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
marginal utitility
The change in an individual’s total utility from the consumption of an additional unit of a good or service.
market
A group with buyers and sellers of a good or service
market economy
An economic system in which resources are allocated through the decentralized decisions of firms and consumers
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
market failure
The inability of the free market to allocate resources efficiently
market power
The ability to set a price above the perfectly competitive level
monopolistic competition
A market structure characterized by a few small firms producing a differentiated product with easy entry into the market
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
monopsony
A factor market in which there is a sole firm that has market power
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
necessity
A good for which the proportional increase in consumption is less than the proportional increase in income
negative externality
The existence of spillover costs upon third parties from the production of a good
noncollusive oligopoly
Models of industries in which firms are competitive rivals seeking to gain at the expense of their rivals
nonrenewable resources
Natural resources that cannot replenish themselves
normal goods
A good for which demand increases with an increase
normal profit
The opportunity cost of the entrepreneur’s talents. Another way of saying the firm is earning zero economic profit
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.
opportunity cost
The value of the sacrifice made to pursue a course of action
perfectly elastic
In this special case, the demand curve is horizontal, meaning consumers have an instantaneous and infinite response to a change in price
perfectly inelastic
In this special case, the demand curve is vertical and there is absolutely no response to a change in price.
positive externality
The existence of spillover benefits upon third parties from the production of a good.
price ceiling
A legal maximum price above which a product can’t be sold
price discrimination
The sale of the same product to different groups of consumers at different prices
price elasticity of demand
Measures the sensitivity of consumers’ quantity demanded for good X when the price of good X changes
price elasticity of supply
Measures the sensitivity of producers’ quantity supplied for good X when the price of good X changes.
price floor
A legal minimum price below which the product cannot be sold
prisoner’s dilemma
A game where the two rivals achieve a less desirable outcome because they are unable to coordinate their strategies
private goods
Goods that are both rival and excludable
producer surplus
The difference between the price received and the marginal cost of producing the good
productive effiency
Production of maximum output for a given level of technology, into finished goods and services
production function
The mechanism for combining production resources, with existing technology, into finished goods and services
production possibilities
The different quantities of goods that am economy can produce with a given amount of scarce resources
production possibility curve
A graphical device that shows the combination of two goods that a nation can efficiently produce with available resources and technology
productivity
The quantity of output that can be produced per worker in a given amount of time
profit maximizing resource employment
The firm hires a resource up to the point where MRP=MRC
progressive tax
A tax where the proportion of income paid in taxes rises as income rises
proportional tax
A tax where the proportion of income paid in taxes is constant no matter the level of income
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
public goods
Goods that are both nonrival and nonexcludable
quintiles
When you rank household income from lowest to highest, each quintile represents 20 percent of all households
quota
A maximum amount of a good that can be imported into the domestic market
regressive tax
A tax where the proportion of income paid in taxes decreases as income rises.
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
renewable resources
Natural resources that can replenish themselves if they are not over harvested
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.
revenue tariff
An excise tax levied on goods that are not produced in the domestic market.
scarcity
The imbalance between limited productive resources and unlimited human wants
shortage
A situation in which, at the market price, the quantity demanded exceeds the quantity supplied
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.
specialization
Production of goods, or performance of tasks, based upon comparative advantage
spillover benefits
Additional benefits to society, not captured by the market demand curve from the production of a good.
spillover costs
Additional benefits to society, not captured by the market demand curve from the production of a good
subsidy
A government transfer, either to consumers or producers, on the consumption or production of a good
substitute goods
Two goods are consumer substitutes if they provide essentially the same utility to the consumer
substitution effect
The change in quantity demanded resulting from a change in the price of good relative to the price of other goods
supply curve
Shows the quantity of a good supplied at all prices
supply schedule
A table showing quantity supplied for a good at various prices
surplus
A situation in which, at the going market price, the quantity supplied exceeds the quantity demanded
tax bracket
A range of income on which a given marginal tax rate is applied
technology
A nation’s knowledge of how to produce goods in the best possible way
total cost(TC)
The sum of total fixed and total variable costs at any level level of output
total fixed costs(TFC)
Production costs that do not vary with the level of output
total product(TPL) of labor
The total quantity of output produced for a given quantity of labor employed
total revenue
The price of a good multiplied by the quantity of that good sold
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
total utility
The total happiness received from consumption of a number of units of a good
total variable costs(TVC)
production costs that change with the level of output
total welfare
The sum of consumer surplus and producer surplus
trade-offs
The reality of scarce resources implies that individuals, firms, and governments are constantly faced with difficult choices that involve benefits and costs
unit elastic demand
Ed=1. The percentage change in price is equal to percentage change in quantity demanded.
utility
Happiness, or benefit or satisfaction, or enjoyment gained from consumption of goods or services
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.
utils
A hypothetical unit of measurement often used to quantify utility; aka “happy points”
variable inputs
Production inputs that the firm can adjust in the short run to meet changes in demand for the firm’s output.
world price
The global equilibrium price of a good when nations engage in trade
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
