Term
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Definition
| A legal maximum on the price of a good or service. Example: Rent Control. If it is below equilibrium price, a shortage results. |
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Term
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Definition
| A legal minimum on the price of a good or service. Example: Minimum wage. If it is above the equilibrium price, a surplus occurs. |
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Term
| How do minimum wage laws affect the market for labor? |
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Definition
| Minimum wage laws typically affect unskilled workers. They cause unemployment for people who would have accepted a wage lower than the minimum. |
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Term
| Excise tax effects on the Supply Curve |
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Definition
| Excise taxes are paid by producers and a portion of them are passed on to consumers. When a good is taxed, buyers pay more and sellers receive less, so market activity declines. |
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Term
| Price-absorption determinants |
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Definition
If the demand is elastic, the producer will pay more of the tax.
If the demand is inelastic, the consumer will pay more of the tax. |
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Term
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Definition
| The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. Declining surplus is the result of the Law of Diminishing Marginal Utility. |
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Term
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Definition
| The amount a seller is paid for a good minus the seller's cost of providing it. |
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Term
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Definition
| When the sum of consumer and producer surplus is maximized, which occurs at equilibrium. |
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Term
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Definition
| When the act of production or consumption causes a cost to be incurred by someone outside of the market. Ex: Pollution. Solution: Taxes. |
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Term
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Definition
| The act of production or consumption confers a benefit on someone outside of the market. EX: Vaccines/immunity. Solution: Subsidies. |
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Term
| How do you calculate the marginal social benefit? |
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Definition
| Add the sum of consumer and producer surplus. |
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Term
| When does the market not get to allocative efficiency? |
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Definition
| When externalities are present. |
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Term
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Definition
| Capital is fixed and Labor is variable. |
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Term
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Definition
| All factors of production are variable. |
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Term
| Formula for marginal product of labor |
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Definition
| Change in output/change in labor |
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Term
| Diminishing Marginal Product Definition |
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Definition
| When you increase labor, your output increases by decreasing amounts. |
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Term
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Definition
| The lower envelope of all short run average costs. |
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Term
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Definition
| The downward-sloping part of a long run average cost curve. When long run average total cost declines as output increases. |
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Term
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Definition
| When long run average total costs rises as output increases. The upward sloping part of the long run average total cost curve. |
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Term
| Constant Returns to Scale |
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Definition
| When long run average total cost does not vary with the level of output. The flat part of the long run average total cost curve. |
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Term
| What's the difference between taxation of a sole proprietorship and a corporation? |
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Definition
| A sole proprietorship is taxed only once at the individual level. A corporation is taxed at the corporate level and the individual level. |
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Term
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Definition
| Money loaned to a business. The person who loans the money gets annual interest, and at a set date, gets the principle back. Bondholders are not owners of the company, but they get closer to the front of the line during bankruptcy. |
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Term
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Definition
| Stockholders are part owners who get to vote on company issues. Owning stock is riskier than bonds, but they get greater return on their investment. |
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Term
| Why is the supply curve upward sloping? 5 reasons |
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Definition
| 1.Law of diminishing marginal product.2. Law of increasing marginal costs. 3. Profit Maximization occurs when price=marginal costs. 4. Firm supply curve is upward sloping. 5. Market Supply is upward sloping. |
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Term
| 4 Characteristics of perfect competition: |
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Definition
| 1.Large number of buyers and sellers. 2.Homogeneous products. 3.Perfect Information.4.Easy entry and exit of market. |
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Term
| What shape is the demand curve for an individual firm in perfect competition? What other factors do this curve represent? |
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Definition
| In perfect competition, a firm's demand curve will be a straight line equal to the market price and marginal revenue. |
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Term
| When are profits maximized? |
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Definition
| When the distance between total revenues and total costs is the greatest, profits are maximized. |
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Term
| At what price will a firm shut down? |
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Definition
| At any price below the minimum of average variable costs, a firm is better off shutting down. |
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Term
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Definition
| Paying taxes on sold stock. |
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Term
| Law of increasing marginal costs |
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Definition
| reflects law of diminishing marginal product. When there are lots of workers but fixed capital, the marginal product of an extra worker is low. |
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