LSU - ECON 2000 Glossary CVS Flashcards
(163 cards)
1
Q
ability-to-pay principle
A
A theory of taxation holding that citizens should bear tax burdens in line with their ability to pay taxes. p. 393
2
Q
absolute advantage
A
A producer has an absolute advantage over another in the production of a good or service if he or she can produce that product using fewer resources (a lower absolute cost per unit); the advantage in the production of a good enjoyed by one country over another when it uses fewer resources to produce that good than the other country does. p. 29 p. 411
3
Q
adverse selection
A
A situation in which asymmetric information results in high-quality goods or high-quality consumers being squeezed out of transactions because they cannot demonstrate their quality. p. 358
4
Q
asymmetric information
A
One of the parties to a transaction has information relevant to the transaction that the other party does not have. p. 357
5
Q
average fixed cost (AFC)
A
Total fixed cost divided by the number of units of output; a per-unit measure of fixed costs. p. 169
6
Q
average product
A
The average amount produced by each unit of a variable factor of production. p. 154
7
Q
average tax rate
A
Total amount of tax paid divided by total income. p. 391
8
Q
average total cost (ATC)
A
Total cost divided by the number of units of output. p. 175
9
Q
average variable cost (AVC)
A
Total variable cost divided by the number of units of output. p. 173
10
Q
barriers to entry
A
Factors that prevent new firms from entering and competing in imperfectly competitive industries. p. 278
11
Q
behavioral economics
A
A branch of economics that uses the insights of psychology and economics to investigate decision making. p. 317
12
Q
benefits-received principle
A
A theory of fairness holding that taxpayers should contribute to government (in the form of taxes) in proportion to the benefits they receive from public expenditures. p. 393
13
Q
black market
A
A market in which illegal trading takes place at market-determined prices. p. 84
14
Q
bond
A
A contract between a borrower and a lender, in which the borrower agrees to pay the loan at some time in the future. Some bonds also make regular, constant payments once or twice a year. p.237
15
Q
brain drain
A
The tendency for talented people from developing countries to become educated in a developed country and remain there after graduation. P.436
16
Q
breaking even
A
The situation in which a firm is earning exactly a normal rate of return. p. 190
17
Q
budget constraint
A
The limits imposed on household choices by income, wealth, and product prices. p. 122
18
Q
capital
A
Things that are produced and then used in the production of other goods and services; Those goods produced by the economic system that are used as inputs to produce other goods and services in the future. p. 26 p. 233
19
Q
capital flight
A
The tendency for both human capital and financial capital to leave developing countries in search of higher expected rates of return elsewhere with less risk. p. 436
20
Q
capital income
A
Income earned on savings that have been put to use through financial capital markets. p. 238
21
Q
capital market
A
The input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods; The market in which households supply their savings to firms that demand funds to buy capital goods. p. 49 p. 236
22
Q
capital stock
A
For a single firm, the current market value of the firm?s plant, equipment, inventories, and intangible assets. p. 235
23
Q
capital-intensive technology
A
Technology that relies heavily on capital instead of human labor. p. 152
24
Q
cartel
A
A group of firms that gets together and makes joint price and output decisions to maximize joint profits. p. 297
25
Celler-Kefauver Act
Extended the government's authority to control mergers. p. 307
26
ceteris paribus, or all else equal
A device used to analyze the relationship between two variables while the values of other variables are held unchanged. p. 9
27
choice set or opportunity set
The set of options that is defined and limited by a budget constraint. p. 123
28
Clayton Act
Passed by Congress in 1914 to strengthen the Sherman Act and clarify the rule of reason, the act outlawed specific monopolistic behaviors such as tying contracts, price discrimination, and unlimited mergers. p. 287
29
Coase theorem
Under certain conditions, when externalities are present, private parties can arrive at the efficient solution without government involvement. p. 334
30
command economy
An economy in which a central government either directly or indirectly sets output targets, incomes, and prices. p. 39
31
commitment device
Actions that individuals take in one period to try to control their behavior in a future period. p. 319
32
common stock
A share of stock is an ownership claim on a firm, entitling its owner to a profit share. p. 239
