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Definition
| a good where the choice of one use does not require that we give up another |
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| the value of the best alternative forgone in making any choice. |
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| involves policies that affect bank lending, interest rates, and financial capital markets, is conducted by a nation’s central bank. |
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| involves government spending and taxes, is determined by a nation’s legislative body. |
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| a simplified representation of how two or more variables interact with each other. |
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| an institution that brings together buyers and sellers of goods or services, who may be either individuals or businesses. |
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| When one can produce a good at a lower opportunity cost than another |
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| one uses fewer resources to produce that good than another |
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| marginal rate of transformation |
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Definition
| represented by the slope of the production possibilities curve |
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| Normative v positive economics |
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Definition
| Normative economics expresses an opinion while positive economics can be verified. |
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| A good which people consume more of as the price rises |
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| A good for which people's preference for buying them increases as a direct function of their price, as greater price confers greater status |
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| assumption that the quantity supplied will consistently align with the quantity demanded. |
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| capital loses value over time, or that money is essentially perishable |
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| a situation in which the profit of one party cannot be increased without reducing the profit of another |
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| fixed fee per unit, meaning that the government earns its revenue based on volume sold |
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| proportional to the price of the good, so the government earns revenue based on the value of the good or service being sold. |
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Definition
| The effect a particular tax has on the two parties of a transaction, greater for the party responding to inelasticity |
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Definition
| the ratio between the percentage change in the quantity demanded (Qd) or supplied (Qs) and the corresponding percent change in price. |
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| Cross-price elasticity of demand |
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Definition
| the percentage change in the quantity of good A that is demanded as a result of a percentage change in the price of good B. |
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Term
| perfect in/elastiy graphed |
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Definition
| Perfect inelasticity (E=0) is represented by a vertical line while perfect elasticity (E=inf.) is represented by horizontal line |
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Term
| Backward-bending supply curve for labor |
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Definition
| the situation of high-wage people who can earn so much that they respond to a still-higher wage by working fewer hours |
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Definition
| it has equal value to the individual, regardless of the situation, e.g. money |
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Term
| income-compensated price change |
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Definition
| an imaginary exercise in which we assume that when the price of a good or service changes, the consumer’s income is adjusted so that he or she has just enough to purchase the original combination of goods and services at the new set of prices |
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Definition
| the negative of the price of the good on the horizontal axis divided by the price of the good on the vertical axis, NOT rise over run |
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| Effect of price change on quant. demanded |
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Definition
| includes the substitution effect and the income effect |
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Term
| How to determine the marginal benefit of $1 spent on capital |
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Definition
| Divide capital’s marginal product by its price: MPK/PK. |
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Term
| Marginal Rate of Technical Substitution (MRTS) |
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Definition
| Slope of Isoquants. MRTS =−dK/dL |
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Term
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Definition
| When producing more than one type of product that are closely linked, the cost is lower than producing them separately |
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Term
| Product Transformation Curve |
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Definition
| Shows various combinations of outputs that can be produced with a given set of inputs |
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Term
| Assumptions of perfect competition |
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Definition
| 1. homogenous product, 2. low barriers of entry/exit, 3. perfect information, 4. buyers and sellers are price takers, and 5. large number of buyers and sellers |
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Term
| The slope of a total revenue curve |
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Definition
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Definition
| When expansion of the industry does not affect the prices of factors of production |
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Definition
| A firm that confronts economies of scale over the entire range of outputs demanded in its industry |
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Term
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Definition
| then demand is price elastic, then demand is price inelastic |
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Term
| Demand curve under perfect competition |
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Definition
| Same as marginal revenue curve |
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Term
| Summary statistic of how much market power a monopolist has |
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Definition
| How much they can drive their price above marginal cost. |
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Term
| Percent markup = p((p-MC)/p) = |
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Definition
