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ECO 201 Final
Granderson
157
Economics
Undergraduate 2
12/12/2011

Additional Economics Flashcards

 


 

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Term
Tradeoff
Definition
We have limited resources, therefore if we want to increase production of one good we must decrease our production of something else.
Term
Production Possibility Frontier
(PPF)
Definition
Boundary between the combination of goods and services that can be produced and the combinations that cannot be produced.
Term
Model Economy
Definition
Everything remains the same except for the production of the two goods we are considering.
Term
Production Efficiency
Definition
A situation in which goods and services are produced at the lowest possible cost
Term
Opportunity Cost
Definition
The highest-valued alternative that we give up to get something
Term
Allocative Efficiency
Definition
A situation in which goods and services are produced at the lowest possible cost and the quantities that provide the greatest possible benefit. (We cannot produce more of any good without giving up some of another good that we value more highly.)
Term
Marginal Cost
Definition
The opportunity cost of producing one more unit of a good or service. It is the best alternative forgone. It is calculated as the increase in total cost divided by the increase in output.
Term
Preferences
Definition
A description of a person's likes and dislikes.
Term
Marginal Benefit
Definition
The benefit that a person receives from consuming one more unit of a good or service.  It is measured as the maximum amount that a person is willing to pay for one more unit of the good or service. 
Term
Marginal Benefit Curve
Definition
A curve that shows the relationship between the marginal benefit of a good and the quantity of that good consumed.
Term
Economic Growth
Definition
The expansion of production possibilities that results from capital accumulation and technological change.
Term
Technological Change
Definition
The development of new goods and of better ways of producing goods and services.
Term
Captial Accumulation
Definition
The growth of capital resources, including human capital.
Term
Specialization
Definition
Producing only one good or a few goods.
Term
Comparative Advantage
Definition
A person or country has a comparative advantage in an activity if that person or country can perform the activity at a lower opportunity cost than anyone else or any other country.
Term
Absolute Advantage
Definition
A person has an absolute advantage if that person is more productive than another person.
Term
Learning-by-Doing
Definition
People become more productive in an activity (learning) just by repeatedly producing a particular good or service (doing).
Term
Dynamic Comparative Advantage
Definition
A comparative advantage that a person or country possesses as a result of having speacialized in a particular activity and then, as a result of learning-by-doing, having become the producer with the lowest opportunity cost.
Term
Firms
Definition
An economic unit that hires factors of production and organizes those factors to produce and sell goods and services.
Term
Markets
Definition
Any arrangement that enables buyers and sellers to get information and to do business with each other.
Term
Property Rights
Definition
Social arrangements that govern the ownership, use, and disposal of anything that people value that are enforceable in the courts.
Term
Money
Definition
Any commodity or token that is generally acceptable as the means of payment.
Term
Real Property
Definition
Includes land and buildings--the things we call property in ordinary speech--and durable goods such as plant and equipment.
Term
Financial Property
Definition
Includes stocks and bonds and money in the bank.
Term
Intellectual Property
Definition
Intangible product of creative effort including books, music, computer programs, and inventions of all kinds and is protected by copyrights and patents.
Term
Competitive Market
Definition
A market that has many buyers and many sellers, so no single buyer or seller can influence the price.
Term
Money Price
Definition
The number of dollars that must be given up in exchange for a good or service.
Term
Relative Price
Definition
The ratio of the price of one good or service to the price of another good or service. It is aka an opportunity cost.
Term
Quantity Demanded
Definition
The amount of a good or service that consumers plan to buy during a given time period at a particular price.
Term
Law of Demand
Definition
Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded of it; the lower the price of a good, the larger is the quantity demanded of it.
Term
Demand
Definition
The entire relationship between the price of the good and the quantity demanded of it when all other influences on buyers' plans remain the same. It is illustrated by a demand curve and described by a demand schedule.
Term
Demand Curve
Definition
A curve that shows the relationship between the quantity demanded of a good and its price when all other influences on consumers' planned purchases remain the same.
Term
Change in Demand
Definition
A change in buyers plans that occurs when some influence on those plans other than the price of the good changes. It is illustrated by a shift of the demand curve.
Term
Substitute
Definition
A good that can be used in place of another good.
Term
Complement
Definition
A good that is used in conjunction with another good.
Term
Normal Good
Definition
A good for which demand increases as income increase.
Term
Inferior Good
Definition
A good for which demand decreases as income increases.
Term
Change in the Quantity Demanded
Definition
A change in buyers' plans that occurs when the price of a good changes but all other influences on buyers' plans remain unchanged. It is illustrated by a movement along the demand curve.
Term
Quantity Supplied
Definition
The amount of a good or service that producers plan to sell during a given time period at a particular price.
Term
Law of Supply
Definition
Other things remaining the same, the higher the price of a good, the greater is the quantity supplied of it.
