Final Exam Terms Flashcards
(218 cards)
1
Q
Economics
A
the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society
2
Q
Scarcity
A
the goods available are too few to satisfy individuals’ desires
3
Q
Microeconomics
A
the study of individual choice, and how that choice is
influenced by economic forces
4
Q
Macroeconomics
A
the study of the economy as a whole
5
Q
TANSTAAFL
A
There Ain’t No Such Thing As A Free Lunch
6
Q
Marginal cost
A
the additional cost to you over and above the costs you have already incurred
7
Q
Sunk costs
A
costs that have already been incurred and cannot be recovered
8
Q
Marginal benefit
A
the additional benefit above what you’ve already derived
9
Q
Economic decision rule
A
if the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don’t do it
9
Q
Opportunity cost
A
the benefit that you might have gained from choosing the next-best alternative
10
Q
Implicit costs
A
costs associated with a decision that often aren’t included in normal accounting costs
11
Q
Economic forces
A
the necessary reactions to scarcity
12
Q
Market force
A
an economic force that is given relatively free rein by society to work through the market
13
Q
Invisible hand
A
the price mechanism, the rise and fall of prices that guides our actions in the market
14
Q
Social forces
A
forces that guide individual actions even though those actions may not be in an individual’s selfish interest
15
Q
Political forces
A
legal directives that direct individuals’ actions
16
Q
Economic model
A
a framework that places the generalized insights of the
theory in a more specific contextual setting
17
Q
Economic principle
A
a commonly held economic insight stated as a law or principle
18
Q
Experimental economics
A
a branch of economics that studies the economy through controlled experiments
19
Q
Theorems
A
propositions that are logically true based on the assumption in a model
19
Q
Precepts
A
policy rules that conclude a particular course of action in preferable
20
Q
Precepts
A
achieving a goal as cheaply as possible
21
Q
Invisible hand theorem
A
a market economy, through the price mechanism,
will tend to allocate resources efficiently
22
Q
Economic policies
A
actions (or inaction) taken by the government to
influence economic actions
23
Positive economics
the study of what is, and how the economy works
24
Normative economics
the study of what the goals of the economy should be
25
The art of economics (political economy)
the application of the knowledge learned in positive economics to achieve the goals one has determined in
normative economics
26
Production possibility curve (PPC)
also called the Production Possibility Frontier (PPF), a curve measuring the maximum combination of outputs that can be obtained from a given number of inputs.
27
Comparative advantage
better suited to the production of one good than to
the production of another good
28
Productive efficiency
achieving as much output as possible from a given
amount of inputs or resources
29
Inefficiency
getting less output from inputs that, if devoted to some other activity, would produce more
30
Laissez-faire
an economic policy of leaving coordination of individuals’ actions to the market
31
Globalization
the increasing integration of economies, cultures, and
institutions across the world
32
Law of one price
the wages of workers in one country will not differ
significantly from the wages of (equal) workers in another institutionally similar country
33
Institutions
the formal and informal rules that constrain human economic behavior
34
Market economy
an economic system based on private property and the
market in which, in principle, individuals decide how, what, and for whom to produce
35
Private property rights
the control a private individual or firm has over an
asset
36
Socialism
an economic system based on individuals’ goodwill towards others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce
37
Capitalism
an economic system based on the market in which the
ownership of the means of production resides with a small group of individuals called capitalists
38
Businesses
private producing units in our society
39
Entrepreneurship
the ability to organize and get something done
40
Consumer sovereignty
the consumer’s wishes determine what’s produced
41
Profit
what’s left over from total revenues after all the appropriate costs have been subtracted
42
Sole proprietorships
businesses that have only one owner
43
Partnerships
businesses with two or more owners
44
Corporations
businesses that are treated as a person, and are legally owned by their stockholders, who are not liable for the actions of the corporate ‘person’
45
Households
groups of individuals living together and making joint decisions
46
Macroeconomic externalities
externalities that affect the levels of unemployment, inflation, or growth in the economy as a whole
47
Public good
a good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual
48
Private good
a good that, when consumed by one individual, cannot be consumed by another individual
49
Demerit goods or activities
goods or activities that the government believes are
bad for people even though they choose to use the goods or engage in the activities
50
Merit goods or activities
goods or activities that government believes are
good for you even though you may not choose to engage in the activities or to consume the goods
51
Market failures
situations in which the market does not lead to the desired result
52
Government failures
situations in which the government intervenes and
makes things worse
53
Law of demand
quantity demanded rises as price falls, other things
constant. Quantity demanded falls as price rises, other things constant.
