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Ch 5-7, 9
Essentials of Economics, 7e - Schiller
47
Economics
Undergraduate 3
10/15/2008

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Term
Supply
Definition
The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period.
Term
Factors of Production
Definition
Resource inputs used to produce goods and services, e.g., land, labor, capital, entreprenuership.
Term
Production Function
Definition
A technological relationship expressing the maximum quantity of a good attainable from different combinations of factor inputs.
Term
Marginal Physical Product (MPP)
Definition
The change in total output associated with one additional unit of input.
Term
Law of Diminishing Returns
Definition
The marginal physical product of a variable input declines as more of it is employed with a given quantity of other (fixed) inputs.
Term
Short Run
Definition
The period in which the quantity (and quality) of some inputs cannot be changed.
Term
Long Run
Definition
A period of time long enough for all inputs to be varied (no fixed costs).
Term
Profit
Definition
The difference between total revenue and total cost.
Term
Total Cost
Definition
The market value of all resources used to produce a good or service.
Term
Fixed Costs
Definition
Costs of production that do not change when the rate of output as altered, e.g., the cost of basic plant and equipment.
Term
Variable Costs
Definition
Costs of production that change when the rate of output is altered, e.g., labor and material costs.
Term
Average Total Cost (ATC)
Definition
Total cost divided by the quantity produced in a given time period.
Term
Marginal Cost (MC)
Definition
The increase in total cost associated with a one-unit increase in production.
Term
Production Decision
Definition
The selection of the short-run rate of output (with existing plant and equipment).
Term
Investment Decision
Definition
The decision to build, buy, or lease plant and equipment: to enter or exit an industy.
Term
Economic Cost
Definition
The value of all resources used to produce a good or service: opportunity cost.
Term
Profit
Definition
The difference between total revenue and total cost.
Term
Market Structure
Definition
The number and relative size of firms in an industry.
Term
Competitive Firm
Definition
A firm without market power, with no ability to alter the market price of the goods it produces.
Term
Competitive Market
Definition
A market in which no buyer or seller has market power.
Term
Monopoly
Definition
A firm that produces the entire market supply of a particular good or service.
Term
Market Power
Definition
The ability to alter the market price of a good or service.
Term
Total Revenue
Definition
The price of a product multiplied by the quantity sold in a given time period, p x q.
Term
Competitive Profit-Maximization Rule
Definition
Produce at that rate of output where price equals marginal cost.
Term
Market Supply
Definition
The total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period.
Term
Equilibrium Price
Definition
The price at which the quantity of a good demanded in a given time period equals the quantity supplied.
Term
Barriers to Entry
Definition
Obstacles that make it difficult or impossible for would-be producers to enter a particular market, e.g., patents.
Term
Market Mechanism
Definition
The use of market prices and sales to signal desired outputs (or resource allocations).
Term
Market Demand
Definition
The total quantities of a good or service people are willing and able to buy at alternative prices in a given time period; the sum of individual demands.
Term
Patent
Definition
Government grant of exclusive ownership of an innovation.
Term
Marginal Revenue (MR)
Definition
The change in total revenue that results from a one-unit increase in quantity sold.
Term
Profit-Maximization Rule
Definition
Produce at that rate of output where marginal revenue equals marginal cost.
Term
Economies of Scale
Definition
Reductions in minimum average costs that come about through increases in the size (scale) of plant and equipment.
Term
Natural Monopoly
Definition
An industry in which one firm can achieve economies of scale over the entire range of market supply.
Term
Contestable Market
Definition
An imperfectly competitive industry subject to potential entry if prices or profits increase.
Term
Optimal Mix of Output
Definition
The most desirable combination of output attainable with existing resources, technology, and social values.
Term
Market Failure
Definition
An imperfection in the market mechanism that prevents optimal outcomes.
Term
Public Good
Definition
A good or service whose consumption by one person does not exclude consumption by others.
Term
Private Good
Definition
A good or service whose consumption by one person excludes consumption by others.
Term
Free Rider
Definition
An individual who reaps direct benefits from someone else's purchase (consumption) of a public good.
Term
Externalities
Definition
Costs (or benefits) of a market activity brone by a third party; the difference between the social and private costs (benefits) of a market activity.
Term
Social Costs
Definition
The full resource costs of an economic activity, including externalities.
Term
Private Costs
Definition
The costs of an economic activity directly borne by the immediate producer or consumer (excluding externalities).
Term
Emission Charge
Definition
A fee imposed on polluters based on the quantity of pollution.
Term
Antitrust
Definition
Government intervention to alter market structure or prevent abuse of market power.
Term
Income Transfers
Definition
Payments to individuals for which no current goods or services are exchanged, e.g., Social Security, welfare, unemployment benefits.
Term
Government Failure
Definition
Government intervention that fails to improve economic outcomes.
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