Term
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Definition
| The Study of how society manages its scarce resources |
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Term
| Economists Play what two roles? |
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Definition
| Scientists and Policy Advisors |
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Term
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Definition
| a visual model of the economy, shows how dollars flow through markets among households and firms |
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Term
| production Possibilities Frontier |
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Definition
| a graph that shows the combinations of two goods the economy can possibly produce given the available resources |
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Term
| Perfectly Competitive Market |
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Definition
all goods exactly the same
buyers and sellers so numerous that no one can effect market prince- each is a “price taker”
assume each market is perfectly competitive |
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Term
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Definition
| the claim that the quantity demanded of a good falls when the price of the good rises, other things equal |
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Term
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Definition
| the claim that the quantity supplied of a good rises |
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Term
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Definition
Increase in # of buyers- right
Increase in Income- right
causes shift in taste toward good- right |
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Term
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Definition
fall in input prices- right
advancement in technology- right
increase in # of sellers- right
people expect price of product to rise- right |
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Term
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Definition
| When quantity supplied is greater than quantity demanded |
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Term
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Definition
| when quantity demanded is greater than quantity supplied |
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Term
| Price elasticity of Demand |
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Definition
| Percentage change in Qd/percentage change in P |
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Term
| Price Elasticity of Supply |
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Definition
| Percentage change in Qs/Percentage change in P |
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Term
| Income elasticity of Demand |
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Definition
| Percent change in Qd/Percent change in income |
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Term
| Cross-Price Elasticity of Demand |
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Definition
| %change in Qd for good 1/%change in price of good 2 |
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Term
| What Determines Price elasticity? |
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Definition
| elasticity is higher when: close substitutes are available, good is narrowly defined, item is luxury, long run |
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Term
| Method for calculating percentage |
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Definition
(end value-start value)/Midpoint
Midpoint- halfway between start and end values. |
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Term
| Rule for Price Elasticity |
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Definition
flatter curve= bigger elasticity
Steeper curve= smaller elasticity |
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Term
| Price Elasticity and Revenue |
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Definition
| Revenue= Price x Quantity |
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Term
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Definition
| legal maximum on the price of a good or service |
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Term
| Non-binding price ceiling |
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Definition
| above the equilibrium, has no effect on market outcome |
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Term
| Binding Constraint: above or below equilibrium? Causes what? |
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Definition
| below equilibrium, causes shorage |
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Term
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Definition
| legal minimum on the price of a good service. |
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Term
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Definition
| studies how the allocation of resources affects economic well-being, maximum amount buyer will pay for good |
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Term
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Definition
| Buyer who would leave market if Price were higher |
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Term
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Definition
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Term
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Definition
| the seller who would leave the market if the price were any lower |
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Term
| Reasons for Fall in Producer Surplus (two) |
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Definition
| Sellers leaving market, remaining sellers after leave getting lower Price. |
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Term
| Consumer Surplus, Producer Surplus, Total Surplus. |
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Definition
| CS=(value to buyers)-(amount paid by buyers), PS=(amount received by sellers)-(cost to sellers), TS= CS + PS |
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Term
| Which Goods or service should govt tax to raise the revenue it needs |
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Definition
| Those with the smallest DWL |
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Term
| When is DWL smallor large? |
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Definition
inelastic supply, demand= small
elastic supply, demand= large |
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Term
| Doubling/tripling tax does what to deadweight loss? |
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Definition
| quadruples it. multiplies it by 9. |
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Term
| negative and positive externality |
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Definition
neg- effect on bystanders is adverse
pos- effect on bystanders is beneficial |
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Term
| Private and External Cost |
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Definition
Private- costs directly incurred by sellers
Ext.- value of negative impact on bystanders |
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Term
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Definition
| Total Revenue- Total Cost |
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Term
| Explicit & Implicit Costs |
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Definition
Exo- require outlay of money (wages for workers)
Imp.- no cash outlay (owners time) |
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Term
| Accounting & Economic Profit |
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Definition
Acc- total revenue - total explicit costs
Eco- total revenue- costs (explicit and implicit) |
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Term
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Definition
| increase in output arising from an additional unit of input, holding all other inputs constant |
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Term
| Marginal Product of Labor (MPL) |
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Definition
| change in output/change in labor |
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Term
| Diminishing marginal Product |
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Definition
| marginal product of input declines as quantity of the input increases (other things equal) |
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Term
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Definition
| increase in total cost from producing one more unit (change in TC/change in Q) |
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Term
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Definition
Fixed- do not vary with the quantity of out produced (cost of equipment, loan payments, rent)
Var- mary with quantity produced (cost of materials) |
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Term
| Average Fixed, Variable, and Total Cost |
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Definition
| all divided by Quantity of output, ATC=AFC+AVC |
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Term
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Definition
| as Q rises, falling AFC pulls ATC down. Eventually, rising AVC pulls ATC up |
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Term
| Costs in Long run v. Short run |
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Definition
short run- some inputs are fixed, these are FC
long run- all inputs are VC |
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Term
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Definition
| ATC falls as quantity increases, workers more efficient when focusing on narrow task,more common when Q is low |
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Term
| Total, Average, and Marginal Revenue |
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Definition
TR=PxQ
AR=TR/Q=P
MR=Change in TR/Change in Q=P (for competitive firm) |
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Term
| Marginal Cost and Revenue |
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Definition
| MC=MR at profit maximizing Q |
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Term
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Definition
Shutdown- short run decision not to produce because of market conditions (if price is less than AVC in SR, then shut down)
Exit- long run decision to leave market (if price is less that ATC and TR, exit) |
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Term
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Definition
| Only a few sellers offer similar or identical products |
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Term
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Definition
| many firms sell similar but not identical items |
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Term
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Definition
| an agreement among firms in a market about quantities to produce or prices to charge |
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