LSU - ECON 2000 Glossary 2 Flashcards
(144 cards)
1
Q
maximin strategy
A
In game theory, a strategy chosen to maximize the minimum gain that can be earned. p. 303
2
Q
mechanism design
A
A contract or an institution that aligns the interests of two parties in a transaction. A piece rate, for example, creates incentives for a worker to work hard, just as his or her superior wants. A co-pay in the health care industry encourages more careful use of health care, just as the insurance company wants. p. 363
3
Q
Medicaid and Medicare
A
In-kind government transfer programs that provide health and hospitalization benefits. Medicare to the aged and their survivors and to certain of the disabled, regardless of income, and Medicaid to people with low incomes. p. 384
4
Q
Microeconomics
A
The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units-that is, firms and households. p. 4
5
Q
Midpoint formula
A
A more precise way of calculating percentages using the value halfway between PI and P2 for the base in calculating the percentage change in price and the value halfway between QI and Q2 as the base for calculating the percentage change in quantity demanded. p. 102
6
Q
minimum efficient scale (MES)
A
The smallest size at which long-run average cost is at its minimum. p.197
7
Q
minimum wage
A
A price floor set for the price of labor; the lowest wage that firms are permitted to pay workers. p. 86 p. 368
8
Q
model
A
A formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables. p. 8
9
Q
money
A
income The measure of income used by the Census Bureau. Because money income excludes noncash transfer payments and capital gains income, it is less inclusive than economic income. p. 371
10
Q
monopolistic competition
A
A common form of industry (market) structure characterized by a large number of firms, no barriers to entry, and product differentiation. p.314
11
Q
moral hazard
A
Arises when one party to a contract changes behavior in response to that contract and thus passes on the costs of that behavior change to the other party. p. 362
12
Q
movement along a demand curve
A
The change in quantity demanded brought about by a change in price. p.57
13
Q
movement along a supply curve
A
The change in quantity supplied brought about by a change in price. p.63
14
Q
Nash equilibrium
A
In game theory, the result of all players’ playing their best strategy given what their competitors are doing. p. 303
15
Q
natural experiment
A
Selection of a control versus experimental group in testing the outcome of an intervention is made as a result of an exogenous event outside the experiment itself and unrelated to it. p. 444
16
Q
natural monopoly
A
An industry that realizes such large economies of scale that single-firm production of that good or service is most efficient. p. 278
17
Q
network externalities
A
The value of a product to a consumer increases with the number of that product being sold or used in the market. p. 280
18
Q
nonexcludable
A
A characteristic of public goods. Once a good is produced, no one can be excluded from enjoying its benefits. p.341
19
Q
nonrival in consumption
A
A characteristic of public goods. One person’s enjoyment of the benefits of a public good does not interfere with another’s consumption of it. p. 341
20
Q
normal goods
A
Goods for which demand goes up when income is higher and for which demand goes down when income is lower. p. 54
21
Q
normal rate of return
A
A rate of return on capital that is just sufficient to keep owners and investors satisfied. For relatively risk-free firms, it should be nearly the same as the interest rate on risk-free government bonds. p. 149
22
Q
normative economics
A
An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of of action. Also called ?policy economics?. p. 8
23
Q
North American Free Trade Agreement (NAFTA)
A
An agreement signed by the United States, Mexico, and Canada in which the three countries agreed to establish all North America as a free-trade zone. p. 422
24
Q
Ockham’s razor
A
The principle that irrelevant detail should be cut away. p. 8
25
Oligopoly
A form of industry (market) structure characterized by a few dominant firms. Products may be homogeneous or differentiated. p. 293
26
opportunity cost
The best alternative that we forgo, or give up, when we make a choice or a decision. p. 2 p. 27
27
optimal level of provision for public goods
The level at which society's total willingness to pay per unit is equal to the marginal cost of producing the good. p.343
28
optimal method of production
The production method that minimizes cost for a given level of output. p. 152
29
optimal scale of plant
The scale of plant that minimizes long-run average cost. p.200
30
output effect of a factor
price increase (decrease) When a firm decreases (increases) its output in response to a factor price increase (decrease), this decreases (increases) its demand for all factors. p. 223
31
outputs
Goods and services of value to households. p.26
32
Pareto efficiency or Pareto optimality
A condition in which no change is possible that will make some members of society better off without making some other members of society worse off. p.256
33
partial equilibrium analysis
The process of examining the equilibrium conditions in individual markets and for households and firms separately. p. 254
34
patent
A barrier to entry that grants exclusive use of the patented product or process to the inventor. p. 280
35
payoff
The amount that comes from a possible outcome or result. p. 354
