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Definition
Objectives
Alternatives
Constraints |
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Definition
Individuals
Firms
Government |
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Definition
| The principle that resources are not sufficient to achieve all the objectives, or goals, of an economic problem |
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Definition
Land
Capital
Labor
Material Inputs |
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Definition
| The economic meaning of cost; the value, in terms of the objectives, of the next best alternative |
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Definition
| A criterion for judging the solution to an economic problem that refers to making the choices that best meet the objectives |
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Definition
| A test of efficiency with more than one objective that says that moving closer to one objective is possible only by moving farther away from at least one other objective |
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Definition
A criterion for judging the solution to an economic problem that asks whether economic outcomes are fair.
(Test: Are there sustained profits?) |
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Definition
A criterion for judging economic activity that asks whether the rules under which the economy operates are fair
(Test: Are there barriers to entry?) |
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Definition
| A principle of end-results equity that requires that equals receive equal treatment |
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| Normative Economic Analysis |
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Definition
| The study of what ought to be; attempts to determine appropriate norms or criteria for judging the results of economic behavior and activity |
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| Positive Economic Analysis |
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Definition
| The study of what is; attempts to determine what actually exists in the real world and to describe the consequences of economic decisions |
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Definition
| The economy's capacity for producing goods and services, assuming that it produces them efficiently |
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Term
| Production Possibilities Frontier |
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Definition
| A graphical representation of the economy's capacity for producing goods and services, assuming that it produces them efficiently |
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Term
| Investment in Human Capital |
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Definition
| Expenditures on education, both formal education received in school and on-the-job training provided by business firms |
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Definition
| An economic system in which an agency of the national government has authority over all economic decisions and full access to all relevant economic information |
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Definition
| A characteristic of production in which production costs rise proportionately less than output as production increases, so that costs per unit of output fall |
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Definition
| The principle that a country should specialize its production in those goods that it can produce with lower opportunity costs than can other countries and trade for those goods that other countries can produce with lower opportunity costs |
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Definition
| The principle that economic decisions are interrelated such that the consequences of a decision always spread beyond the immediate objectives of the decision |
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Term
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Definition
What goods and services?
How to produce them?
For whom?
For now or future generations? |
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Definition
| A persistent increase in the economy's potential for producing goods and services |
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Definition
| The amount of a product that individuals are willing and able to buy over a certain period of time |
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Term
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Definition
| Other things equal, the lower the price for a product, the larger the quantity demanded; the higher the price of a product, the smaller the quantity demanded |
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Definition
| The tendency to purchase more of those products that have become relatively cheaper and fewer of those products that have become relatively more expensive when relative prices change |
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Definition
| The change in the quantity demanded of a good due to the effect that the change in its price has on as individual's purchasing power |
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Definition
| Products that provide the same general kind of services' specifically, two goods whose relationship is such that a decrease in the price of one good decreases the demand for the other good |
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Definition
| Products that are used together to provide a service; specifically, two goods whose relationship is such that a decrease in the price of one good increases the demand for the other good |
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Term
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Definition
| A graphical representation of the relationship between income and quantity demanded, other things equal |
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Definition
| A measure of the responsiveness of quantity demanded to changes in the price of a product along a demand curve; specifically, the percentage change in quantity demanded divided by the percentage change in price in absolute value |
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Definition
| The amount of a product that a firm is willing and able to sell over a certain period of time |
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Term
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Definition
| A firm of individual who has no influence over the market price |
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Term
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Definition
| Other things equal, the lower the price of a product, the smaller the quantity supplied; the higher the price of a product, the larger the quantity supplied |
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Term
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Definition
| The addition to total cost of producing an additional unit of output; in general, the change in total cost divided by the change in output |
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Term
| Supply Rule for Maximizing Profit |
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Definition
| Produce the quantity were Price=Marginal Cost |
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Term
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Definition
| The additional benefit, in terms of the objectives, of the next unit of an activity |
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Term
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Definition
| The increase in total revenue from selling one more unit of output; equal to price for a competitive firm |
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Term
| Law of Diminishing Returns |
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Definition
| As increasing amounts of a variable factor of production are added to one or more fixed factors of production, the marginal product of the variable factor eventually declines |
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Term
| Marginal Product of Labor |
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Definition
| The additional output produced by hiring one more unit of labor, holding all other factors of production constant |
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Term
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Definition
| A measure of the responsiveness of quantity supplied to a change in price along a supply curve; specifically, the percentage change in quantity supplied divided by the percentage change in price |
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Term
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Definition
| The value of the last good consumed by each customer |
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Term
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Definition
| At any quantity exchanged in the market, the difference between the total value as perceived by the consumers and the total cost as experienced by the firms |
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Term
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Definition
| The dollars exchanged between the consumers and the producers in the market, equal to the total expenditures paid by the consumers and the total revenues received by the firms |
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Term
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Definition
| At any quantity exchanged in the market, the difference between the total value to consumers and the total market value |
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Term
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Definition
| At any quantity exchanged in the market, the difference between the total market value and the total cost of production |
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Definition
| The ratio of prices received by farmers for their output to the prices farmers pay for their inputs |
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Term
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Definition
| A legislated amount above which the market price is not allowed to rise |
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Definition
| A legislated amount below which the market price is not allowed to fall |
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Definition
| Refers to the levying of the tax; that is, who actually writes the tax check to the government |
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Definition
| Refers to the true burden of the tax; that is, how the burden of the tax is split between demanders and suppliers |
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Term
| Value of Labor's Marginal Product |
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Definition
| The marginal revenue from hiring an additional unit of labor in a competitive labor market, equal to the marginal product of labor times the price of the good or service that the labor is producting |
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Term
| Equalizing Wage Differential |
