Vocabulary Flashcards
1
Q
Absolute Advantage
A
The ability to produce more of a good than all other producers.
2
Q
Absolute(or money) prices
A
The price of a good measured in units of currency
3
Q
accounting profit
A
The difference between total revenue and total explicit cosy
4
Q
all else equal
A
The assumption that all other variables are held constant so that we can predict how a change in one variable affects a second. Also known as the “ceteris paribus” assumption
5
Q
allocative effiency
A
Production of the combination of goods and services
6
Q
average fixed cost(AFC)
A
Total fixed cost divided by output
7
Q
Average product(APL) of labor
A
Total product divided by the labor employed
8
Q
Average tax rate
A
The proportion of total income paid to taxes
9
Q
Average total cost(ATC)
A
Total cost divided by output
10
Q
Average variable cost(AVC)
A
Total variable cost divided by output
11
Q
Capitalist market system(capitalism)
A
An economic system based upon the fundamentals of private property, freedom, self-interest, and prices
12
Q
Cartel
A
Firms that agree to maximize their joint profits rather than compete
13
Q
Circular flow of economic activity(or circular of goods and services)
A
A model that shows how households and firms circulate resources, goods, and incomes through the economy. This basic model is expanded to include the government and the foreign sector.
14
Q
collusive oligopoly
A
Models where firms agree to work together to mutually improve their situation
15
Q
comparative advantage
A
The ability to produce a good at lower opportunity cost than all other producers
16
Q
complementary goods
A
Two goods that provide more utility when consumed together than when consumed separately
17
Q
constant returns to scale
A
The horizontal range of long-run average total cost where LRAC is constant over a variety of plant sizes
18
Q
constrained utility maximization
A
Given prices and income, a consumer stops consuming a good when the price paid for the next unit is equal to the marginal utility recieved
19
Q
consumer surplus
A
The difference between a buyer’s willingness to pay and the price actually paid.
20
Q
cross-price elasticity of demand
A
a measure of how sensitive the consumption of good X is to a change in the price of good Y
21
Q
deadweight loss
A
The lost net benefit to society caused by a movement from the competitive market equilibrium.
22
Q
demand curve
A
Shows the quantity of a good demanded at all prices
23
Q
demand for labor
A
Shows the quantity of labor demanded at all wages. Labor demand for a firm hiring in a competitive labor market is MRPL.
24
Q
demand schedule
A
A table showing quantity demanded for a good at all prices
25
derived demand
Demand for a resource arising from the demand for the goods produced by the resources
26
determinants of demand
the external factors that shift demand to the left or right
27
determinants of supply
the external factors that influence supply. When these variables change, the entire supply curve shifts to the left or right
28
disequilibruim
Any price where the quantity demanded does not equal the quantity suppiled
29
diseconomies of scale
The upward part of the long-run average total cost curve where LRAC rises as plant size rises
30
domestic price
The equilibrium price of a good in a nation without trade
31
dominant strategy
A strategy that is always the best strategy to pursue, regardless of what a rival is doing
32
economic costs
The sum of explicit and implicit costs of production
33
economic growth
The increase in an economy's PPF over time
34
economic profit
The difference between total revenue and total economic cost
35
economics
The study of how society allocates scarce resources
36
economies of scale
The downward part of the long-run average total cost curve where LRAC falls as plant size rises
37
egalitarianism
The philosophy that all citizens should receive an equal share of the economic resources
38
elasticity
Measures the sensitivity, or responsiveness, of a choice to a change in an external factor
39
elasticity along the demand curve
At the midpoint of a linear demand curve, Ed=1. Above the midpoint demand is elastic, and below the midpoint demand is inelastic
40
excess capacity
The difference between the long run output in monopolistic competition and the output at minimum average total cost
41
excess demand
The difference between quantity supplied and quantity demanded. A shortage
42
excess supply
The difference between quantity supplied and quantity demanded. A surplus
43
excise tax
A per unit tax on a specific good or service
44
explicit costs
Direct, purchased, out-of-pocket costs, paid to resource suppliers outside the firm. Also referred to as accounting costs
45
exports
Goods and services produced domestically but sold abroad
46
factors of production
Inputs or resources that go into the production function to produce goods and services
47
firm
An organization that employs factors of production to produce a good or service that it hopes to profitably sell
48
fixed inputs
Production inputs that cannot be changed in the short run
49
four-firm concentration ratio
The sum of the market share of the four largest firms in the industry
50
free rider
An individual who receives the benefit of a good without incurring any cost for the good
51
free rider problem
The lack of private funding for a public good due to the presence of free riders
52
game theory
An approach for modeling the strategic interactions of firms in oligopoly markets
53
Gini ratio
A measure of income inequality. As the Gini ratio gets closer to zero, the more equally the income is distributed. As the Gini ratio gets closer to one, the more unequally the income is distributed.
