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Economic Terms
Exam Three
37
Economics
Undergraduate 2
11/07/2013

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Term
Closed Monopoly
Definition
a monopoly that is protected by legal restrictions on competition
Term
Natural Monopoly
Definition
an industry in which long-run average cost is minimized when only one firm serves the market
Term
Open Monopoly
Definition
a monopoly in which one firm is, at least for a time, the sole supplier of a product but has no special protection from competition
Term
Price Searcher
Definition
any firm that faces a negatively sloped demand curve for its product
Term
Simple Monopoly
Definition
a monopoly that offers its output at a single price that is uniform for all customers and allows all buyers to purchase as much or as little as they want at that price
Term
Limit Pricing
Definition
a strategy in which the dominant firm in a market charges less than the short-run profit maximizing price in order to limit the likelihood of entry by new competitors
Term
Price Discrimination
Definition
the practice of charging different prices for various units of a single product when the prices differences are not justified by differences in cost
Term
Two-Part Pricing
Definition
a pricing strategy in which people must pay for the right to become a buyer before choosing how much to buy at a given price
Term
Access Fee
Definition
the part of a two-part pricing strategy paid for the right to become a customer
Term
User Charge
Definition
the per-unit price offered in a two-part pricing strategy to qualified customers who have paid the access charge
Term
Deadweight Loss
Definition
a loss of consumer of producer surplus that is not balanced by a gain to someone else
Term
Aggregate Concentration
Definition
the degree to which the economy as a whole is dominated by the largest firms
Term
Market Concentration
Definition
the degree to which a market is dominated by a few large firms
Term
Concentration Ratio
Definition
the percentage of all sales that is accounted for by the four or eight largest firms in a market
Term
Herfindahl-Hirschmann Index (HHI)
Definition
an index of market concentration that is calculated by squaring the percentage market shares of all firms in an industry then summing the squared-values
Term
Barrier to Entry
Definition
any circumstance that prevents a new firm in a market from competing on an equal footing with existing ones
Term
Contestable Market
Definition
a market in which barriers to entry and exit are low
Term
Oligopolistic Interdependence
Definition
the need to pay close attention to the actions of rival firms in an oligopolistic market when making price or production decision
Term
Cartel
Definition
a group of producers that jointly maximize profits by fixing prices and limiting output
Term
Price Leadership
Definition
a situation in which price increases or decreases by a dominant firm in an oligopoly, known as the price leader, are matched by all or most of the other firms in the market
Term
Derived Demand
Definition
demand for a productive input that stems from the demand for the product the input is used to produce
Term
Marginal Revenue Product
Definition
the change in revenue that results from the sale of the output produced by one additional unit of an input
Term
Value of Marginal Product
Definition
marginal physical product times the product's per-unit price
Term
Marginal Resource Cost
Definition
the amount by which a firm's total resource cost must increase for the firm to obtain an additional unit of that resource
Term
Marginal Productivity Theory of Distribution
Definition
a theory of income distribution in which each input of production receives a payment equal to its marginal revenue product
Term
Monopsomy
Definition
a situation in which there is only a single buyer in a market; more generally, any situation in which a firm is a price searcher in a market in which it is a buyer
Term
Human Capital
Definition
capital in the form of learned abilities that have been acquired through formal training or education or through on-the-job experience
Term
Efficiency Wage Theory
Definition
the theory that wages above the minimum necessary to attract qualified workers can raise productivity by enough to increase profit
Term
Rate of Return on Capital
Definition
the marginal product of capital expressed as an annual percentage rate
Term
Time Preference
Definition
the tendency to prefer goods now to goods in the future, other things being equal
Term
Loanable Funds Market
Definition
a general term for the set of markets in which people borrow and lend, for whatever reason
Term
Pure Economic Rent
Definition
the income earned by any resource whose supply is perfectly inelastic with respect to its price
Term
Capitalized Value of a Rent
Definition
the present value of all future rents that a piece of land or other resource is expected to earn
Term
Differential Rent
Definition
the rents earned by superior units of a resource in a situation in which units of a resource differ in productivity
Term
Intramarginal Rents
Definition
the difference between the payment made to a unit of resource and the minimum required for that resource to be willingly supplied in a situation in which units of a resource differ in terms of the willingness with which they are supplied
Term
Marginal Revenue
Definition
The change in total revenue resulting from a 1-unit change in sales
Term
Dominant Firm
Definition
usually the largest firm in an industry; a firm which controls a significant percentage of an industry;s supply and essentially determines the market price and output for its competitive fringe
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