Term
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Definition
| We have limited resources, therefore if we want to increase production of one good we must decrease our production of something else. |
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Term
Production Possibility Frontier
(PPF) |
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Definition
| Boundary between the combination of goods and services that can be produced and the combinations that cannot be produced. |
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Term
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Definition
| Everything remains the same except for the production of the two goods we are considering. |
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Term
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Definition
| A situation in which goods and services are produced at the lowest possible cost |
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Term
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Definition
| The highest-valued alternative that we give up to get something |
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Term
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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.) |
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Term
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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. |
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Term
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Definition
| A description of a person's likes and dislikes. |
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Term
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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. |
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Term
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Definition
| A curve that shows the relationship between the marginal benefit of a good and the quantity of that good consumed. |
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Term
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Definition
| The expansion of production possibilities that results from capital accumulation and technological change. |
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Term
|
Definition
| The development of new goods and of better ways of producing goods and services. |
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Term
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Definition
| The growth of capital resources, including human capital. |
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Term
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Definition
| Producing only one good or a few goods. |
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Term
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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. |
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Term
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Definition
| A person has an absolute advantage if that person is more productive than another person. |
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Term
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Definition
| People become more productive in an activity (learning) just by repeatedly producing a particular good or service (doing). |
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Term
| Dynamic Comparative Advantage |
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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. |
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Term
|
Definition
| An economic unit that hires factors of production and organizes those factors to produce and sell goods and services. |
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Term
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Definition
| Any arrangement that enables buyers and sellers to get information and to do business with each other. |
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Term
|
Definition
| Social arrangements that govern the ownership, use, and disposal of anything that people value that are enforceable in the courts. |
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Term
|
Definition
| Any commodity or token that is generally acceptable as the means of payment. |
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Term
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Definition
| Includes land and buildings--the things we call property in ordinary speech--and durable goods such as plant and equipment. |
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Term
|
Definition
| Includes stocks and bonds and money in the bank. |
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Term
|
Definition
| Intangible product of creative effort including books, music, computer programs, and inventions of all kinds and is protected by copyrights and patents. |
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Term
|
Definition
| A market that has many buyers and many sellers, so no single buyer or seller can influence the price. |
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Term
|
Definition
| The number of dollars that must be given up in exchange for a good or service. |
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Term
|
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. |
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Term
|
Definition
| The amount of a good or service that consumers plan to buy during a given time period at a particular price. |
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Term
|
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. |
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Term
|
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. |
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Term
|
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. |
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Term
|
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. |
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Term
|
Definition
| A good that can be used in place of another good. |
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Term
|
Definition
| A good that is used in conjunction with another good. |
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Term
|
Definition
| A good for which demand increases as income increase. |
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Term
|
Definition
| A good for which demand decreases as income increases. |
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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. |
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Term
|
Definition
| The amount of a good or service that producers plan to sell during a given time period at a particular price. |
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Term
|
Definition
| Other things remaining the same, the higher the price of a good, the greater is the quantity supplied of it. |
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Term
|
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. |
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Term
|
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. |
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Term
|
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. |
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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. |
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Term
|
Definition
| The price at which the quantity demanded equals the quantity supplied. |
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Term
|
Definition
| The quantity bought and sold at the equilibrium price. |
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Term
|
Definition
| A process in which the price is rising because expectations that it will rise bring a rising actual price. |
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Term
|
Definition
| Unlimited desires or wishes that people have for goods and services. |
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Term
|
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. |
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Term
|
Definition
| The goods and services that we buy from people in other countries. |
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Term
|
Definition
| The goods and services that we sell to people in other countries. |
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Term
|
Definition
| A restriction that limits the maximum quantity of a good that may be imported in a given period. |
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Term
|
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. |
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Term
|
Definition
| The sale by a foreign firm of exports at a lower price than the cost of production. |
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Term
|
Definition
| A U.S. firm buys finished goods, components, or services from other firms in the US or from firms in other countries. |
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Term
|
Definition
| A U.S. firm buys finished goods, components, or services from other firms in other countries. |
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Term
|
Definition
| A U.S. firm buys finished goods, components, or services from other firms in other countries. |
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Term
|
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. |
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Term
|
Definition
| The limits to a household's consumption choices. |
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Term
|
Definition
| A household's income expressed as a quantity of goods that the household can afford to buy. |
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Term
|
Definition
| A line that shows combinations of goods among which a consumer is indifferent. |
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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). |
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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. |
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Term
|
Definition
| The effect of a change in the price on the quantity of a good consumed, other things remaining the same. |
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Term
|
Definition
| The effect of a change in income on consumption, other things remaining the same. |
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Term
|
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. |
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Term
|
Definition
| The fall in the value of a firm's capital. |
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Term
|
Definition
| A firm's total revenue minus its total cost. |
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Term
|
Definition
| The firm's opportunity cost of using its own capital. |
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Term
|
Definition
| The change in the market value of capital over a give period. |
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Term
|
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. |
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Term
|
Definition
| The human resource that organizes the other three factors of production: labor, land, and capital. |
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Term
|
Definition
| The return that an entrepreneur can expect to receive on the average. |
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Term
|
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. |
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Term
|
Definition
| Any method of producing a good or service. |
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Term
|
Definition
