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Micro
Test 3
52
Economics
Undergraduate 1
04/06/2012
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Term
Externality
 Definition
The uncompensated impact of one person's actions on the well-being of a bystander
Term
Internalizing an Externality
 Definition
Aletering incentives so that people take account of the external effects of their actions
Term
Coase Theorem
 Definition
The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
Term
Transaction costs
 Definition
the costs that parties incur in the process of agreeing and following through on a bargain
Term
Pigovian Tax
 Definition
A tax enacted to correct the effects of a negative externality
Term
Excludability
 Definition
The property of a good whereby a person can be prevented from using it
Term
Rivalry
 Definition
The property of a good whereby one person's use diminishes other people's use
Term
Private goods
 Definition
Goods that are both excludable and rival
Term
Public goods
 Definition
Goods that are neither excludable nor rival
Term
Common resources
 Definition
Goods that are rival but not excludable
Term
Free rider
 Definition
A person who recieves benefit of a good but avoids paying for it
Term
Cost-benefit analysis
 Definition
A study that compares the costs and benefits to society of providing a public good
Term
Trajedy of the Commons
 Definition
A parable that illustrates why common resources get used more than is desirable from the standpoint of society as whole
Term
Budget surplus
 Definition
An excess of government receipts over government spending
Term
Budget deficit
 Definition
An excess of government spending over government receipts
Term
Average Tax Rate
 Definition
Total taxes paid divided by total income
Term
Marginal Tax Rate
 Definition
The extra taxes paid on an additional dollar of income
Term
Lump-sum tax
 Definition
A tax that is the same amount for every person
Term
Benefits principle
 Definition
The idea that people should pay taxes based on the benefits they receive from government services
Term
Ability-to-pay principle
 Definition
The idea that taxes should be levied on a person according to how well that person can shoulder the burden
Term
Vertical equity
 Definition
The idea that taxpayers with a greater ability to pay taxes should pay larger amounts
Term
Horizontal equity
 Definition
The idea that taxpayers with similar abilities to pay taxes should pay the same amount
Term
Proportional tax
 Definition
A tax for which high-income and low-income taxpayers pay the same fraction of income
Term
Regressive tax
 Definition
A tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers
Term
Progressive tax
 Definition
A tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers
Term
Total revenue
 Definition
The amount a firm receives for the sale of its output
Term
Total cost
 Definition
The market value of the inputs a firm uses in production
Term
Profit
 Definition
Total revenue minus total cost
Term
Explicit costs
 Definition
Input costs that require an outlay of money by the firm
Term
Implicit costs
 Definition
Input cossts that do not require an outlay of money by the firm
Term
Economic profit
 Definition
Total revenue minus total cost, including both explicit and implicit costs
Term
Accounting profit
 Definition
Total revenue minus total explicit cost
Term
Production function
 Definition
The relationship between quantity of inputs used to make a good and the quantity of output of that good
Term
Marginal product
 Definition
The increase in output that arises from an additional unit of input
Term
Diminishing marginal product
 Definition
The property whereby the marginal product of an input declines as the quantity of the input increases
Term
Fixed costs
 Definition
Costs that do no vary with the quantity of output produced
Term
Variable costs
 Definition
Costs that do vary with the quantity of output produced
Term
Average Total Cost
 Definition
Total cost divided by the quantity of output
Term
Average fixed cost
 Definition
Fixed costs divided by the quantity of output
Term
Average variable cost
 Definition
Variable cost divided by the quantity of output
Term
Marginal cost
 Definition
The increase in total cost that arises from an extra unit of production
Term
Efficient scale
 Definition
The quantity of output that minimizes average total cost
Term
Economis of scale
 Definition
The property whereby long-run average total cost falls as the quantity of output increases
Term
Diseconomis of scale
 Definition
The property whereby long-run average total cost rises as the quantity of output increases
Term
Constant return to scale
 Definition
The property whereby long-run average total cost stays the same as the quantity of output changes
Term
Competitive market
 Definition
A market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
Term
Average revenue
 Definition
Total revenue divided by the quantity sold
Term
Marginal revenue
 Definition
The change in total revenue from an additional unit sold
Term
Skunk cost
 Definition
A cost that has already been committed and cannot be recovered
Term
Monopoly
 Definition
A firm that is the sole seller of a product without close substitutes
Term
Natural monopoly
 Definition
A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
Term
Price discrimination
 Definition
The business practice of selling the smae good at different prices to different customers
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