36
perfect competition
An industry structure in which there are many firms, each small relative to the industry, producing identical products and in which no firm is large enough to have any control over prices. In perfectly competitive industries, new competitors can freely enter the market and old firms can exit. p. 119 p. 178
37
perfect knowledge
The assumption that households possess a knowledge of the qualities and prices of everything available in the market and that firms have all available information concerning wage rates, capital costs, technology, and output prices. p. 119
38
perfect price discrimination
Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit. p. 283
39
perfect substitutes
Identical products. p. 55
40
perfectly elastic demand
Demand in which quantity drops to zero at the slightest increase in price. p.99
41
perfectly inelastic demand
Demand in which quantity demanded does not respond at all to a change in price. p. 99
42
physical, or tangible, capital
Material things used as inputs in the production of future goods and services. The major categories of physical capital are nonresidential structures, durable equipment, residential structures, and inventories. p. 234
43
point elasticity
A measure of elasticity that uses the slope measurement. p. 102
44
positive economics
An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works. p. 8
45
post hoc, ergo propter hoc
Literally, "after this (in time), therefore because of this;' A common error made in thinking about causation. If Event A happens before Event B, it is not necessarily true that A caused B. p. 10
46
poverty line
The officially established income level that distinguishes the poor from the nonpoor. It is set at three times the cost of the Department of Agriculture's minimum food budget. p. 376
47
price ceiling
A maximum price that sellers may charge for a good, usually set by government. p. 83
48
price discrimination
Charging different prices to different buyers for identical products. p. 283
49
price elasticity of demand
The ratio of the percentage of change in quantity demanded to the percentage of change in price; measures the responsiveness of quantity demanded to changes in price. p. 99
50
price floor
A minimum price below which exchange is not permitted. p. 86
51
price leadership
A form of oligopoly in which one dominant firm sets prices and all the smaller firms in the industry follow its pricing policy. p. 298
52
price rationing
The process by which the market system allocates goods and services to consumers when quantity demanded exceeds quantity supplied. p. 79
53
principle of neutrality
All else equal, taxes that are neutral with respect to economic decisions (that is, taxes that do not distort economic decisions) are generally preferable to taxes that distort economic decisions. Taxes that are not neutral impose excess burdens. p. 402
54
principle of second best
The fact that a tax distorts an economic decision does not always imply that such a tax imposes an excess burden. If there are previously existing distortions, such a tax may actuallyimprove efficiency. p. 405
55
prisoners'dilemma
A game in which the players are prevented from cooperating and in which each has a dominant strategy that leaves them both worse off than if they could cooperate. p. 302
56
producer surplus
The difference between the current market price and the cost of production for the firm. p. 90
57
product differentiation
A strategy that firms use to achieve market power. Accomplished by producing goods that differ from others in the market. p. 315
58
product or output markets
The markets in which goods and services are exchanged. p. 48
59
production
The process that transforms scarce resources into useful goods and services; the process by which inputs are combined, transformed, and turned into outputs. p. 26 p. 147
60
production function or total product function
A numerical or mathematical expression of a relationship between inputs and outputs. It shows units of total product as a function of units of inputs. p. 152
61
production possibility frontier (ppf)
A graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently. p. 32
62
production technology
The quantitative relationship between inputs and outputs. p. 152
63
productivity of an input
The amount of output produced per unit of that input. p.216
64
profit
The difference between revenues and costs; the difference between total revenue and total cost. p.60 p. 148
65
progressive tax
A tax whose burden, expressed as a percentage of income, increases as income increases. p.391
66
property income
Income from the ownership of real property and financial holdings. It takes the form of profits, interest, dividends, and rents. p. 369
67
proportional tax
A tax whose burden is the same proportion of income for all households. p.391
68
protection
The practice of shielding a sector of the economy from foreign competition. p. 419
69
public assistance, or welfare
Government transfer programs that provide cash benefits to: (l) families with dependent children whose incomes and assets fall below a very low level and (2) the very poor regardless of whether they have children. p. 383
70
public choice theory
An economic theory that the public officials who set economic policies and regulate the players act in their own self-interest, just as firms do. p. 283
71
public goods (social or collective goods)
