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Definition
| the study of hos human beings coordinate their wants and desires, given the decision making mechanisms, social customs, and poltical realities of the society |
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| three problems every society must solve |
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Definition
1. What and how much to produce
2. How to produce it
3. For whom to produce it |
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| The goods available are too few to satisfy individual's desires. Every society has to deal with scarcity (assumes that people never stop wanting more) |
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-our wants
-our means of fulfilling those wants |
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| additional cost over and above the costs you have already incurred (does not include sunk costs). These are also known as incremental costs or additional costs |
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| costs that have already been incurred and cannot be recovered. i.e. I have already paid my tuition and I can not get it back |
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| the additional benefit above what you have already incurred |
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| If the marginal costs of doing something exceed the marginal benefits, don't do it. If the Marginal benefits exceed the marginal costs, do it. This Rule does not include sunk costs. |
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| the benefit you might have gained by choosing the next best alternative. To gain one thing you must give up something else. The opportunity cost of taking ECON 201 is ARAB 101. Arabic and ECON were at the same time |
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| The necessary reactions to scarcity. All scarce goods must be rationed in some fashion. Rationing mechanisms are an example of economic forces. e.g. Dorm rooms rationed by lottery and food rationed by price |
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| an economic force that is given relatively free reign by society to work through the market. e.g. social forces prevent the buying and selling of babies, therefore this economic force has not become a market force |
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| the price mechanism, the rise and fall of prices that guide our actions in the market (metaphor made popular in Adam Smith's On the Wealth of Nations, 1776) |
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| Three forces which determine what happen in society |
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Definition
Economic forces
Political and Legal forces
Social and Historical forces |
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| achieving a goal as cheaply as possible (that goal is not always making money) |
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| a market economy, through the price mechanism, will tend to allocate resources efficiently |
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| the study of individual choice and how that choice is influenced by economic forces |
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| The study of the economy as a whole |
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| Actions (or inactions) taken by the government to influence economic actions |
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| the study of what is and how the economy works |
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| The study of what the goals of the economy should be |
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| th application of the knowledge learned in positive economics to the goals of normative economics |
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Term
| Production Possibility Table |
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Definition
| a Table that lists a choice's opportunity costs by summarizing what alternative outputs you can achieve with your inputs |
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| Production Possibilities Curve |
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Definition
| a curve measuring the maximum combination of outputs that can be obtained from a given number of inputs. Graphical representation of the opportunities cost concept |
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| The Principle of Increasing Marginal Opportunity Cost |
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Definition
| In order to get more of something, one must give up ever-increasing quantities of something else. i.e. initially the costs of something may be low, but they have a tendency to increase. Therefor the productions possibilities curve will typically be bowed outward (this is because of comparative advantage) |
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| the ability to be better suited to the production of one good over the production of another good. This is the reason the PPC is bowed outward. e.g. gun factories are better at producing guns over butter. |
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| achieving as much output as possible from a given amount of inputs or resources |
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| gaining less output from inputs, that if devoted to some other activity, would produce more output |
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| achieving goals using as few inputs as possible. Refers only to a specific goal and that goal does not always have to be making money |
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| an economic policy of leaving coordination or individuals' actions to the market. French term meaning to let things take their course and to leave things allone |
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| It is by producing where costs are lowest that countries can achieve gains from trade |
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| the relocation of production once done in the United States to foreign countries |
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| the relocation of production done abroad the the United States |
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| the increasing integration of economies, cultures, and institutions across the world. Has the effect of increasing the rewards for firms in a global economy, but it is much harder to win in the G economy. G economies also increase the number of competitorsand allow for greater specalization and division of labor |
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Definition
| the wages of workers in one country will not differ significantly from the wages of (equal) workers in another institutionally similar country |
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| the assumption that the relationship between variables is the same between points as it is at the points |
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| a downward sloping curve is said to have an inverse relationship which means a relationship between the two variables in which when one goes up the others go down -- will have a negative slope |
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| an upward sloping curve represents a direct relationship which means a relationship in which when one variable goes up, the other goes up too -- will have a positive slope |
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| the formal and informal rules that constrain human economic behavior (e.g. laws and legal systems, political institutions, culture, etc |
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Definition
| an economic system based on private property and the market forces such as supply and demand regulate the market |
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Definition
| economic system based on individuals' goodwill toward others, not on their own self interest, and in which, in principle, society decides what, how, and for whom to produce |
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Definition
| economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists |
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| economic system in which traditions rule |
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Definition
| the government determines how, what, and for whom by doling out the rights to undertake certain economic activities |
