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Economics Midterm #2 > Dr. G Exam 2 > Flashcards

Dr. G Exam 2 Flashcards

1
Q

Advertising

A

The science of arresting human intelligence long enough to get money from it

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2
Q

Area of decreasing marginal cost

A

Any quantity of production before the minimum point on the marginal cost function; i.e., before the inflection point on the total cost function. The area of increasing returns.

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3
Q

Area of Decreasing Returns

A

Any quantity of production beyond the point of diminishing returns. The area of increasing marginal cost.

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4
Q

Area of Increasing Marginal Cost

A

Any quantity of production beyond the minimum point on the marginal cost function; i.e., beyond the inflection point on the total cost function. The area of decreasing returns.

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5
Q

Area of Increasing Returns

A

Any quantity of production before the point of diminishing returns. The area of decreasing marginal cost.

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6
Q

Artificial Barrier to Trade

A

A non-economic barrier to a market such as a union contract, an intellectual property law, or crime.

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7
Q

Asymptote

A

A function which continuously approaches a line or axis without meeting it at any finite distance; e.g., an indifference curve of average fixed cost function

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8
Q

Asymptotic

A

What happens if you get scared half-to-death, twice

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9
Q

Auction With Reserve

A

The seller reserves the right to influence the price by setting a minimum price, using a shill, or withdrawing the item prior to the falling of the gavel.

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10
Q

Average Costs (AC)

A

Total costs (TC) divided by the number of units produced (q.)

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11
Q

Average Fixed Cost Function

A

An asymptote found by dividing fixed cost by the number of units produced

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12
Q

Black Market

A

An illegal transaction; i.e., the sale of a prohibited good or service

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13
Q

Break-Even Point

A

Where total revenue (TR) equals total cost (TC).

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14
Q

Capacity Point

A

The optimal level of production, when all factors of production are being employed at their highest and best use. The minimum point on the average cost curve.

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15
Q

Capitalism

A

A legal system that safeguards private property and permits free enterprise without government interference.

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16
Q

Cardinal Numbers

A

Numbers that assign specific values; e.g., 1,2, 10.

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17
Q

Cartel

A

A syndicate of two or more firms that divide up the market (by geography, quantity, or product differentiation) for the purpose of colluding.

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18
Q

Caveat Emptor

A

In business, let the buyer beware. In economics, this term encapsulates the essence of market system; i.e., that everyone must be responsible for his or her own economic decisions.

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19
Q

Ceteris Paribus

A

All else remains constant. Examining the changes in two or three variables.

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20
Q

Collusion

A

Two or more firms acting in concert to manipulate the market to their benefit, thereby adversely affecting the consumer.

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21
Q

Complementary Goods

A

When the use of one good requires the use of another; i.e., they are mutually dependent.

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22
Q

Concave vs. Convex

A

A description of a curvilinear function as per its relationship to a point of reference. A bowl is concave relative to the ceiling, but convex relative to the table it sits on. The lunar surface is convex from the perspective of the earth, but concave relative to the center of the moon.

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23
Q

Conspicuous Consumption

A

Thorstein Veblen’s thesis that some goods are preferred to others because of their social implications; i.e., that prestige is afforded as a function of price.

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24
Q

Constant Costs

A

Marginal costs (per unit) that remain the same regardless of the number of units produced.

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25
Q

Consumer Price Line

A

The average revenue function; the demand curve

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26
Q

Consumer Surplus

A

Utility received, but not paid for

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27
Q

Consumption Good

A

A good or service used by the household sector

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28
Q

Demand

A

Both the ability and willingness to enter the market at some specific price

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29
Q

Differentiated Products

A

Competitive goods made different by physical characteristics or distinguished advertising

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30
Q

Duopoly

A

Two producers

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31
Q

Dutch Auction

A

A reverse auction, where the offering price begins high and proceeds down until there is a buyer

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32
Q

Effective Demand

A

Both the ability and willingness to pay the current market price

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33
Q

Elasticity

A

Responsiveness of a dependent variable to a change in an independent variable. In economics, Q=f(P)

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34
Q

Entitlement

A

A unilateral transfer payment from the government to the household sector required by law

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35
Q

Entrepreneurial Capacity Constraint

A

Milton Friedman’s explanation of how decreasing cost industries eventually experience diminishing returns when “reach exceeds the grasp” of the CEO. When an organization becomes so vertical that a decision to innovate becomes confused in communication, enthusiasm for change is lost in translation, and feedback from subordinates is to muffled to be heard.

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36
Q

Equilibrium Price

A

The price that clears the market; i.e., the price at which the quantity supplied equals the quantity demanded. The quintessence of supply and demand theory.