Goods that are nonrival in consumption and/or their benefits are nonexcludable. p. 341
72
public goods, or social goods
Goods and services that bestow collective benefits on members of society. Generally, no one can be excluded from enjoying their benefits. The classic example is national defense. p. 262
73
pure monopoly
An industry with a single firm that produces a product for which there are no close substitutes and in which significant barriers to entry prevent other firms from entering the industry to compete for profits. p. 270
74
pure rent
The return to any factor of production that is in fixed supply. p. 224
75
quantity demanded
The amount (number of units) of a product that a household would buy in a given period if it could buy all it wanted at the current market price. p. 50
76
quantity supplied
The amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period. p. 61
77
queuing
Waiting in line as a means of distributing goods and services - a nonprice rationing mechanism. p. 83
78
quota
A limit on the quantity of imports. p. 420
79
random
experiment (Sometimes referred to as a randomized experiment.) A technique in which outcomes of specific interventions are determined by using the intervention in a randomly selected subset of a sample and then comparing outcomes from the exposed and control group. p. 443
80
ration coupons
Tickets or coupons that entitle individuals to purchase a certain amount of a given product per month. p. 84
81
Rawlsian justice
A theory of distributional justice that concludes that the social contract emerging from the "original position" would call for an income distribution that would maximize the well-being of the worst-off member of society. p. 380
82
real income
The set of opportunities to purchase real goods and services available to a household as determined by prices and money income. p. 124
83
regressive tax
A tax whose burden, expressed as a percentage of income, falls as income increases. p.391
84
rent-seeking behavior
Actions taken by households or firms to preserve economic profits. p. 283
85
risk-averse
Refers to a person's preference of a certain payoff over an uncertain one with the same expected value. p. 356
86
risk-loving
Refers to a person's preference for an uncertain deal over a certain deal with an equal expected value. p. 356
87
risk-neutral
Refers to a person's willingness to take a bet with an expected value of zero. p. 356
88
rule of reason
The criterion introduced by the Supreme Court in 1911 to determine whether a particular action was illegal ("unreasonable") or legal ("reasonable") within the terms of the Sherman Act. p.286
89
scarce
Limited. p. 2 Glossary 459
90
shift of a demand curve
The change that takes place in a demand curve corresponding to a new relationship between quantity demanded of a good and price of that good. The shift is brought about by a change in the original conditions. p. 57
91
shift of a supply curve
The change that takes place in a supply curve corresponding to a new relationship between quantity supplied of a good and the price of that good. The shift is brought about by a change in the original conditions. p. 63
92
shock therapy
The approach to transition from socialism to market capitalism that advocates rapid deregulation of prices, liberalization of trade, and privatization. p. 450
93
short run
The period of time for which two conditions hold: The firm is operating under a fixed scale (fixed factor) of production, and firms can neither enter nor exit an industry. p. 151
94
short-run industry supply curve
The sum of the marginal cost curves (above AVC) of all the firms in an industry. p. 194
95
shutdown point
The lowest point on the average variable cost curve. When price falls below the minimum point on AVC, total revenue is insufficient to cover variable costs and the firm will shut down and bear losses equal to fixed costs. p. 193
96
Smoot-Hawley tariff
The U.S. tariff law of the 1930s, which set the highest tariffs in U.S. history (60 percent). It set off an international trade war and caused the decline in trade that is often considered one of the causes of the worldwide depression of the 1930s. p. 420
97
social capital, or infrastructure
Capital that provides services to the public. Most social capital takes the form of public works (roads and bridges) and public services (police and fire protection). p.234
98
social choice
The problem of deciding what society wants. The process of adding up individual preferences to make a choice for society as a whole. p. 345
99
social overhead capital
Basic infrastructure projects such as roads, power generation, and irrigation systems. p. 438
100
Social Security system
The federal system of social insurance programs. It includes three separate programs that are financed through separate funds -the Old Age and Survivors Insurance (OASI) program, the Disability Insurance (DI) program, and the Health Insurance (HI), or Medicare program. p. 382
101
sources side/uses side
The impact of a tax may be felt on one or the other or on both sides of the income equation. A tax may cause net income to fall (damage on the sources side), or it may cause prices of goods and services to rise so that income buys less (damage on the uses side). p.396
102
spreading overhead
The process of dividing total fixed costs by more units of output. Average fixed cost declines as quantity rises. p. 169
103
stability
A condition in which national output is growing steadily, with low inflation and full employment of resources. p. 12