| A situation that occurs when the firm produces a give output by using the least amount of inputs. |
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Term
|
Definition
| A situation that occurs when the firm produces a given output at the least cost. |
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Term
|
Definition
| A method of allocating resources by the order (command) of someone in authority. In a firm a managerial hierarchy organizes production. |
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Term
|
Definition
| A reward that encourages an action or a penalty that discourages one. |
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Term
|
Definition
| The problem of devising compensation rules that induce an agent to act in the best interest of a principal. |
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Term
|
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. |
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Term
|
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. |
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Term
|
Definition
| Making product slightly different from the product of a competing firm. |
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Term
|
Definition
| A market structure in which a small number of firms compete. |
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Term
|
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. |
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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. |
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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. |
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Term
|
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. |
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Term
|
Definition
| Features of a firm's technology that lead to a falling long-run average cost as output increases. |
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Term
|
Definition
| Decrease in average total cost that occur when a firm uses specialized resources to produce a range of goods and services. |
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Term
|
Definition
| A legal or natural constraint that protects a firm from potential competitors. There are three types: 1.) Natural 2.) Ownership 3.) Legal |
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Term
|
Definition
| An industry in which economies of scale enable one firm to supply the entire market at the lowest possible price. |
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Term
|
Definition
| A market in which competition and entry are restricted by the granting of a public franchise, government license, patent, or copyright. |
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Term
|
Definition
| Exclusive right granted to the inventor of a product or service. |
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Term
|
Definition
| Exclusive right granted to the author or composer of a literary, musical, dramatic, or artistic work. |
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Term
|
Definition
| A monopoly that must sell each unit of its output for the same price to all its customers. |
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Term
|
Definition
| The practice of selling different units of a good or service for different prices. |
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Term
|
Definition
| Any surplus---consumer surplus, producer surplus, or economic profit. |
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Term
|
Definition
| A measure of inefficiency. It is equal to the decrease in total surplus that results from an inefficient level of production. |
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Term
|
Definition
| A firm has excess capacity if it produces below its efficient scale. |
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Term
|
Definition
| The quantity at which average total cost is a minimum--the quantity at the bottom of the U-shaped ATC curve. |
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Term
|
Definition
| The amount by which the firm's price exceeds its marginal cost. |
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Term
|
Definition
Total cost per unit of output.
ATC=AFC+AVC |
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|
Term
| Average Variable Cost(AVC) |
|
Definition
| Total variable cost per unit of output. |
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Term
|
Definition
| A market structure in which two producers of a good or service compete. |
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Term
|
Definition
| A group of firms acting together--colluding--to limit output, raise the price, and increase economic profit. |
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Term
|
Definition
| A tool for studying strategic behavior--behavior that takes into account the expected behavior of others and the recognition of mutual interdependence. |
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Term
|
Definition
| All the possible actions of each player in a game. |
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Term
|
Definition
| A table that shows the payoffs for every possible action by each player for every possible action by each other player. |
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Term
|
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. |
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Term
|
Definition
| An agreement between two (or more) producers to form a cartel to restrict output, raise the price, and increase profits. |
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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. |
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Term
|
Definition
| The outcome of a game in which the players make and share the monopoly profit. |
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Term
|
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. |
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Term
|
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. |
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Term
|
Definition
| A market in which firms can enter and leave so easily that firms in the market face competition from potential entrants. |
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Term
|
Definition
| The practice of setting the price at the highest level that inflicts a loss on an entrant. |
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Term
|
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. |
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Term
|
Definition
| An externality that arises from either production or consumption and that provides an external benefit. |
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Term
|
Definition
| An externality that arises from either production or consumption and that imposes an external cost. |
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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. |
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Term
|
Definition
| A cost of producing a good or service that is not borne by the producer but borne by other people. |
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Term
|
Definition
| The cost of producing an additional unit of a good or service that people other than the consumer enjoy. |
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|
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. |
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Term
|
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. |
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Term
|
Definition
| Taxes that are used as an incentive for producers to cut back on an activity that creates an external cost. |
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|
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. |
|
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Term
|
Definition
| A benefit from a good or service that someone other than the consumer receives. |
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|
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). |
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Term
|
Definition
| The production of a good or service by a public authority that receives its revenue from the government. |
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|
Term
|
Definition
| A payment made by the government to a producer. |
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Term
|
Definition
| A token that the government provides to households, which they can use to buy specified goods and services. |
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Term
| Intellectual Property Rights |
|
Definition
| Property rights for discoveries owned by the creators of knowledge. |
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Term
|
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. |
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Term
|
Definition
| A period of time in which the quantities of all resources can be varied. |
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Term
|
Definition
| The total output produced by a firm in a given period of time. |
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Term
|
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. |
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Term
|
Definition
| The average product of a factor of production. It equals total product divided by the quantity of the factor employed. |
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|
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. |
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|
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. |
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|
Term
| Increasing Marginal Returns |
|
Definition
| Arise from increased specialization and division of labor in the production process. |
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Term
|
Definition
The cost of all the productive resources that a firm uses.
TC=TFC+TVC |
|
|
Term
|
Definition
| The cost of the firm's fixed inputs. |
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|
Term
|
Definition
| The cost of all the firm's variable inputs. |
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Term
|
Definition
| Total fixed cost per unit of output. |
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|
Term
| Marginal Product of Capital |
|
Definition
| Change in total product divided by the change in capital when the quantity of labor is constant. |
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|
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. |
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Term
|
Definition
| Features of a firm's technology that lead to rising long-run average cost as output increases. |
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Term
|
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. |
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|
Term
|
Definition
| The smallest quantity of output at which the long-run average cost curve reaches its lowest level. |
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|
Term
|
Definition
| A firm that cannot influence the price of the good or service it produces. |
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|
Term
|
Definition
| The value of a firm's sales. It is calculated as the price of the good multiplied by the quantity sold. |
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Term
|
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. |
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|
Term
|
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. |
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|
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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