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37
Q

Equilibrium Theory

A

Leon Walras’ synthesis of two disparate mathematical concepts; i.e., supply and demand. Arguably the most important law of economics, whether applied to a market (partial equilibrium) or an economy (general equilibrium)

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38
Q

Excess Profit

A

The accounting profit in excess of normal profit

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39
Q

Factor Good

A

A good used in the production of another good. When a change in the market price of a good (e.g., autos) affects the market price of a factor good (e.g., steel), the two goods are said to be interdependent

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40
Q

Fixed Cost (FC)

A

A cost that is incurred regardless of the level of production; i.e., even if output were zero. The height of the total cost function; i.e., where TC crosses the vertical axis

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41
Q

Fixed Supply

A

Totally inelastic supply i.e., the quantity supplied remains the same regardless of price

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42
Q

Free Enterprise

A

A market that permits free entry and free exit by buyers and sellers. A market without artificial barriers to trade

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43
Q

Free Entry

A

The absence of artificial (non-economic) barriers to entering a market; e.g., patents, copyrights, trademarks, crime, tariffs, licenses, etc.

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44
Q

Free Exit

A

The absence of artificial (non-economic) barriers to leaving a market; e.g., government regulation contract, legal injunction, etc.

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45
Q

Government Paternalism

A

The condition that exists when the political leadership believes that the principle of caveat emptor cannot or should not be relied upon

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46
Q

Height of a Function

A

Where a function intersects the y-axis when x=0

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47
Q

Homogeneity

A

The condition that exists when all physical characteristics are identical

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48
Q

Homogeneous Products

A

Goods standardized by government regulation or industrial convention

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49
Q

Incidence of a Tax

A

The ultimate burden of a tax. The tax paid that would otherwise be captured by the buyer or seller if there were no tax

50
Q

Income Effect

A

When the price of a good is decreased and it thereby increases real income, and, as a result the quantity demanded is increased.

51
Q

Income Redistribution

A

The result of a change in government policy whereby one group or sector is made better off my making another group or sector worse off; e.g., a Robin Hood scheme

52
Q

Indifference Curve

A

A function that shows how much of one good it takes to make someone ambivalent to a given amount of some other good. An asymptotic isoquant that assumes convexity, rationality, and transitivity

53
Q

Inferior Good

A

A good that is bought in smaller quantities as real income increases, or vice versa; a Giffenn good

54
Q

Inflection Point

A

The point on a function where the course changes from clockwise to counter clockwise. A point on a function formed by the tangency of two arcs.

55
Q

Interdependent Markets

A

To the extent that a price change in one market affects either the supply or demand in another market, the two markets are say to be interdependent

56
Q

Isoquant

A

A curve that shows the various combinations of inputs that will produce the same amount of output

57
Q

Law of Demand

A

Alfred Marshall’s law of downward sloping demand; i.e., the quantity demanded increases as the price decreases

58
Q

Law of Diminishing Marginal Utility

A

Carl Menger’s observation that the amount of extra satisfaction received per unit of consumption decreases as the quantity consumed increases; i.e., the slop of the marginal utility function (the second derivative) is always negative

59
Q

Law of Substitution

A

The assumption in ordinal utility theory that the trading value of each unit increases as the number of units decreases

60
Q

Luxury

A

In economics, a good for which the elasticity of demand is greater than one

61
Q

Madison Avenue

A

A euphemism for the advertising industry. The street in New York where most of the powerful advertising agencies once had their headquarters

62
Q

Marginality

A

The concept of slope of differential calculus; also called the marginal function, the first derivative, y prime (y’), the rise over the run

63
Q

Marginal Cost

A

The change in total cost caused by the production of one additional unit

64
Q

Marginal Revenue

A

The change in total revenue caused by the sale of one additional unit

65
Q

Marginal Utility

A

The change in total utility caused by the consumption of one additional unity; the slope of TU

66
Q

Market

A

All the potential buyers and sellers of a particular good or service

67
Q

Market Price

A

The competitively arrived at price of one good, in one place, at one time

68
Q

Mergers and Acquisitions

A

In economics, explicit forms of collusion which may be scrutinized by the Anti-trust Division of the U.S. Justice Department for evidence of behavior that threatens competitive markets

69
Q

Minimum Average Cost

A

The capacity point; i.e., an optimal level of production where output cannot be increased without increasing the average cost per unit. Where MC=AC. Where the slope of a vector from the origin is equal to the slope of the total cost function

70
Q

Minimum Marginal Cost

A

The inflection point on the total cost function; i.e., the point of diminishing returns

71
Q

Minimum Price Line

A

The marginal cost function; the price below which a rational producer will not sell

72
Q

Minimum Wage

A

Based on the Fair Labor Standards Act of 1938, the minimum compensation that may be agreed to by employers and employees

73
Q

Momentary Period

A

In economics, when the market supply Is fixed

74
Q

Monopoly

A

A single seller; i.e. with no close substitutes

75
Q

Monopsony

A

A single buyer

76
Q

MU/P Ration

A

Satisfaction per dollar spent

77
Q

MU/P Ratio Standard

A

The unique MU/P ratio that an individual consumer requires with each purchase

78
Q

Necessity

A

In economics, a good for which the elasticity of demand is less than one

79
Q

Negative Income Tax

A

Milton Friedman’s proposal that would replace welfare entitlement programs with automatic payments from the IRS to those with income below the poverty line, thereby eliminating unnecessary bureaucracies

