
variable cost divided by the quantity of output
average variable cost
the increase in total cost that arises from an extra unit of production
marginal cost
the quantity of output that minimizes average total cost
efficient scale
the property whereby long-run average total cost falls as the quantity of output increases
economies of scale
he property whereby long-run average total cost rises as the quantity of output increases
diseconomies of scale
the property whereby long-run average total cost stays the same as the quantity of output changes
constant returns to scale
a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
competitive market
total revenue divided by the quantity sold
average revenue
the change in total revenue from an additional unit sold
marginal revenue
a cost that has already been committed and cannot be recovered
sunk cost
a firm that is the sole seller of a product without close substitutes
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
natural monopoly
the business practice of selling the same good at different prices to different customers
price discrimination
a market structure in which many firms sell products that are similar but not identical
monopolistic competition
a market structure in which only a few sellers offer similar or identical products
oligopoly
the study of how people behave in strategic situations
game theory
an agreement among firms in a market about quantities to produce or prices to change
collusion
a group of firms acting in unison
cartel
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
nash equilibrium
a particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
prisoner’s dilemma
a strategy that is best for a player in a game regardless of the strategies chosen by the other players
dominant strategy
the percentage of the population whose family income falls below an absolute level called the poverty line
poverty rate
an absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty
poverty line
transfers to the poor given in the form of goods and services rather than cash
In-kind Transfers
the regular pattern of income variation over a person’s life
Life Cycle
a person’s normal income
Permanent Income
the political philosophy according to which the government should choose policies to maximize the total utility of everyone in society
Utilitarianism
a measure of happiness or satisfaction
Utility
the political philosophy according to which the government should choose policies deemed just, as evaluated by an impartial observer behind a “veil of ignorance”
Liberalism
the claim that the government should aim to maximize the well-being of the worst-off person in society
Maximin Criterion
government policy aimed at protecting people against the risk of adverse events
Social Insurance
the political philosophy according to which the government should punish crimes and enforce voluntary
agreements but not
redistribute income
Libertarianism
government programs that supplement the incomes of the needy
Welfare
a tax system that collects revenue from high-income households and gives subsidies to low-income households
Negative Income Tax
the total number of workers, including both the employed and the unemployed
Labor Force
the percentage of the labor force that is unemployed
Unemployment Rate
the percentage of the adult population that is in the labor force
Labor-force participation rate
the normal rate of unemployment around which the unemployment fluctuates
Natural rate of unemployment
the deviation of unemployment from its natural rate
Cyclical unemployment
individuals who would like to work but have given up looking for a job
Discouraged workers
unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
Frictional
unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
Structural
unemployment
the process by which workers find appropriate jobs given their tastes and skills
Job search
a government program that partially protects workers’ incomes when they become unemployed
Unemployment
Insurance
a worker association that bargains with employers over wages, benefits, and working conditions
Union
the process by which unions and firms agree on the terms of employment
Collective Bargaining
the organized withdrawal of labor from a firm by a union
strike
above-equilibrium wages paid by firms to increase worker productivity
efficiency wages
he limit on the consumption bundles that a consumer can afford
budget constraint
a curve that shows consumption bundles that give the consumer the same level of satisfaction
indifference curve
the rate at which a consumer is willing to trade one good for another
marginal rate of substitutes
two goods with straight-line indifference curves
perfect substitutes
two goods with right-angle indifference curves
perfect complements
a good for which an increase in income raises the quantity demanded
normal good
a good for which an increase in income reduces the quantity demanded
inferior good
the change in
consumption that results when a price change moves the consumer to a higher or lower indifference curve
income 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
substitution effect
good for which an increase in the price raises the quantity demanded
giffen good
a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate
Quantity Theory of Money
variables measured in monetary units
Nominal Variables
variables measured in physical units
Real Variables
the theoretical separation of nominal and real variables
Classical Dichotomy
the proposition that changes in the money supply do not affect real variables
Monetary Neutrality
the rate at which money changes hands
Velocity of Money
the equation M x V x P x Y, which relates the quantity of money, the velocity of money, and the dollar value of the economy’s output of goods and services
Quantity Equation
the revenue the
government raises by creating money
Inflation Tax
the one-for-one
adjustment of the nominal interest rate to the inflation rate
Fisher Effect
the resources wasted when inflation encourages people to reduce their money holdings
Shoeleather cost
the costs of changing prices
Menu costs
the price of a good that prevails in the world market for that good
world price
tax on goods produced abroad and sold domestically
tariff
he quantity of goods and services produced from each unit of labor input
productivity
the stock equipment and structures that are used to produce goods and services
Physical Capital
the knowledge and skills that workers acquire through education, training, and experience
Human Capital
the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits
natural resources
society’s understanding of the best ways to produce goods and services
Technological Knowledge
the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases
diminishing return
the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich
catch-up effect