33
comparative advantage
A producer has a comparative advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost; the advantage in the production of a good enjoyed by one country over another when that good can be produced at lower cost in terms of other goods than it could be in the other country. p. 29 p. 411
34
compensating differentials
Differences in wages that result from differences in working conditions. Risky jobs usually pay higher wages; highly desirable jobs usually pay lower wages. p. 368
35
complements, complementary goods
Goods that "go together"; a decrease in the price of one results in an increase in demand for the other and vice versa. P. 55
36
concentration ratio
The share of industry output in sales or employment accounted for by the top firms. p. 295
37
constant returns to scale
An increase in a fIrm's scale of production has no effect on costs per unit produced. p. 195
38
consumer goods
Goods produced for present consumption. p. 31
39
consumer sovereignty
The idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase). p.40
40
consumer surplus
The difference between the maximum amount a person is willing to pay for a good and its current market price. p. 89
41
contestable markets
Markets in which entry and exit are easy enough to hold prices to a competitive level even if no entry actually occurs. p. 296
42
Corn Laws
The tariffs, subsidies, and restrictions enacted by the British Parliament in the early nineteenth century to discourage imports and encourage exports of grain. p. 411
43
cross-price elasticity of demand
A measure of the response of the quantity of one good demanded to a change in the price of another good. p. 111
44
deadweight loss
The total loss of producer and consumer surplus from underproduction or overproduction. p. 92
45
decreasing returns to scale, or diseconomies of scale
An increase in a firm?s scale of production leads to higher costs per unit produced. p. 195
46
demand curve
A graph illustrating how much of a given product a household would be willing to buy at different prices. p. 51
47
demand schedule
Shows how much of a given product a household would be willing to buy at different prices for a given time period. p. 51
48
demand-determined price
The price of a good that is in fixed supply; it is determined exclusively by what households and firms are willing to pay for the good. p.224
49
depreciation
The decline in an asset's economic value over time. p. 236
50
derived demand
The demand for resources (inputs)that is dependent on the demand for the outputs those resources can be used to produce. p. 215
51
diamond/water paradox
A paradox stating that (1) the things with the greatest value in use frequently have little or no value in exchange and (2) the things with the greatest value in exchange frequently have little or no value in use. p. 129
52
diminishing marginal utility
The more of anyone good consumed io a given period, the less incremental satisfaction is generated by consuming a marginal or incremental unit of the same good. p. 354
53
dividend
Payment made to shareholders of a corporation. p. 239
54
Doha Development Agenda
An initiative of the World Trade Organization focused on issues of trade and development. p. 421
55
dominant strategy
In game theory, a strategy that is best no matter what the opposition does. p. 301
56
drop-in-the-bucket problem
A problem intrinsic to public goods. The good or service is usually so costly that its provision generally does not depend on whether any single person pays. p. 342
57
dumping
A firm's or an industry's sale of products on the world market at prices below its own cost of production. p.419
58
duopoly
A two-firm oligopoly. p.299
59
economic growth
An increase in the total output of an economy. Growth occurs when a society acquires new resources or when it learns to produce more using existing resources. p. 12 p. 36
60
economic income
The amount of money a household can spend during a given period without increasing or decreasing its net assets. Wages, salaries, dividends, interest income, transfer payments, rents, and so on are sources of economic income. p. 370
61
economic integration
Occurs when two or more nations join to form a free-trade zone. p.422
62
economic profit
Profit that accounts for both explicit costs and opportunity costs. p. 149
63
economics
The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided. p. 2
64
efficiency In economics, allocative efficienc
. An efficient economy is one that produces what people want at the least possible cost; The condition in which the economy is producing what people want at least possible cost. p. 11 p. 254
65
efficient market
A market in which profit opportunities are eliminated almost instantaneously. p. 3
66
elastic demand