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Definition
| A difference in the wages for different jobs that just compensates workers for the relative attractiveness of the jobs |
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Term
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Definition
| The difference between the wage a worker receives and the wage required to attract the worker to the job, the reservation wage |
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Definition
| The cost associated with the fixed factors of production in the short run |
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Definition
| The cost associated with the variable factors of production |
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Term
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Definition
| For any given output, the total opportunity cost of the factors of production used in producing and selling that output |
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Term
| Least-Cost Production Rule |
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Definition
| Equalize MP/P across all factors of production |
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Term
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Definition
| A characteristic of production in which production costs rise proportionately more than output as production increases, so that costs per unit of output rise |
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Term
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Definition
| A product market characterized by a large number firms, identical products, perfect information, no strategic behavior, a free flow of resources into and out of the industry, and prices and quantities determined by the Laws of Supply and Demand |
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Term
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Definition
| A firm's fixed cost in the short run, arising from decision about factors of production that were made in the past |
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Term
| Minimum Efficient Scale of Operation (MES) |
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Definition
| The minimum of the long-run average cost curve; alternatively, the output at which economies of scale end and diseconomies of scale begin |
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Term
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Definition
| Achieved in a product market when the quantity exchanged in the market maximizes the net value of producing and consuming a good; the market test is price equal to short-run marginal cost |
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Term
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Definition
Achieved when the output supplied to the market uses the least amount of society's scarce resources
(Test is AC=MES/Lowest AC) |
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Term
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Definition
| A market situation in which an individual firm faces a downward-sloping demand curve for its product |
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Definition
| A product market in which a single firm comprises the entire industry and has complete control over price and other market outcomes |
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Term
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Definition
| The market situation generated by a pure monopolist in which the monopolist consciously reduces its output below the efficient level of output to maximize its profit |
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Term
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Definition
| The ability of a firm to maintain an economic profit in the long run |
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Term
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Definition
| Charging different customers different prices that are unrelated to differences in the cost of serving the customers |
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Term
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Definition
| A market situation in which the MES of a single firm is at or beyond the entire market demand for the product |
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Term
| Benefits-Received Principle |
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Definition
| A pricing principle for public services, which says that citizens should pay for public services in accordance with the benefits the receive from them |
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Term
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Definition
| An organization of some or all of the firms in an industry established for the purpose of maximizing the total profits of the cooperating firms |
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Definition
| A market structure characterized by a large number of firms producing slightly differentiated products, by easy entry and exit, and by the unimportance of strategic behavior |
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Term
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Definition
| A situation in which buyers distinguish or identify products by the firms that produce them; also refers to firms' attempts to distinguish their products from similar products produced by other firms in the industry |
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Term
| Horizontal Differentiation |
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Definition
| A form of product differentiation in which a firm distinguishes its product from the products of other firms in the industry by choosing where to locate its place of business |
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Term
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Definition
| A form of product differentiation in which a firm distinguishes its product from the products of other firms in the industry on the basis of quality |
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Definition
| A type of government regulation that restricts entry into an industry as a means of assuring service quality and standards or as a means of controlling the spread of socially undesirable activities |
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Term
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Definition
| A product market dominated by a few large firms |
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Term
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Definition
| A property of statistics, which says that the average behavior of a large group of firms becomes highly predictable, even if the behavior of individual members of the group is highly unpredictable |
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Definition
| An implicit agreement among the large corporations in an oligopoly, most often in the form of an agreement not to compete in terms of prices |
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Term
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Definition
| A punishment strategy within the context of a tacit collusion to maintain prices above average cost, in which the rival firms threaten to cut their prices to average cost forever if one of the firms cheats on the pricing agreemnt |
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Term
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Definition
| A rule-of-thumb method of pricing in which a firm sets its price at a constant percentage above its unit or average cost |
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Term
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Definition
| Large corporations that are interested in profit only to the point of achieving a satisfactory level of profit and then pursue other objectives |
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Term
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Definition
| The goal of maximizing total revenue or sales by producing the output at which marginal revenue is zero |
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Term
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Definition
| Any government policy, such as an exclusive franchise or a patent, that restricts or prevents the free flow of resources into or out of an industry |
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Term
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Definition
| Features inherent in production or supply, such as economies of scale and limited access to a vital factor of production, that restrict or prevent the free flow of resources into or out of an industry |
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Term
| Behavioral Barrier to Entry |
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Definition
| A strategic decision on the part of a firm that is specifically designed either to deter entry entirely or to accommodate entry by forcing new firms to enter on a smaller scale |
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Definition
| A strategy used by an incumbent firm to deter entry in which the firm sets its price so low that a new entrant could not possibly make a profit |
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Definition
| The theory that, in the absence of perfect capital markets, large incumbent firms have an advantage over new entrants in undertaking investment out of past profits retained by the firms, whereas new entrants often have to borrow to invest; this advantage acts as a barrier to entry |
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Definition
| Qualities are obvious upon inspection |
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Definition
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Definition
| Focused on image rather than facts |
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Term
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Definition
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Term
| Pro-Competitive Advertising |
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Definition
| Hard info. about search goods, leads to more competition |
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Term
| Anti-Competitive Advertising |
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Definition
| Soft advertising about experience goods, leads to brand loyalty |
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Term
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Definition
| A third-party effect of a transaction that directly affects either consumers' satisfaction or firms' production possibilities |
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Term
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Definition
| A good such as national defense that is consumed by everyone once any one person of the government buys it; no one can be excluded or exclude themselves from consuming the good |
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Definition
| A person who consumes a nonexclusive good without paying for any of the costs of the good |
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