Vocabulary Flashcards
Absolute Advantage
The ability to produce more of a good than all other producers.
Absolute(or money) prices
The price of a good measured in units of currency
accounting profit
The difference between total revenue and total explicit cosy
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
allocative effiency
Production of the combination of goods and services
average fixed cost(AFC)
Total fixed cost divided by output
Average product(APL) of labor
Total product divided by the labor employed
Average tax rate
The proportion of total income paid to taxes
Average total cost(ATC)
Total cost divided by output
Average variable cost(AVC)
Total variable cost divided by output
Capitalist market system(capitalism)
An economic system based upon the fundamentals of private property, freedom, self-interest, and prices
Cartel
Firms that agree to maximize their joint profits rather than compete
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.
collusive oligopoly
Models where firms agree to work together to mutually improve their situation
comparative advantage
The ability to produce a good at lower opportunity cost than all other producers
complementary goods
Two goods that provide more utility when consumed together than when consumed separately
constant returns to scale
The horizontal range of long-run average total cost where LRAC is constant over a variety of plant sizes
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
consumer surplus
The difference between a buyer’s willingness to pay and the price actually paid.
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
deadweight loss
The lost net benefit to society caused by a movement from the competitive market equilibrium.
demand curve
Shows the quantity of a good demanded at all prices
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.
demand schedule
A table showing quantity demanded for a good at all prices
derived demand
Demand for a resource arising from the demand for the goods produced by the resources
determinants of demand
the external factors that shift demand to the left or right
determinants of supply
the external factors that influence supply. When these variables change, the entire supply curve shifts to the left or right
disequilibruim
Any price where the quantity demanded does not equal the quantity suppiled
diseconomies of scale
The upward part of the long-run average total cost curve where LRAC rises as plant size rises
domestic price
The equilibrium price of a good in a nation without trade
dominant strategy
A strategy that is always the best strategy to pursue, regardless of what a rival is doing
economic costs
The sum of explicit and implicit costs of production
economic growth
The increase in an economy’s PPF over time
economic profit
The difference between total revenue and total economic cost
economics
The study of how society allocates scarce resources
economies of scale
The downward part of the long-run average total cost curve where LRAC falls as plant size rises
egalitarianism
The philosophy that all citizens should receive an equal share of the economic resources
elasticity
Measures the sensitivity, or responsiveness, of a choice to a change in an external factor
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
excess capacity
The difference between the long run output in monopolistic competition and the output at minimum average total cost
excess demand
The difference between quantity supplied and quantity demanded. A shortage
excess supply
The difference between quantity supplied and quantity demanded. A surplus
excise tax
A per unit tax on a specific good or service
explicit costs
Direct, purchased, out-of-pocket costs, paid to resource suppliers outside the firm. Also referred to as accounting costs
exports
Goods and services produced domestically but sold abroad
factors of production
Inputs or resources that go into the production function to produce goods and services
firm
An organization that employs factors of production to produce a good or service that it hopes to profitably sell
fixed inputs
Production inputs that cannot be changed in the short run
four-firm concentration ratio
The sum of the market share of the four largest firms in the industry
free rider
An individual who receives the benefit of a good without incurring any cost for the good
free rider problem
The lack of private funding for a public good due to the presence of free riders
game theory
An approach for modeling the strategic interactions of firms in oligopoly markets
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.
human capital
The amount of knowledge and skills that labor can apply to the work that they do
implicit costs
Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur
imports
Goods produced abroad but consumed domestically
incidence of tax
The division of a tax between consumers and producers
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)
income elasticity
A measure of how sensitive consumption of a good is to a change in consumers’ income
inferior goods
A good for which demand decreases with an increase in consumer income
law of demand
All else equal, when the price of a good rises, the quantity demanded of that good falls
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
law of diminishing marginal utility
In a given time period, as consumption of an item increases, the marginal(additional) utility from that item falls
law of increasing costs
As more of a good is produced, the greater is its opportunity(or marginal) cost
law of increasing marginal utility
In a given time period, as consumption of an item increases, the marginal(additional) utility from that item falls
law of supply
All else equal, when the price of a good rises, the quantity supplied of that good rises
least-cost rule
The combination of labor and capital that minimizes total costs for a given production rate is where MP1/PL=MPK/PK
long run
A period of time long enough for the firm to alter all production inputs, including the plant size
Lorenz curve
A graphical device that shows how a nation’s income is distributed across the nation’s households
luxury
A good for which the proportional increase in consumption exceeds the proportional increase in income
marginal
The next unit, or increment of, an action
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.
marginal benefit(MB)
…The additional benefit received from the consumption of the next unit of a good or service
Marginal cost(MC)
The additional cost of producing one more unit of output
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
marginal product(MPL) of labor
The change in total product in resulting from a change in the labor unit
marginal resource cost(MRC)
The change in a firm’s total cost from the hiring of an additional unit of an input
marginal revenue product of labor(MPR)
The change in a firm’s total revenue from the hiring of an additional unit of input
marginal tax rate
The rate paid on the last dollar earned, calculated by taking the ratio of the change in the change in income