A demand relationship in which the percentage change in quantity demanded is larger than the percentage change in price in absolute value (a demand elasticity with an absolute value greater than 1). p. 100
67
elasticity
A general concept used to quantify the response in one variable when another variable changes. p. 97
68
elasticity of labor supply
A measure of the response of labor supplied to a change in the price of labor. p. 111
69
elasticity of supply
A measure of the response of quantity of a good supplied to a change in price of that good. Likely to be positive in output markets. p. 111
70
empirical economics
The collection and use of data to test economic theories. p. 10
71
entrepreneur
A person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business. p. 48
72
equilibrium
The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change. p. 65
73
equity
Fairness. p. 12 p. 367
74
estate
The property that a person owns at the time of his or her death. p. 396
75
estate tax
A tax on the total value of a person's estate. p. 396
76
European Union (EU)
The European trading bloc composed of 27 countries (of the 27 countries in the EU, 17 have the same currency - the euro). p. 422
77
excess burden
The amount by which the burden of a tax exceeds the total revenue collected. Also called deadweight loss. p. 402
78
excess demand or shortage
The condition that exists when quantity demanded exceeds quantity supplied at the current price. p. 66
79
excess supply or surplus
The condition that exists when quantity supplied exceeds quantity demanded at the current price. p. 67
80
exchange rate
The price of one currency in terms of another. p.416
81
expected rate of return
The annual rate of return that a firm expects to obtain through a capital investment. p. 243
82
expected utility
The sum of the utilities coming from all possible outcomes of a deal, weighted by the probability of each occurring. p. 355
83
expected value
The sum of the payoffs associated with each possible outcome of a situation weighted by its probability of occurring. p. 354
84
export promotion
A trade policy designed to encourage exports. p. 440
85
export subsidies
Government payments made to domestic firms to encourage exports. p. 419
86
externality
A cost or benefit imposed or bestowed on an individual or a group that is outside, or external to, the transaction. p. 263 p. 329
87
factor endowments
The quantity and quality of labor, land, and natural resources of a country. p.418
88
factor substitution effect
The tendency of firms to substitute away from a factor whose price has risen and toward a factor whose price has fallen. p. 223
89
factors of production
The inputs into the production process. Land, labor, and capital are the three key factors of production. p. 49
90
factors of production (or factors)
The inputs into the process of production. Another term for resources. p. 26
91
fair game or fair bet
A game whose expected value is zero. p. 354
92
fallacy of composition
The erroneous belief that what is true for a part is necessarily true for the whole. p. 10
93
favored customers
Those who receive special treatment from dealers during situations of excess demand. p. 84
94
Federal Trade Commission (FTC)
A federal regulatory group created by Congress in 1914 to investigate the structure and behavior of firms engaging in interstate commerce, to determine what constitutes unlawful "unfair" behavior, and to issue cease-and-desist orders to those found in violation of antitrust law. p. 287
95
financial capital market
The complex set of institutions in which suppliers of capital (households that save) and the demand for capital (firms wanting to invest) interact; the part of the capital market in which savers and investors interact through intermediaries. p. 137 p. 238
96
firm
An organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy; an organization that comes into being when a person or a group of people decides to produce a good or service to meet a perceived demand. p. 48 p. 148
97
Five Forces model
A model developed by Michael Porter that helps us understand the five competitive forces that determine the level of competition and profitability in an industry. p. 294
98
fixed cost
Any cost that does not depend on the firms' level of output. These costs are incurred even if the firm is producing nothing. There are no fixed costs in the long run. p. 168
99
free enterprise
The freedom of individuals to start and operate private businesses in search of profits. p. 40
100
free-rider problem A problem intrinsic to public goods
Because people can enjoy the benefits of public goods whether or not they pay for them, they are usually unwilling to pay for them. p. 341
101
game theory
Analyzes the choices made by rival firms, people, and even governments when they are trying to maximize their own well-being while anticipating and reacting to the actions of others in their environment. p.301