104
substitutes
Goods that can serve as replacements for one another; when the price of one increases, demand for the other increases. p. 55
105
supply curve
A graph illustrating how much of a product a firm will sell at different prices. p. 61
106
supply schedule
Shows how much of a product firms will sell at alternative prices. p. 61
107
tacit collusion
Collusion occurs when price- and quantity-fixing agreements among producers are explicit. Tacit collusion occurs when such agreements are implicit. p. 297
108
tariff
A tax on imports. p. 419
109
tax base
The measure or value upon which a tax is levied. p. 389
110
tax incidence
The ultimate distribution of a tax burden. p. 396
111
tax rate structure
The percentage of a tax base that must be paid in taxes-25 percent of income, for example. p. 389
112
tax shifting
Occurs when households can alter their behavior and do something to avoid paying a tax. p.397
113
technological change
The introduction of new methods of production or new products intended to increase the productivity of existing inputs or to raise marginal products. p. 228
114
terms of trade
The ratio at which a country can trade domestic products for imported products. p.415
115
theory of comparative advantage
Ricardo's theory that specialization and free trade will benefit all trading partners (real wages will rise), even those that may be absolutely less efficient producers. p. 28 p. 411
116
Tiebout hypothesis
An efficient mix of public goods is produced when local land/housing prices and taxes come to reflect consumer preferences just as they do in the market for private goods. p. 345
117
tit-for-tat strategy
A repeated game strategy in which a player responds in kind to an opponent's play. p.304
118
total cost
The total of (1) out-of-pocket costs and (2) opportunity cost of all factors of production. p. 149
119
total cost (TC)
Total fixed costs plus total variable costs. p. 168
120
total fixed costs (TFC
) or overhead The total of all costs that do not change with output even if output is zero. p.169
121
total revenue
The amount received from the sale of the product (q X P). p.149
122
total revenue (TR)
The total amount that a firm takes in from the sale of its product - the price per unit times the quantity of output the firm decides to produce (P X q). p. 180
123
total utility
The total amount of satisfaction obtained from consumption of a good or service. p. 126
124
total variable cost (TVC)
The total of all costs that vary with output in the short run. p. 170
125
total variable cost curve
A graph that shows the relationship between total variable cost and the level of a firm's output. p. 170
126
trade deficit
The situation when a country imports more than it exports. p. 410
127
trade surplus
The situation when a country exports more than it imports. p. 410
128
tragedy of commons
The idea that collective ownership may not provide the proper private incentives for efficiency because individuals do not bear the full costs of their own decisions but do enjoy the full benefits. p. 448
129
transfer payments
Payments by government to people who do not supply goods or services in exchange. p.370
130
u.S.-Canadian Free Trade Agreement
An agreement in which the United States and Canada agreed to eliminate all barriers to trade between the two countries by 1998. p. 422
131
unemployment compensation
A state government transfer program that pays cash benefits for a certain period of time to laid-off workers who have worked for a specified period of time for a covered employer. p. 384
132
unitary elasticity
A demand relationship in which the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity of 1). p. 100
133
utilitarian justice
The idea that "a dollar in the hand of a rich person is worth less than a dollar in the hand of a poor person". If the marginal utility of income declines with income, transferring income from the rich to the poor will increase total utility. p. 380
134
utility
The satisfaction a product yields. p. 126
135
utility possibilities frontier
A graphic representation of a two-person world that shows all points at which l's utility can be increased only if J's utility is decreased. p. 377
136
utility-maximizing rule
Equating the ratio of the marginal utility of a good to its price for all goods. p. 129
137
variable
A measure that can change from time to time or from observation to observation. p. 8
138
variable cost
A cost that depends on the level of production chosen. p. 168
139
vertical differentiation
A product difference that, from everyone's perspective, makes a product better than rival products. p.317
140
vicious-circle-of-poverty hypothesis
Suggests that poverty is self-perpetuating because poor nations are unable to save and invest enough to accumulate the capital stock that would help them grow. p. 435
141
voting paradox
A simple demonstration of how majority-rule voting can lead to seemingly contradictory and inconsistent results. A commonly cited illustration of the kind of inconsistency described in the impossibility theorem. p. 346
142
wealth or net worth
The total value of what a household owns minus what it owes. It is a stock measure. p. 54
143
World Bank
An international agency that lends money to individual countries for projects that promotes economic development. p. 439
144
World Trade Organization (WTO)
A negotiating forum dealing with rules of trade across nations. p. 421