54
human capital
The amount of knowledge and skills that labor can apply to the work that they do
55
implicit costs
Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur
56
imports
Goods produced abroad but consumed domestically
57
incidence of tax
The division of a tax between consumers and producers
58
income effect
Due to the higher price, the change in quantity demanded that results from a change in the consumer's purchasing power(or real income)
59
income elasticity
A measure of how sensitive consumption of a good is to a change in consumers' income
60
inferior goods
A good for which demand decreases with an increase in consumer income
61
law of demand
All else equal, when the price of a good rises, the quantity demanded of that good falls
62
law of diminishing marginal returns
As successive units of a variable input are added to a fixed input, beyond some point the marginal product declines
63
law of diminishing marginal utility
In a given time period, as consumption of an item increases, the marginal(additional) utility from that item falls
64
law of increasing costs
As more of a good is produced, the greater is its opportunity(or marginal) cost
65
law of increasing marginal utility
In a given time period, as consumption of an item increases, the marginal(additional) utility from that item falls
66
law of supply
All else equal, when the price of a good rises, the quantity supplied of that good rises
67
least-cost rule
The combination of labor and capital that minimizes total costs for a given production rate is where MP1/PL=MPK/PK
68
long run
A period of time long enough for the firm to alter all production inputs, including the plant size
69
Lorenz curve
A graphical device that shows how a nation's income is distributed across the nation's households
70
luxury
A good for which the proportional increase in consumption exceeds the proportional increase in income
71
marginal
The next unit, or increment of, an action
72
marginal analysis
Making decisions based upon weighting the marginal benefits and costs of that action. The rational decision maker chooses an action if the MB is greater than or equal to MC.
73
marginal benefit(MB)
...The additional benefit received from the consumption of the next unit of a good or service
74
Marginal cost(MC)
The additional cost of producing one more unit of output
75
marginal productivity theory
The theory that a citizen's share of economic resources is proportional to the marginal revenue product of his or her labor
76
marginal product(MPL) of labor
The change in total product in resulting from a change in the labor unit
77
marginal resource cost(MRC)
The change in a firm's total cost from the hiring of an additional unit of an input
78
marginal revenue product of labor(MPR)
The change in a firm's total revenue from the hiring of an additional unit of input
79
marginal tax rate
The rate paid on the last dollar earned, calculated by taking the ratio of the change in the change in income
80
marginal utitility
The change in an individual's total utility from the consumption of an additional unit of a good or service.
81
market
A group with buyers and sellers of a good or service
82
market economy
An economic system in which resources are allocated through the decentralized decisions of firms and consumers
83
market equilibruim
Exists the only price where the quantity supplied equals the quantity demanded. Or, it is the only quantity where the price consumers are willing to pay is exactly the price producers are willing to accept
84
market failure
The inability of the free market to allocate resources efficiently
85
market power
The ability to set a price above the perfectly competitive level
86
monopolistic competition
A market structure characterized by a few small firms producing a differentiated product with easy entry into the market
87
monopoly
A market structure in which one firm is the sole producer of a good with no close substitutes in a market power i.e. wage setter
88
monopsony
A factor market in which there is a sole firm that has market power
89
natural monopoly
The case where economies of scale are so extensive that is less costly for one firm to supply the entire range of demand than for multiple firms to share the market
90
necessity
A good for which the proportional increase in consumption is less than the proportional increase in income
91
negative externality
The existence of spillover costs upon third parties from the production of a good
92
noncollusive oligopoly
Models of industries in which firms are competitive rivals seeking to gain at the expense of their rivals
93
nonrenewable resources
Natural resources that cannot replenish themselves
94
normal goods
A good for which demand increases with an increase
95
normal profit
The opportunity cost of the entrepreneur's talents. Another way of saying the firm is earning zero economic profit
96
oligopoly
A very diverse market structure characterized by a small number of interdependent large firms, producing either a standardized or differentiated product in a market with a barrier to entry.