Term
Supply
Definition
The entire relationship between the price of a good and the quantity supplied of it when all other influences on producers' planned sales remain the same. It is described by a supply schedule and illustrated by a supply curve.
Term
Supply Curve
Definition
A curve that shows the relationship between the quantity supplied of a good and its price when all other influences on producers' planned sales remain the same.
Term
Change in Supply
Definition
A change in sellers' plans that occurs when some influence on those plans other than the price of the good changes. It is illustrated by a shift of the supply curve.
Term
Change in the Quantity Supplied
Definition
A change in sellers' plans that occurs when the price of a good changes but all other influences on sellers' plans remain unchanged. It is illustrated by a movement along the supply curve.
Term
Equilibrium Price
Definition
The price at which the quantity demanded equals the quantity supplied.
Term
Equilibrium Quantity
Definition
The quantity bought and sold at the equilibrium price.
Term
Speculative Bubble
Definition
A process in which the price is rising because expectations that it will rise bring a rising actual price.
Term
Wants
Definition
Unlimited desires or wishes that people have for goods and services.
Term
Sunk Costs
Definition
Not part of the opportunity cost. Occur at the same expense no matter which option you undertake. Retrospective (past) costs that have already been incurred and cannot be recovered.
Term
Imports
Definition
The goods and services that we buy from people in other countries.
Term
Exports
Definition
The goods and services that we sell to people in other countries.
Term
Import Quota
Definition
A restriction that limits the maximum quantity of a good that may be imported in a given period.
Term
Infant-Industry Argument
Definition
The argument that it is necessary to protect a new industry to enable it to grow into a mature industry that can compete in world markets.
Term
Dumping
Definition
The sale by a foreign firm of exports at a lower price than the cost of production.
Term
Outsourcing
Definition
A U.S. firm buys finished goods, components, or services from other firms in the US or from firms in other countries.
Term
Offshoring
Definition
A U.S. firm buys finished goods, components, or services from other firms in other countries.
Term
Offshore Outsourcing
Definition
A U.S. firm buys finished goods, components, or services from other firms in other countries.
Term
Rent Seeking
Definition
The lobbying for special treatment by the government to create economic profit or to divert consumer surplus or producer surplus away from others. The pursuit of wealth by capturing economic rent.
Term
Budget Line
Definition
The limits to a household's consumption choices.
Term
Real Income
Definition
A household's income expressed as a quantity of goods that the household can afford to buy.
Term
Indifference Curve
Definition
A line that shows combinations of goods among which a consumer is indifferent.
Term
Marginal Rate of Substitution
Definition
The rate at which a person will give up good y (the good measured on the y-axis) to get an additional unit of x (the good measured on the x-axis) and at the same time remain indifferent (remain on the same indifference curve).
Term
Diminishing Marginal Rate of Substitution
Definition
The general tendency for a person to be willing to give up less of good y to get one more unit of good x, and at the same time remain indifferent, as the quantity of good x increases.
Term
Price Effect
Definition
The effect of a change in the price on the quantity of a good consumed, other things remaining the same.
Term
Income Effect
Definition
The effect of a change in income on consumption, other things remaining the same.
Term
Substitution Effect
Definition
The effect of a change in price of a good or service on the quantity bought when the consumer (hypothetically) remains indifferent between the original and the new consumption situations--that is, the consumer remains on the same indifference curve.
Term
Depreciation
Definition
The fall in the value of a firm's capital.
Term
Economic Profit
Definition
A firm's total revenue minus its total cost.
Term
Implicit Rental Rate
Definition
The firm's opportunity cost of using its own capital.
Term
Economic Depreciation
Definition
The change in the market value of capital over a give period.
Term
Forgone Interest
Definition
The funds used to buy capital could have been used for some other purpose, and in their next best use, they would have earned interest...it is an opportunity cost of production.
Term
Entrepreneurship
Definition
The human resource that organizes the other three factors of production: labor, land, and capital.
Term
Normal Profit
Definition
The return that an entrepreneur can expect to receive on the average.
Term
Owner's Labor Services
Definition
The owner of a firm might supply labor but not take a wage.
The opportunity cost is the wage income forgone by not taking the best alternative job.
Term
Technology
Definition
Any method of producing a good or service.
Term
Technological Efficiency
Definition
A situation that occurs when the firm produces a give output by using the least amount of inputs.
Term
Economic Efficiency
Definition
A situation that occurs when the firm produces a given output at the least cost.
Term
Command System
Definition
A method of allocating resources by the order (command) of someone in authority. In a firm a managerial hierarchy organizes production.
Term
Incentive System
Definition
A reward that encourages an action or a penalty that discourages one.
Term
Principal-Agent Problem
Definition
The problem of devising compensation rules that induce an agent to act in the best interest of a principal.