| Percent markup = p((p-MC)/p) = -1/epsilon |
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Term
| When output can expand/decline regarding price discrimination |
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Definition
| Output can be expanded when price discrimination is very efficient, but output can decline when discrimination is more effective at extracting surplus from high-valued users than expanding sales to low valued users. |
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Term
| Two conditions are necessary for price discrimination |
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Definition
| Companies must be able to identify market segments by their price elasticity of demand; They must be able to enforce the scheme. |
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Term
| Types of Price Discrimination |
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Definition
| First degree: every individual is charged the maximum s/he is willing to pay. Results in no deadweight loss; Second degree: customers self-organize into different levels of payment based on willingness to pay (e.g. first, business, coach class on air travel); Third degree: customers are segmented based on an attribute to distinguish willingness to pay (e.g. student and senior discounts); Fourth degree/reverse price discrimination: prices remain the same for different customers, even if organizational costs change (e.g. a customer that is charged the same for a vegetarian meal, even if it costs more) |
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Term
| The characteristic that distinguishes monopolistic competition from perfect competition |
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Definition
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Term
| Long run economic profits in monopolistic competition |
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Definition
| Zero, will be eliminated by entry or by exit |
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Term
| Markets that have monopolistic competition are inefficient for two reasons |
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Definition
| First, its optimum output, the firm charges a price that exceeds marginal cost; Second, excess capacity |
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Term
| Three types of product differentiation |
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Definition
| Simple: the products are differentiated based on a variety of characteristics; Horizontal: the products are differentiated based on a single characteristic, but consumers are not clear on which product is of higher quality; Vertical: the products are differentiated based on a single characteristic and consumers are clear on which product is of higher quality. |
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Definition
| The time period when one factor of production is fixed in terms of costs, while the other elements of production are variable. |
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Definition
| The conceptual time period in which there are no fixed factors of production. |
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Definition
| Reports the percentage of output accounted for by the largest firms in an industry |
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| Herfindahl–Hirschman Index (HHI) |
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Definition
| An alternative measure of concentration is found by squaring the percentage share (stated as a whole number) of each firm in an industry, then summing these squared market shares |
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Definition
| Firms that coordinate their activities through overt collusion and by forming collusive coordinating mechanisms make up a cartel. |
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Definition
| When a player’s best strategy is the same regardless of the action of the other player |
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Term
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Definition
| When a firm responds to cheating by cheating, and it responds to cooperative behavior by cooperating |
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Term
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Definition
| Where a firm makes clear that it is willing and able to respond to cheating by permanently revoking an agreement |
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Term
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Definition
| [Sam] Peltzman Effect, where risky behavior increases when safety precautions are put into place (e.g. faster driving after seatbelts are installed) |
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| Cross price elasticity of demand for substitute and complement goods |
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Definition
| Positive for substitute goods and negative for complement goods |
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Definition
| A good for which the cost of exclusion is prohibitive and for which the marginal cost of an additional user is zero |
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Definition
| a measure of inequality expressed as the ratio of the area between the Lorenz curve and a 45° line and the total area under the 45° line. |
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Definition
| shows cumulative shares of income received by individuals or groups. |
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Definition
| State where holding others constant where no player can gain by changing strategy |
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Definition
| Firms produce the same good, and they choose the pro- duction quantity simultaneously |
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Definition
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Definition
| Firms produce the same good, and they choose the price |
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Definition
| Curves showing all possible combinations of inputs that yield the same output |
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Term
| Marginal revenue product (MRP) |
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Definition
| The amount that an additional unit of a factor adds to a firm’s total revenue during a period is called the marginal revenue product (MRP) of the factor. MRP=MR*MP[=D, given perfect competition] |
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Term
| Complementary factors of production |
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Definition
| When an increase in the use of one factor of production increases the demand for another |
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Term
| Soft verse hard commodities |
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Definition
| Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar; Hard commodities are mined, such as gold, rubber and oil. |
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Term
| Value of marginal product (VMP) of capital |
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Definition
| The marginal product of capital multiplied by its price. The firm's demand curve for capital is derived from the VMP of capital. |
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| Midpoint method for elasticity |
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