102
General Agreement on Tariffs and Trade (GATT)
An international agreement signed by the United States and 22 other countries in 1947 to promote the liberalization of foreign trade. p. 421
103
general equilibrium
The condition that exists when all markets in an economy are in simultaneous equilibrium. p. 254
104
Gini coefficient
A commonly used measure of the degree of inequality of income derived from a Lorenz curve. It can range from 0 to a maximum of 1. p. 372
105
government failure
Occurs when the government becomes the tool of the rent seeker and the allocation of resources is made even less efficient by the intervention of government. p. 283
106
Heckscher-Ohlin theorem
A theory that explains the existence of a country's comparative advantage by its factor endowments; A country has a comparative advantage in the production of a product if that country is relatively well endowed with inputs used intensively in the production of that product. p.418
107
Herfindahl-Hirschman Index (HHI)
An index of market concentration found by summing the square of percentage shares of firms in the market. p. 307
108
homogeneous products
Undifferentiated outputs; products that are identical to or indistinguishable from one another. p. 119 p. 178
109
horizontal differentiation
Products differ in ways that make them better for some people and worse for others. p. 316
110
households
The consuming units in an economy. p. 48
111
human capital
A form of intangible capital that includes the skills and other knowledge that workers have or acquire through education and training and that yields valuable services to a firm over time; the stock of knowledge, skills, and talents that people possess; it can be inborn or acquired through education and training. p. 234 p. 368
112
imperfect information
The absence of full knowledge concerning product characteristics, available prices, and so on. p. 263
113
imperfectly competitive industry
An industry in which individual firms have some control over the price of their output. p. 269
114
import substitution
An industrial trade strategy that favors developing local industries that can manufacture goods to replace imports. p. 440
115
impossibility theorem
A proposition demonstrated by Kenneth Arrow showing that no system of aggregating individual preferences into social decisions will always yield consistent, nonarbitrary results. p. 346
116
income
The sum of all a household's wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. It is a flow measure. p. 54
117
income elasticity of demand
A measure of the responsiveness of demand to changes in income. p. 110
118
increasing returns to scale, or economies of scale
An increase in a firm's scale of production leads to lower costs per unit produced. p. 195
119
industrial policy
A policy in which governments actively pick industries to support as a base for economic development. p. 439
120
Industrial Revolution
The period in England during the late eighteenth and early nineteenth centuries in which new manufacturing technologies and improved transportation gave rise to the modern factory system and a massive movement of the population from the countryside to the cities. p. 3
121
inelastic demand
Demand that responds somewhat, but not a great deal, to changes in price. Inelastic demand always has a numerical value between zero and 1. p. 100
122
infant industry
A young industry that may need temporary protection from competition from the established industries of other countries to develop an acquired comparative advantage. p. 427
123
inferior goods
Goods for which demand tends to fall when income rises. p. 54
124
injunction
A court order forbidding the continuation of behavior that leads to damages. p. 336
125
input or factor markets
The markets in which the resources used to produce goods and services are exchanged. p. 48
126
inputs or resources
Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants. p. 26
127
intangible capital
Nonmaterial things that contribute to the output of future goods and services. p. 234
128
interest
The payments made for the use of money. p. 238
129
interest rate
Interest payments expressed as a percentage of the loan. p. 238
130
International Monetary Fund (IMF)
An international agency whose primary goals are to stabilize international exchange rates and to lend money to countries that have problems financing their international transactions. p. 438
131
Investment
The process of using resources to produce new capital; new capital additions to a firm's capital stock. Although capital is measured at a given point in time (a stock), investment is measured over a period of time (a flow). The flow of investment increases the capital stock. p. 32 p. 235
132
labor market
The input/factor market in which households supply work for wages to firms that demand labor p.49