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Definition
| a time when technology and machines rapidly modernized industrial production and mass-produced goods replaced hand-made goods |
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Definition
| households supply labor and other factors of production to businesses and are paid by the businesses for doing so |
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Definition
| Businesses produce goods and services and sell them to households |
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Definition
| what is let over from total revenue after all of the appropriate costs have been subtracted |
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| businesses with only one owner -- easiest to start, have the fewest bureaucratic hassles |
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Definition
| businesses with two or more owners -- share burden, unlimited liability for each partner |
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| business that are treated as a person and are legally owned by their stockholders who are not responsible for the corporate person -- largest form of business, ownership is separated from control of the firm and owners have limited liablity |
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| groups of people living together and making group decisions |
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| the ability of individuals or firms currently in business to prevent other individuals from entering the same kind of business |
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Definition
| the effect of decisions on a third party not taken into account by the decision maker |
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Definition
| a good that if supplied to one person must be supplied to all and whose consumption by one does not prevent its consumption by others. e.g. national defense |
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| Person who gets a benefit but does not contribute to paying for the cost of that benefit |
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Definition
| Goods that the government believes are bad for people (also activities) |
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Definition
| Goods that the government believes are good for people (also activities) |
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Definition
| situations in which the government intervenes and makes things worse |
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Definition
| corporations with substantial operations on both the productions and sales side in more than one country |
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Term
| perfectly competitive market |
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Definition
a market in which economic forces operate unimpeded
1) Both buyers and sellers are price takers
2) The number of firms is large
3) There are no barriers to entry
4) Firms' products are identical
5) There is complete information
6) Selling firms are profit-maximizing entrepreneurial firms |
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Term
| What does the demand curve for individual firms in a perfectly competitive market look like? |
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Definition
| it is completely horizontal (perfectly elastic |
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Term
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Definition
| the change in total revenue associated with a change in quantity |
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Term
| what determines what happens to profit in response to a change in output |
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Definition
| Marginal revenue and marginal cost |
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Term
| for a perfect competitor, what does Marginal Revenue equal |
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Definition
| Price or market price (they are the same thing) |
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Term
| The marginal revenue for a perfect competitor will be the same at all levels of output. True or False |
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Definition
| True (as long as the demand curve is constant) |
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Term
| what is always the same for a perfect competitor? |
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Definition
| the marginal revenue and the demand curve the firm faces |
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Term
| point of profit maximization |
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Definition
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Term
| When does it make sense to increase output? |
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Definition
| It makes sense to increase output as long as the marginal cost is below the marginal revenue. |
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Term
| The Marginal Cost Curve is also...? |
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Definition
| the supply curve. But only if the price exceeds average variable cost |
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Term
| does a firm want to increase total profit or profit per unit? Which would have a higher output? |
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Definition
| A firm wants to maximize total profit. Total profit is at a higher output |
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Term
| Where will total profit be highest? |
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Definition
| at the profit maximizing level. To figure this out all you need is total revenue and total cost |
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Term
| On a graph mapping Total Revenue and Total Cost, where is profit? |
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Definition
| The profit is the distance between the TR curve and the TC curve, the output level at which the distance between the curves is the greatest is the profit maximizing level |
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Term
| Does the profit maximizing position maximize ATV or AVC |
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Definition
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Term
| Why doesn't a firm shut down if is making a loss? |
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Definition
| because the firm has not reached the shutdown point. Or the point at which it cannot cover its variable costs. Since fixed costs are sunk costs, the makes a smaller loss if it continues to produce. As long as the firm can cover its variable costs, it will continue to operate. |
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Term
| Where is the shutdown point? |
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Definition
| the point at which price equals AVC |
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Term
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Definition
| the horizontal sum of all the firms' MC curves, taking into account any changes in input price that might occur |
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Term
| The difference between the long run and the short run in regards to firms |
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Definition
in the short run
-- the number of firms is fixed
-- firms can either incur economic profit or loss
in the long run
-- firms can enter and exit the market
-- firms can only make zero economic profit |
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Term
| The long run market supply curve is perfectly elastic. True or False |
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Definition
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Term
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Definition
| factor prices do not increase or decrease as output increases |
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Term
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Definition
| factor prices rise as more firms enter the market and existing firms expand production |
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Term
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Definition
| factor prices fall as industry outpt expands |
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