97
opportunity cost
The value of the sacrifice made to pursue a course of action
98
perfectly elastic
In this special case, the demand curve is horizontal, meaning consumers have an instantaneous and infinite response to a change in price
99
perfectly inelastic
In this special case, the demand curve is vertical and there is absolutely no response to a change in price.
100
positive externality
The existence of spillover benefits upon third parties from the production of a good.
101
price ceiling
A legal maximum price above which a product can't be sold
102
price discrimination
The sale of the same product to different groups of consumers at different prices
103
price elasticity of demand
Measures the sensitivity of consumers' quantity demanded for good X when the price of good X changes
104
price elasticity of supply
Measures the sensitivity of producers' quantity supplied for good X when the price of good X changes.
105
price floor
A legal minimum price below which the product cannot be sold
106
prisoner's dilemma
A game where the two rivals achieve a less desirable outcome because they are unable to coordinate their strategies
107
private goods
Goods that are both rival and excludable
108
producer surplus
The difference between the price received and the marginal cost of producing the good
109
productive effiency
Production of maximum output for a given level of technology, into finished goods and services
110
production function
The mechanism for combining production resources, with existing technology, into finished goods and services
111
production possibilities
The different quantities of goods that am economy can produce with a given amount of scarce resources
112
production possibility curve
A graphical device that shows the combination of two goods that a nation can efficiently produce with available resources and technology
113
productivity
The quantity of output that can be produced per worker in a given amount of time
114
profit maximizing resource employment
The firm hires a resource up to the point where MRP=MRC
115
progressive tax
A tax where the proportion of income paid in taxes rises as income rises
116
proportional tax
A tax where the proportion of income paid in taxes is constant no matter the level of income
117
protective tariff
An excise tax levied on an imported good that is produced in the domestic market so that it may be protected from foreign competition
118
public goods
Goods that are both nonrival and nonexcludable
119
quintiles
When you rank household income from lowest to highest, each quintile represents 20 percent of all households
120
quota
A maximum amount of a good that can be imported into the domestic market
121
regressive tax
A tax where the proportion of income paid in taxes decreases as income rises.
122
relative prices
The price of one unit of good X measured not in currency, but in the number of units of good Y that must be sacrificed to acquire good X
123
renewable resources
Natural resources that can replenish themselves if they are not over harvested
124
resources
Also called factors of production, these are commonly grouped into the four categories of labor, physical capital, land or natural resources, and entrepreneurial ability.
125
revenue tariff
An excise tax levied on goods that are not produced in the domestic market.
126
scarcity
The imbalance between limited productive resources and unlimited human wants
127
shortage
A situation in which, at the market price, the quantity demanded exceeds the quantity supplied
128
short run
A period of time too short to change the size of the plant, but many other, more variable resources can be adjusted to meet demand.
129
specialization
Production of goods, or performance of tasks, based upon comparative advantage
130
spillover benefits
Additional benefits to society, not captured by the market demand curve from the production of a good.
131
spillover costs
Additional benefits to society, not captured by the market demand curve from the production of a good
132
subsidy
A government transfer, either to consumers or producers, on the consumption or production of a good
133
substitute goods
Two goods are consumer substitutes if they provide essentially the same utility to the consumer
134
substitution effect
The change in quantity demanded resulting from a change in the price of good relative to the price of other goods
135
supply curve
Shows the quantity of a good supplied at all prices
136
supply schedule
A table showing quantity supplied for a good at various prices
137
surplus
A situation in which, at the going market price, the quantity supplied exceeds the quantity demanded
138
tax bracket
A range of income on which a given marginal tax rate is applied
139
technology
A nation's knowledge of how to produce goods in the best possible way
140
total cost(TC)
The sum of total fixed and total variable costs at any level level of output
141
total fixed costs(TFC)
Production costs that do not vary with the level of output
142
total product(TPL) of labor
The total quantity of output produced for a given quantity of labor employed
143
total revenue
The price of a good multiplied by the quantity of that good sold
144
total revenue test
Total revenue rises with a price increase if demand is price inelastic and falls with a price increase if demand is price elastic
145
total utility
The total happiness received from consumption of a number of units of a good
146
total variable costs(TVC)
production costs that change with the level of output
147
total welfare
The sum of consumer surplus and producer surplus
148
trade-offs
The reality of scarce resources implies that individuals, firms, and governments are constantly faced with difficult choices that involve benefits and costs
149
unit elastic demand
Ed=1. The percentage change in price is equal to percentage change in quantity demanded.