53
Global corporations
corporations with substantial operations on both the
production and sales sides in more than one country
54
Demand curve
the graphic representation of the relationship between price and quantity demanded
54
Quantity demanded
a specific amount that will be demanded per unit of
time at a specific price, other things constant
54
Demand
a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant
55
Movement along a demand curve
the graphical representation of the effect
of a change in price on the quantity demanded
55
Shift in demand
the graphical representation of the effect of anything other than price on demand
56
Market demand curve
the horizontal sum of all individuals demand curves
57
Law of supply
quantity supplied rises as price rises, other things constant. Quantity supplied falls as price falls, other things constant.
58
Supply curve
the graphical representation of the relationship between price and quantity supplied
59
Supply
a schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant
60
Quantity supplied
a specific amount that will be supplied at a specific price
60
Movement along the supply curve
the graphical representation of the
effect of a change in price on the quantity supplied
61
Shift in supply
the graphical representation of the effect of a change in a factor other than price on supply
61
Equilibrium
a concept in which opposing dynamic forces cancel each other out
61
Equilibrium quantity
the amount bought and sold at the equilibrium price
62
Equilibrium price
the price toward which the invisible hand drives the
market
63
Excess supply (surplus)
quantity supplied is greater than quantity demanded
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Excess demand (shortage)
quantity demanded is greater than quantity
supplied
65
Fallacy of composition
the false assumption that what is true for a part will
also be true for the whole
66
Price ceiling
a government-imposed limit on how high a price can be
charged
67
Rent control
a price ceiling on rents, set by the government
68
Price floors
a government-imposed limits on how low a price can be
charged
69
Minimum wage laws
laws specifying the lowest wage a firm can legally pay
an employee
70
Excise tax
a tax that is levied on a specific good
71
Tariff
an excise tax on an imported good
72
Third-party-payer markets
a market in which the person who receives the
good differs from the person paying for the good
73
Price elasticity of demand
the percentage change in quantity demanded divided by the percentage change in price
74
Price elasticity of supply
the percentage change in quantity demanded divided by the percentage change in price
75
Elastic
the percentage change in quantity is greater than the percentage change in price (E>1)
76
Inelastic
the percentage change in quantity is less than the percentage change in price (E<1
77
Perfectly inelastic
quantity does not respond at all to changes in price (E=0)
78
Perfectly elastic
quantity responds enormously to changes in price (E=∞)
79
Unit elastic
the percentage change in quantity equals the percentage change in price (E=1)
80
Luxuries
goods that have an income elasticity greater than 1
80
Income elasticity of demand
the percentage change in demand divided by the percentage change in income
81
Normal goods
goods whose consumption increases with an increase in
income
82
Necessity
a good that has an income elasticity between 0 and 1
83
Inferior goods
goods whose consumption decreases when income increases
83
Cross-price elasticity of demand
the percentage change in demand divided by the percentage change in the price of a related good
84
Substitutes
goods that can be used in place of one another
85
Complements
goods that are used in conjunction with other goods
86
Consumer surplus
the value the consumer gets from buying a product less
its price
87
Producer surplus
the price the producer sells a product for less the cost
88
Dead-weight loss
loss of consumer and producer surplus from a tax
89
Welfare loss triangle
a geometric representation of the welfare cost in
terms of misallocated resources caused by a deviation from a supply/demand equilibrium
90
Price ceiling
a government-set price below the market equilibrium price
91
Price floors
government-set prices above equilibrium price
92
Utility
the pleasure or satisfaction people get from doing or consuming something
92
Rent-seeking activities
activities designed to transfer surplus from one
group to another
92
Public choice economists
economists who integrate an economic analysis of
politics with their analysis of the economy
93
Total utility
the total satisfaction one gets from consuming a product
94
Marginal utility
the satisfaction one gets from consuming one additional unit of a product above and beyond what one has consumed up to that point
94
Principle of diminishing marginal utility
As you consume more of a good, after some point, the marginal utility received from each additional unit of a
good decreases with each additional unit consumed, other things equal
95
Principal of rational choice
Spend your money on those goods that give you
the most marginal utility (MU) per dollar
96
Utility-maximizing rule
if MUx / Px = MUy = Py, you’re maximizing utility
97
Income effect
the reduction in quantity demanded because the increase in price makes us poorer
98
Substitution effect
the reduction in quantity demanded because relative
price has risen
99
conspicuous consumption
he consumption of goods not for one’s direct
pleasure, but simply to show off to others
100
Ultimatum game
the first person only gets the money if the other person
accepts the offer. If the second person does not accept, they both get nothing
101
Status quo bias
an individual’s actions are very much influenced by the
current situation, even when that reasonably does not seem to be very important to the decision