Term
Perfect Competition
Definition
A market in which there are many firms each selling an identical product; there are many buyers; there are no restrictions on entry into the industry; firms in the industry have no advantage over potential new entrants; and firms and buyers are well informed about the price of each firm's product.
The firm's marginal revenue=market price.
Term
Monopolistic Competition
Definition
A market structure in which a large number of firms make similar but slightly different products and compete on product quality, price, and marketing.
Term
Product Differentiation
Definition
Making product slightly different from the product of a competing firm.
Term
Oligopoly
Definition
A market structure in which a small number of firms compete.
Term
Monopoly
Definition
A market structure in which there is one firm, which produces a good or service that has no close substitutes and in which the firm is protected from competition by a barrier preventing the entry of new firms.
Term
The Four-Firm Concentration Ratio
Definition
A measure of market power that is calculated as the percentage of the value of sales accounted for by the four largest firms in an industry.
Term
Herfindahl-Hirschman Index
Definition
A measure of market power that is calculated as the square of the market share of each firm (as a percentage) summed over the largest 50 firms (or over all firms if there are fewer than 50) in a market.
Term
Transactions Costs
Definition
The opportunity costs of making trades in a market. The costs that arise from finding someone with whom to do business, of reaching an agreement about the price and other aspects of the exchange, and of ensuring that the terms of the agreement are fulfilled.
Term
Economies of Scale
Definition
Features of a firm's technology that lead to a falling long-run average cost as output increases.
Term
Economies of Scope
Definition
Decrease in average total cost that occur when a firm uses specialized resources to produce a range of goods and services.
Term
Barrier to Entry
Definition
A legal or natural constraint that protects a firm from potential competitors. There are three types: 1.) Natural 2.) Ownership 3.) Legal
Term
Natural Monopoly
Definition
An industry in which economies of scale enable one firm to supply the entire market at the lowest possible price.
Term
Legal Monopoly
Definition
A market in which competition and entry are restricted by the granting of a public franchise, government license, patent, or copyright.
Term
Patent
Definition
Exclusive right granted to the inventor of a product or service.
Term
Copyright
Definition
Exclusive right granted to the author or composer of a literary, musical, dramatic, or artistic work.
Term
Single-Price Monopoly
Definition
A monopoly that must sell each unit of its output for the same price to all its customers.
Term
Price Discrimination
Definition
The practice of selling different units of a good or service for different prices.
Term
Economic Rent
Definition
Any surplus---consumer surplus, producer surplus, or economic profit.
Term
Deadweight Loss
Definition
A measure of inefficiency. It is equal to the decrease in total surplus that results from an inefficient level of production.
Term
Excess Capacity
Definition
A firm has excess capacity if it produces below its efficient scale.
Term
Efficient Scale
Definition
The quantity at which average total cost is a minimum--the quantity at the bottom of the U-shaped ATC curve.
Term
Markup
Definition
The amount by which the firm's price exceeds its marginal cost.
Term
Average Total Cost(ATC)
Definition
Total cost per unit of output.
ATC=AFC+AVC
Term
Average Variable Cost(AVC)
Definition
Total variable cost per unit of output.
Term
Duopoly
Definition
A market structure in which two producers of a good or service compete.
Term
Cartel
Definition
A group of firms acting together--colluding--to limit output, raise the price, and increase economic profit.
Term
Game Theory
Definition
A tool for studying strategic behavior--behavior that takes into account the expected behavior of others and the recognition of mutual interdependence.
Term
Strategies
Definition
All the possible actions of each player in a game.
Term
Payoff Matrix
Definition
A table that shows the payoffs for every possible action by each player for every possible action by each other player.
Term
Nash Equilibrium
Definition
The outcome of a game that occurs when player A takes the best possible action given the action of player B and player B takes the best possible action given the action of player A.
Term
Collusive Agreement
Definition
An agreement between two (or more) producers to form a cartel to restrict output, raise the price, and increase profits.
Term
Dominant Strategy Equilibrium
Definition
An equilibrium in which the best strategy for each player is to cheat regardless of the strategy of the other player.
Term
Cooperative Equilibrium
Definition
The outcome of a game in which the players make and share the monopoly profit.
Term
Tit-for-Tat Strategy
Definition
One in which a player cooperates in the current period if the other player cooperated in the previous period, but cheats in the current period if the other player cheated in the previous period.
Term
Trigger Strategy
Definition
One in which a player cooperates if the other player cooperates but plays the Nash equilibrium strategy forever thereafter if the other player cheats.
Term
Contestable Market
Definition
A market in which firms can enter and leave so easily that firms in the market face competition from potential entrants.
Term
Limit Pricing
Definition
The practice of setting the price at the highest level that inflicts a loss on an entrant.
Term
Externality
Definition
A cost or a benefit that arises from production and falls on someone other than the producer, or a cost or a benefit that arises from consumption and falls on someone other than the consumer.