150
utility
Happiness, or benefit or satisfaction, or enjoyment gained from consumption of goods or services
151
utility maximizing rule
The consumer chooses amounts of goods X and Y, with their limited income, so that the marginal utility per dollar spent is equal for both goods.
152
utils
A hypothetical unit of measurement often used to quantify utility; aka "happy points"
153
variable inputs
Production inputs that the firm can adjust in the short run to meet changes in demand for the firm's output.
154
world price
The global equilibrium price of a good when nations engage in trade
155
Absolute Advantage
The ability to produce more of a good than all other producers.
156
Absolute(or money) prices
The price of a good measured in units of currency
157
accounting profit
The difference between total revenue and total explicit cosy
158
all else equal
The assumption that all other variables are held constant so that we can predict how a change in one variable affects a second. Also known as the "ceteris paribus" assumption
159
allocative effiency
Production of the combination of goods and services
160
average fixed cost(AFC)
Total fixed cost divided by output
161
Average product(APL) of labor
Total product divided by the labor employed
162
Average tax rate
The proportion of total income paid to taxes
163
Average total cost(ATC)
Total cost divided by output
164
Average variable cost(AVC)
Total variable cost divided by output
165
Capitalist market system(capitalism)
An economic system based upon the fundamentals of private property, freedom, self-interest, and prices
166
Cartel
Firms that agree to maximize their joint profits rather than compete
167
Circular flow of economic activity(or circular of goods and services)
A model that shows how households and firms circulate resources, goods, and incomes through the economy. This basic model is expanded to include the government and the foreign sector.
168
collusive oligopoly
Models where firms agree to work together to mutually improve their situation
169
comparative advantage
The ability to produce a good at lower opportunity cost than all other producers
170
complementary goods
Two goods that provide more utility when consumed together than when consumed separately
171
constant returns to scale
The horizontal range of long-run average total cost where LRAC is constant over a variety of plant sizes
172
constrained utility maximization
Given prices and income, a consumer stops consuming a good when the price paid for the next unit is equal to the marginal utility recieved
173
consumer surplus
The difference between a buyer's willingness to pay and the price actually paid.
174
cross-price elasticity of demand
a measure of how sensitive the consumption of good X is to a change in the price of good Y
175
deadweight loss
The lost net benefit to society caused by a movement from the competitive market equilibrium.
176
demand curve
Shows the quantity of a good demanded at all prices
177
demand for labor
Shows the quantity of labor demanded at all wages. Labor demand for a firm hiring in a competitive labor market is MRPL.
178
demand schedule
A table showing quantity demanded for a good at all prices
179
derived demand
Demand for a resource arising from the demand for the goods produced by the resources
180
determinants of demand
the external factors that shift demand to the left or right
181
determinants of supply
the external factors that influence supply. When these variables change, the entire supply curve shifts to the left or right
182
disequilibruim
Any price where the quantity demanded does not equal the quantity suppiled
183
diseconomies of scale
The upward part of the long-run average total cost curve where LRAC rises as plant size rises
184
domestic price
The equilibrium price of a good in a nation without trade
185
dominant strategy
A strategy that is always the best strategy to pursue, regardless of what a rival is doing
186
economic costs
The sum of explicit and implicit costs of production
187
economic growth
The increase in an economy's PPF over time
188
economic profit
The difference between total revenue and total economic cost
189
economics
The study of how society allocates scarce resources
190
economies of scale
The downward part of the long-run average total cost curve where LRAC falls as plant size rises
191
egalitarianism
The philosophy that all citizens should receive an equal share of the economic resources
192
elasticity
Measures the sensitivity, or responsiveness, of a choice to a change in an external factor
193
elasticity along the demand curve
At the midpoint of a linear demand curve, Ed=1. Above the midpoint demand is elastic, and below the midpoint demand is inelastic
194
excess capacity
The difference between the long run output in monopolistic competition and the output at minimum average total cost
195
excess demand
The difference between quantity supplied and quantity demanded. A shortage
196
excess supply
The difference between quantity supplied and quantity demanded. A surplus
197
excise tax
A per unit tax on a specific good or service
198
explicit costs
Direct, purchased, out-of-pocket costs, paid to resource suppliers outside the firm. Also referred to as accounting costs