133
labor supply curve
A curve that shows the quantity of labor supplied at different wage rates. Its shape depends on how households react to changes in the wage rate. p. 135
134
labor theory of value
Stated most simply, the theory that the value of a commodity depends only on the amount of labor required to produce it. p. 380
135
labor-intensive technology
Technology that relies heavily on human labor instead of capital. p. 152
136
laissez-faire economy
Literally from the French "allow [them] to do'. An economy in which individual people and firms pursue their own self-interest without any central direction or regulation. p. 40
137
land market
The input/factor market in which households supply land or other real property in exchange for rent. p. 49
138
law of demand
The negative relationship between price and quantity demanded Ceteris paribus, as price rises, quantity demanded decreases; as price falls, quantity demanded increases. p. 52
139
law of diminishing marginal utility
The more of anyone good consumed in a given period, the less satisfaction (utility) generated by consuming each additional (marginal) unit of the same good. p. 126
140
law of diminishing returns
When additional units of a variable input are added to fixed inputs, after a certain point, the marginal product of the variable input declines. p. 153
141
law of supply
The positive relationship between price and quantity of a good supplied An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied. p. 61
142
liability rules
Laws that require A to compensate B for damages that A imposed on B. p. 336
143
logrolling
Occurs when Congressional representatives trade votes, agreeing to help each other get certain pieces of legislation passed. p. 346
144
long run
That period of time for which there are no fixed factors of production Firms can increase or decrease the scale of operation, and new firms can enter and/or existing firms can exit the industry. p. 151
145
long-run average cost curve (LRAC)
The "envelope" of a series of short-run cost curves. p. 197
146
long-run competitive equilibrium
When P = SRMC = SRAC = LRAC and profits are zero. p. 204 Glossary 457
147
Lorenz curve
A widely used graph of the distribution of income, with cumulative percentage of households plotted along the horizontal axis and cumulative percentage of income plotted along the vertical axis. p. 372
148
Macroeconomics
The branch of economics that examines the economic behavior of aggregates income, employment, output, and so on-on a national scale. p. 5
149
marginal cost (MC)
The increase in total cost that results from producing 1 more unit of output. Marginal costs reflect changes in variable costs. p. 171
150
marginal damage cost (MDC)
The additional harm done by increasing the level of an externality producing activity by 1 unit. If producing product X pollutes the water in a river, MDC is the additional cost imposed by the added pollution that results from increasing output by 1 unit of X per period. p. 334
151
marginal private cost (MPC)
The amount that a consumer pays to consume an additional unit of a particular good. p. 333
152
marginal product
The additional output that can be produced by adding one more unit of a specific input, ceteris paribus. p. 153
153
marginal product of labor (MPL)
The additional output produced by 1 additional unit of labor. p. 216
154
marginal rate of transformation (MRT)
The slope of the production possibility frontier (ppf). p. 33
155
marginal revenue (MR)
The additional revenue that a firm takes in when it increases output by one additional unit. In perfect competition, P = MR. p.180 marginal revenue product (MRP) The additional revenue a firm earns by employing 1 additional unit of an input, ceteris paribus. p.217
156
marginal social cost (MSC)
The total cost to society of producing an additional unit of a good or service. MSC is equal to the sum of the marginal costs of producing the product and the correctly measured damage costs involved in the process of production. p. 330
157
marginal tax rate
The tax rate paid on the next dollar earned. p.391
158
marginal utility (MU)
The additional satisfaction gained by the consumption or use of one more unit of a good or service. p. 126
159
marginalism
The process of analyzing the additional or incremental costs or benefits arising from a choice or decision. p. 2
160
market
The institution through which buyers and sellers interact and engage in exchange. p. 40
161
market demand
The sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service. p. 59
162
market failure
Occurs when resources are misallocated, or allocated inefficiently. The result is waste or lost surplus. p. 262
163
market power
An imperfectly competitive firm's ability to raise price without losing all of the quantity demanded for its product. p. 270