80
Q

Normal Good

A

In demand theory, a good or suffice which has two characteristics, both of which are necessary conditions: a substitution effect and an income effect

81
Q

Normal Profit

A

The amount of accounting profit required to maintain a business without attracting competitors

82
Q

Oligopoly

A

A few sellers

83
Q

Oligopoly

A

A few buyers

84
Q

Ordinal Numbers

A

Numbers that assign rank; e.g., first, second, tenth

85
Q

OSHA

A

Occupational Safety and Health Administration

86
Q

Peak-Load Pricing

A

A legal form of price discrimination whereby buyers pay more during periods of high demand; e.g., airlines and telephones

87
Q

Perfect Competition

A

Alfred Marshall’s theory of markets demonstrating that an economy eventually optimize the use of its scarce productive resources if no single firm can significantly affect the market price, goods are standardized, and there are no artificial barriers to trade

88
Q

Point of Diminishing Returns

A

The minimum point on the marginal cost function. The inflection point on the total cost or variable cost function. The benchmark beyond which a business must go to maximize profits

89
Q

Price Discrimination

A

The act of inducing different buyers to pay different prices for the same good

90
Q

Price Fixing

A

The elimination of price competition through illegal collusion, regualted monopolies, or government permitted “fair trade” pricing

91
Q

Price Maker

A

The buyer if demand is totally elastic (e.g., wheat) or supply is totally ineleastic (e.g., a rare painting); the seller if supply is totally elastic (e.g., paper clips) or demand is totally inelastic (e.g., salt)

92
Q

Price Taker

A

The buyer if demand is totally inelastic or supply is totally elastic; the seller if supply is totally inelastic or demand is totally elastic

93
Q

Prima Facie

A

At first view; so far as it first appears

94
Q

Producer Price Line

A

The marginal cost function; i.e., the minimum price the seller can charge and still cover marginal cost

95
Q

Production Possibilities Curve

A

The frontier line of maximization output possible when all availible factors of production are fully employed at their highest and best use; i.e., when all goods and services are produced at the minimum avergae cost

96
Q

Profit Maximization Point

A

Where marginal cost (MC) equals marginal revenue (MR)

97
Q

Profit Theory

A

Any model that explains how a business enterprise maximizes profit

98
Q

Rationality

A

The assumption in ordinal utility theory that more is preferred to less

99
Q

Reverse Income Effect

A

When the price of a good is decreased and it thereby becomes an attractive alternative to another good previously purchased

100
Q

Satiation Point

A

The point on a total utility function when satisfaction is maximized; i.e., where marginal utility equals zero

101
Q

Shill

A

An agent of the seller

102
Q

Shut-Down Point

A

Where total revenue (TR) equals variable cost (VC)

103
Q

Subsidy

A

A unilateral transfer payment from the government to the business sector

104
Q

Substitution Effect

A

When the price of a good is decreased and it thereby becomes an attractive alternative to another good previously purchased, and as a result, the quantity demanded is increased

105
Q

Substitution Good

A

When the use of one good precludes the use of another; i.e., they are mutually exclusive

106
Q

Superior Good

A

A good that is bought in larger quantitates as real income increases, or vice versa; i.e., a normal income effect

107
Q

Supply Curve

A

A horizontal aggregation of marginal cost functions beyond the point of diminishing returns for all member firms in a market

108
Q

Tariff

A

A tax on imports; i.e., a customs duty

109
Q

Theory of the Firm

A

Alfred Marshall’s profit theory; i.e., an explanation of how a business maximizes profit

110
Q

Tie-In-Sales

A

A transaction whereby the initial sale (usually low-priced) requires an additional purchase of a related good or service only form the original seller; e.g., Polaroid cameras, video game systems, or home alarm services

111
Q

Total Cost (TC)

A

Fixed Cost (FC) plus variable cost (VC)

112
Q

Total Revenue (TR)

A

Price times quantity

113
Q

Total Utility (TU)

A

The total satisfaction derived form all units consumed

114
Q

Transitive

A

Mathematically logical

115
Q

Unilateral Transfer Payment

A

A payment for which there is no return good or service

116
Q

Util

A

An introspective unit of satisfaction; i.e., a quantitative measure of utility that considers one’s own feelings

117
Q

Utility

A

The satisfaction derived from consuming a good or service

118
Q

Utility Commission

A

A governments agency, whose members, appointed by a governor establish prices and service standards for natural monopolies such as water and power

119
Q

Variable Cost (VC)

A

A cost that is zero at zero production and increases as production increases

120
Q

Welfare

A

A unilateral transfer payment made to these household sector

121
Q

Welfare Economics

A

The study of public policy from the perspective of consumer benefit

122
Q

Welfare Triangle

A

Vildredo Pareto’s description of consumer surplus

Economics Midterm #2 (2 decks)

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