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

Dr. G Exam 2 Flashcards

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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
Consumer Price Line
The average revenue function; the demand curve
26
Consumer Surplus
Utility received, but not paid for
27
Consumption Good
A good or service used by the household sector
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Demand
Both the ability and willingness to enter the market at some specific price
29
Differentiated Products
Competitive goods made different by physical characteristics or distinguished advertising
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Duopoly
Two producers
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Dutch Auction
A reverse auction, where the offering price begins high and proceeds down until there is a buyer
32
Effective Demand
Both the ability and willingness to pay the current market price
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Elasticity
Responsiveness of a dependent variable to a change in an independent variable. In economics, Q=f(P)
34
Entitlement
A unilateral transfer payment from the government to the household sector required by law
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Entrepreneurial Capacity Constraint
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.
36
Equilibrium Price
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.
37
Equilibrium Theory
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)
38
Excess Profit
The accounting profit in excess of normal profit
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Factor Good
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
40
Fixed Cost (FC)
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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Fixed Supply
Totally inelastic supply i.e., the quantity supplied remains the same regardless of price
42
Free Enterprise
A market that permits free entry and free exit by buyers and sellers. A market without artificial barriers to trade
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Free Entry
The absence of artificial (non-economic) barriers to entering a market; e.g., patents, copyrights, trademarks, crime, tariffs, licenses, etc.
44
Free Exit
The absence of artificial (non-economic) barriers to leaving a market; e.g., government regulation contract, legal injunction, etc.
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Government Paternalism
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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Height of a Function
Where a function intersects the y-axis when x=0
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Homogeneity
The condition that exists when all physical characteristics are identical
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Homogeneous Products
Goods standardized by government regulation or industrial convention
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Incidence of a Tax
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
Income Effect
When the price of a good is decreased and it thereby increases real income, and, as a result the quantity demanded is increased.
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Income Redistribution
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
Indifference Curve
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
Inferior Good
A good that is bought in smaller quantities as real income increases, or vice versa; a Giffenn good
54
Inflection Point
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
Interdependent Markets
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
Isoquant
A curve that shows the various combinations of inputs that will produce the same amount of output
57
Law of Demand
Alfred Marshall's law of downward sloping demand; i.e., the quantity demanded increases as the price decreases
58
Law of Diminishing Marginal Utility
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
Law of Substitution
The assumption in ordinal utility theory that the trading value of each unit increases as the number of units decreases
60
Luxury
In economics, a good for which the elasticity of demand is greater than one
61
Madison Avenue
A euphemism for the advertising industry. The street in New York where most of the powerful advertising agencies once had their headquarters
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Marginality
The concept of slope of differential calculus; also called the marginal function, the first derivative, y prime (y'), the rise over the run
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Marginal Cost
The change in total cost caused by the production of one additional unit
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Marginal Revenue
The change in total revenue caused by the sale of one additional unit
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Marginal Utility
The change in total utility caused by the consumption of one additional unity; the slope of TU
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Market
All the potential buyers and sellers of a particular good or service
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Market Price
The competitively arrived at price of one good, in one place, at one time
68
Mergers and Acquisitions
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
Minimum Average Cost
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
Minimum Marginal Cost
The inflection point on the total cost function; i.e., the point of diminishing returns
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Minimum Price Line
The marginal cost function; the price below which a rational producer will not sell
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Minimum Wage
Based on the Fair Labor Standards Act of 1938, the minimum compensation that may be agreed to by employers and employees
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Momentary Period
In economics, when the market supply Is fixed
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Monopoly
A single seller; i.e. with no close substitutes
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Monopsony
A single buyer
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MU/P Ration
Satisfaction per dollar spent
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MU/P Ratio Standard
The unique MU/P ratio that an individual consumer requires with each purchase
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Necessity
In economics, a good for which the elasticity of demand is less than one
79
Negative Income Tax
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
Normal Good
In demand theory, a good or suffice which has two characteristics, both of which are necessary conditions: a substitution effect and an income effect
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Normal Profit
The amount of accounting profit required to maintain a business without attracting competitors
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Oligopoly
A few sellers
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Oligopoly
A few buyers
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Ordinal Numbers
Numbers that assign rank; e.g., first, second, tenth
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OSHA
Occupational Safety and Health Administration
86
Peak-Load Pricing
A legal form of price discrimination whereby buyers pay more during periods of high demand; e.g., airlines and telephones
87
Perfect Competition
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
Point of Diminishing Returns
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
Price Discrimination
The act of inducing different buyers to pay different prices for the same good
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Price Fixing
The elimination of price competition through illegal collusion, regualted monopolies, or government permitted "fair trade" pricing
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Price Maker
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)
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Price Taker
The buyer if demand is totally inelastic or supply is totally elastic; the seller if supply is totally inelastic or demand is totally elastic
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Prima Facie
At first view; so far as it first appears
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Producer Price Line
The marginal cost function; i.e., the minimum price the seller can charge and still cover marginal cost
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Production Possibilities Curve
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
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Profit Maximization Point
Where marginal cost (MC) equals marginal revenue (MR)
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Profit Theory
Any model that explains how a business enterprise maximizes profit
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Rationality
The assumption in ordinal utility theory that more is preferred to less
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Reverse Income Effect
When the price of a good is decreased and it thereby becomes an attractive alternative to another good previously purchased
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Satiation Point
The point on a total utility function when satisfaction is maximized; i.e., where marginal utility equals zero
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Shill
An agent of the seller
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Shut-Down Point
Where total revenue (TR) equals variable cost (VC)
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Subsidy
A unilateral transfer payment from the government to the business sector
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Substitution Effect
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
Substitution Good
When the use of one good precludes the use of another; i.e., they are mutually exclusive
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Superior Good
A good that is bought in larger quantitates as real income increases, or vice versa; i.e., a normal income effect
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Supply Curve
A horizontal aggregation of marginal cost functions beyond the point of diminishing returns for all member firms in a market
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Tariff
A tax on imports; i.e., a customs duty
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Theory of the Firm
Alfred Marshall's profit theory; i.e., an explanation of how a business maximizes profit
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Tie-In-Sales
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
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Total Cost (TC)
Fixed Cost (FC) plus variable cost (VC)
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Total Revenue (TR)
Price times quantity
113
Total Utility (TU)
The total satisfaction derived form all units consumed
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Transitive
Mathematically logical
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Unilateral Transfer Payment
A payment for which there is no return good or service
116
Util
An introspective unit of satisfaction; i.e., a quantitative measure of utility that considers one's own feelings
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Utility
The satisfaction derived from consuming a good or service
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Utility Commission
A governments agency, whose members, appointed by a governor establish prices and service standards for natural monopolies such as water and power
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Variable Cost (VC)
A cost that is zero at zero production and increases as production increases
120
Welfare
A unilateral transfer payment made to these household sector
121
Welfare Economics
The study of public policy from the perspective of consumer benefit
122
Welfare Triangle
Vildredo Pareto's description of consumer surplus
Economics Midterm #2
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