Term
Positive Externality
Definition
An externality that arises from either production or consumption and that provides an external benefit.
Term
Negative Externality
Definition
An externality that arises from either production or consumption and that imposes an external cost.
Term
Marginal Private Cost (MC)
Definition
The cost of producing an additional unit of a good or service that is borne by the producer of that good or service.
Term
External Cost
Definition
A cost of producing a good or service that is not borne by the producer but borne by other people.
Term
Marginal External Cost
Definition
The cost of producing an additional unit of a good or service that people other than the consumer enjoy.
Term
Marginal Social Cost(MSC)
Definition
The marginal cost incurred by the entire society--by the producer and by everyone else on whom the cost falls--and is the sum of marginal private cost and marginal external cost.
Term
Coase Theorem
Definition
The proposition that if property rights exist, if only a small number of parties are involved, and transactions costs are low, then private transactions are efficient.
Term
Pigovian Taxes
Definition
Taxes that are used as an incentive for producers to cut back on an activity that creates an external cost.
Term
Marginal Private Benefit(MB)
Definition
The benefit from an additional unit of a good or service that the consumer of that good or service receives.
Term
External Benefit
Definition
A benefit from a good or service that someone other than the consumer receives.
Term
Marginal External Benefit
Definition
The benefit from an additional unit of a good or service that people other than the consumer enjoy.
Term
Marginal Social Benefit(MSB)
Definition
The marginal benefit enjoyed by society--by the consumers of a good or service (marginal private benefit) plus the marginal benefit enjoyed by others (marginal external benefit).
Term
Public Provision
Definition
The production of a good or service by a public authority that receives its revenue from the government.
Term
Subsidy
Definition
A payment made by the government to a producer.
Term
Voucher
Definition
A token that the government provides to households, which they can use to buy specified goods and services.
Term
Intellectual Property Rights
Definition
Property rights for discoveries owned by the creators of knowledge.
Term
Short Run
Definition
The period of time in which the quantity of at least one factor of production is fixed and the quantities of the other factors can be varied. The fixed factor is usually capital--that is, the firm has a given plant size.
Term
Long Run
Definition
A period of time in which the quantities of all resources can be varied.
Term
Total Product
Definition
The total output produced by a firm in a given period of time.
Term
Marginal Product
Definition
The increase in total product that results from a one-unit increase in the variable input, with all other inputs remaining the same. It is calculated as the increase in total product divided by the increase in the variable input employed, when the quantities of all other inputs are constant.
Term
Average Product
Definition
The average product of a factor of production. It equals total product divided by the quantity of the factor employed.
Term
Diminishing Marginal Returns
Definition
The tendency for the marginal product of an additional unit of a factor of production to be less than the marginal product of the previous unit of the factor.
Term
Law of Diminishing Returns
Definition
As a firm uses more of a variable input, with a given quantity of other inputs (fixed inputs), the marginal product of the variable input eventually diminishes.
Term
Increasing Marginal Returns
Definition
Arise from increased specialization and division of labor in the production process.
Term
Total Cost(TC)
Definition
The cost of all the productive resources that a firm uses.
TC=TFC+TVC
Term
Total Fixed Cost(TFC)
Definition
The cost of the firm's fixed inputs.
Term
Total Variable Cost(TVC)
Definition
The cost of all the firm's variable inputs.
Term
Average Fixed Cost(AFC)
Definition
Total fixed cost per unit of output.
Term
Marginal Product of Capital
Definition
Change in total product divided by the change in capital when the quantity of labor is constant.
Term
Long-Run Average Cost(LRAC) Curve
Definition
The relationship between the lowest attainable average total cost and output when both plant size and labor are varied.
Term
Diseconomies of Scale
Definition
Features of a firm's technology that lead to rising long-run average cost as output increases.
Term
Constant Return to Scale
Definition
Features of a firm's technology that lead to constant long-run average cost as output increases. When constant returns to scale are present, the LRAC curve is horizontal.
Term
Minimum Efficient Scale
Definition
The smallest quantity of output at which the long-run average cost curve reaches its lowest level.
Term
Price Taker
Definition
A firm that cannot influence the price of the good or service it produces.
Term
Total Revenue
Definition
The value of a firm's sales. It is calculated as the price of the good multiplied by the quantity sold.
Term
Marginal Revenue
Definition
The change in total revenue that results from a one-unit increase in the quantity sold. It is calculated as the change in total revenue divided by the change in quantity sold.
Term
Shutdown Point
Definition
The output and price at which the firm just covers its total variable cost. In the short run, the firm is indifferent between producing the profit-maximizing output and shutting down temporarily.
Term
Short-Run Market Supply Curve
Definition
A curve that shows the quantity supplied in a market at each price when each firm's plant and the number of firms remain the same.
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