102
Production
transformation of factors into goods and services
102
Firm
an economic institution that transforms factors of production into goods and services
103
Profit
total revenue - total cost
104
Total cost
explicit payments to the factors of production plus the
opportunity cost of the factors provided by the owners of the firm
105
Total revenue
the amount the firm receives for selling its product or service plus any increase in the value of the assets owned by the firm
105
Long-run decision
a firm chooses among all possible production techniques
105
Economic profit
(Explicit and implicit revenue) - (Explicit and implicit cost)
106
Short-run decision
the firm is constrained in regarded to what production
decisions it can make
107
Marginal product
the additional output that will be forthcoming from an
additional unit of input, other inputs constant
107
Production table
a table showing the output resulting from various
combinations of factors of production or inputs
107
Average product
output per unit of input
108
Law of diminishing marginal productivity
as more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall
109
Production function
the relationship between the inputs (factors of
production) and outputs
110
Variable costs
costs that change as output changes
111
Fixed costs
costs that are spent and cannot be changed in the period of time under consideration
112
Average fixed cost
fixed cost divided by quantity produced. (AFC = FC/Q)
112
Average total cost
total cost divided by the quantity produced. (ATC = TC/Q) (ATC = AFC + AVC)
113
Average variable cost
variable cost divided by quantity produced. (AVC =
VC/Q)
114
Marginal cost
the increase (or decrease) in total cost from increasing (or decreasing) the level of output by 1 unit
115
Total cost
(TC = FC + VC)
116
Technical efficiency
a production process uses as few inputs as possible to
produce a given level of output
116
Economically efficient
the method that produces a given level of output at
the lowest possible cost
117
Indivisible setup cost
the cost of an indivisible input for which a certain
minimum amount of production must be undertaken before the input becomes economically feasible to use
118
Economies of scale
when long-run average total costs decrease as output
increases
119
Minimum efficient level of production
the amount of production that spreads setup costs out sufficiently for a firm to undertake production profitably
120
Diseconomies of scale
when long-run average total costs increase as output
increases
121
Monitoring costs
costs incurred by the organizer of production in seeing to it that the employees do what they’re supposed to do
122
Team spirit
the feelings of friendship and being a part of a team that bring out people’s best efforts
123
Constant returns to scale
where long-run average total costs do not change
with an increase in output
124
Entrepreneur
an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it
125
Economies of scope
when the costs of producing products are
interdependent so that it’s less costly for a firm to produce one good when it’s already producing another
125
Learning by doing
as we do something, we learn what works and what
doesn’t, and over time we become more proficient at it
126
Technological change
an increase in the range of production techniques
that leads to more efficient ways of producing goods as well as the production of new and better goods
127
Depreciation
a measure of the decline in value of an asset that occurs over time
128
Perfectly competitive market
a market in which economic forces operate unimpeded
129
Price taker
a firm or individual who takes the price determined by the market supply and demand as given
130
Barriers to entry
social, political, or economic impediments that prevent
firms from entering a market
131
Marginal revenue (MR)
the change in total revenue associated with a change in quantity
132
Marginal cost (MC)
the change in total cost associated with a change in quantity
133
Profit-maximizing condition (competitive equilibrium)
MC = MR = P
134
Shutdown point
that point below which the firm will be better off if it
temporarily shuts down than it will if it stays in business
135
Market supply curve
the horizontal sum of all the firms’ marginal cost curves, taking account of any changes in input prices that might occur
136
Normal profit
the amount the owners of business would have received in the next-best scenario, see opportunity cost
137
Monopoly
a market structure in which one firm makes up the entire market
138
Patent
legal protection of a technical innovation that gives the person holding it sole right to use that innovation
139
Price-discriminate
to charge different prices to different individuals or groups of individuals
140
Natural monopoly
an industry in which a single firm can produce at a lower cost than can two or more firms
141
Monopolistic competition
a market structure in which there are many firms selling differentiated products and few barriers to entry
142
Oligopoly
a market structure in which there are only a few firms and firms explicitly take other firms’ likely responses into account
143
Strategic decision making
taking explicit account of a rival’s expected response to a decision you are making
144
Cartel
a combination of firms that acts as if it were a single firm
145
Cartel model of oligopoly
a model that assumes that oligopolies act as if they were monopolists that have assigned output quotas to individual member firms of the oligopoly so that total output is consistent with joint profit maximization
146
Implicit collusion
multiple firms make the same pricing decisions even
though they have not explicitly consulted with one another
147
Contestable market model
a model of oligopoly in which barriers to entry and barriers to exit, not the structure of the market, determine a firm’s price and output decisions
148
North American Industry Classification System (NAICS)
an industry classification that categorizes industries by type of economic activity and groups firms with like production processes
149
Concentration ratio
the value of sales by the top firms of an industry stated
as a percentage of total industry sales
150
Herfindahl index
an index of market concentration calculated by adding the squared value of the individual market shares of all the firms in the industry
151
Judgement by performance
we should judge the competitiveness of the market by the performance (behavior) of firms in that market
152
Antitrust policy
the government’s policy toward the competitive process
153
Judgement by structure
we should judge the competitiveness of markets by
the structure of the industry
154
Government failures
when the government intervention in the market to improve the market failure actually makes the situation worse
155
Market failure
a situation in which the invisible hand pushes in such a way that individual decisions do not lead to socially desirable outcomes
156
Externalities
the effects of a decision on a third party that are not taken into account by the decision maker
157
Negative externalities
when the effects of a decision not taken into account by the decision maker are detrimental to others
158
Positive externalities
when the effects of a decision not taken into account by the decision maker are beneficial to others
159
Marginal social cost
the marginal private costs of production plus the cost of the negative externalities associated with that production
160
Marginal social benefit
the marginal private benefit of consuming a good plus the benefits of the positive externalities resulting from consuming that good
161
Direct regulation
the amount of a good people are allowed to use is directly limited by the government
162
Efficient
achieving a goal at the lowest cost in total resources without consideration as to who pays those costs
163
Inefficient
achieving a goal in a more costly manner than necessary
164
Tax incentive program
a program using a tax to create incentives for individuals to structure their activities in a way that is consistent with the desired ends
164
Effluent fees
charges imposed by government on the level of pollution created
165
Market incentive plan
a plan requiring market participants to certify that they have reduced total consumption— not necessarily their own individual consumption— by a specific amount
165
Free rider problem
individuals’ unwillingness to share in the cost of a public
good
166
Optimal policy
one in which the marginal cost of undertaking the policy
equals the marginal benefit of that policy
167
Public good
a good that is nonexclusive (no one can be excluded from its benefits) and nonrival (consumption by one does not preclude consumption by others)
168
Adverse selection problem
a problem that occurs when buyers and sellers have different amounts of information about the good for sale and use that information to the detriment of the other
169
Moral hazard problem
a problem that arises when people don’t have to bear
the negative consequences of their actions
170
Signaling
an action taken by an informed party that reveals information to an uninformed party that offsets the false signal that caused the adverse selection problem in the first place
171
Screening
an action taken by the uninformed party that induces the informed party to reveal information
172
Labor market
a factor market in which individuals supply labor services for wages to other individuals and to firms that need (demand) labor services
173
Incentive effect
how much a person will change his or her hours worked in response to a change in the wage rate
174
Derived demand
the demand for factors of production by firms, which
depends on consumers’ demands
175
Entrepreneurship
labor that involves high degrees of organizational skills,
concern, oversight responsibility, and creativity
176
Monopsony
a market in which a single firm is the only buyer
177
Bilateral monopoly
a market with only a single seller and a single buyer
178
Marginal factor cost
the additional cost to a firm of hiring another worker
179
Efficiency wages
wages paid above the going market wage to keep workers happy and productive
180
Comparable worth laws
laws mandating comparable pay for comparable
work
181
Closed shops
firms where the union controls hiring
182
Union shops
firms in which all the workers must join the union
183
Lorenz curve
a geometric representation of the share distribution of income among families in a given country at a given time
184
Poverty threshold
the income below which a family is considered to live in
poverty
185
Wealth
the value of the things individuals own less the value of what they owe
186
Income
payments received plus or minus changes in value in a person’s assets in a specified time period
187
Progressive tax
the average tax rate increases with income
188
Proportional tax
the average rate of tax is constant regardless of income
level
189
Regressive tax
the average tax rate decreases as income increase
190
Social Security System
a social insurance program that provides financial benefits to the elderly and disabled and to their eligible dependents and/or survivors
191
Medicare
a multibillion-dollar medical insurance system
192
Public assistance programs
means-tested social programs targeted to the poor, providing financial, nutritional, medical, and housing assistance
193
Supplemental Security Income (SSI)
a federal program that pays benefits, based on need, to the elderly, blind, and disabled
194
Unemployment compensation
short-term financial assistance, regardless of need, to eligible individuals who are temporarily out of work
