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Flashcards in Vocab Second Midterm Deck (74):
1

Marginal Utility

The change in total utility a person receives from consuming one additional unit of a good or service

2

Law of diminishing marginal utility

The principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time

3

Budget Constraint

The limited amount of income available to consumers to spend on goods and services

4

Income Effect

The change in the quantity demanded of a good that results from the effect of a change in price

5

Substitution Effect

The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

6

Network Externality

A situation in which the usefulness of a product increases with the number of consumers who use it.

7

Opportunity cost

The highest valued alternative that must be given up to engage in an activity

8

Endowment effect

The tendency of people to be willing to sell a good they already own even if they are offered a price that is greater than the price that they would be willing to pay to buy the good if they didn't already own it.

9

Utility

Enjoyment or satisfaction people receive from consuming goods or services.

10

Law of diminishing marginal utility

consumers experience diminishing marginal satisfaction as they consume more of a good or a service. Every additional unit tends not to be as good as the one before.

11

Budget constraint

limited amount of income with which to purchase goods or services

12

Indifference curve

Combination of consumption bundles that give a specific consumer the same utility

13

Why can't indiference curves ever cross?

Because of transitive preferences. Sally prefers apples to bananas, sally prefers bananas to carrots, if they intersect the crossing violates transitive preferences.

14

Technology

The processes a firm uses to turn inputs into outputs of goods and services

15

Technological change

A change in the ability of a firm to produce a given level of output with a given quantity of inputs

16

Short run

The period of time during which at least one of a firm's inputs is fixed

17

long run

the period of time in which a firm can vary all its inputs, adopt new technology and increase or decrease the size of its physical plant

18

Total cost

the cost of all the inputs a firm uses in production (VC+FC)

19

Variable costs

Costs that change as output changes

20

Fixed costs

costs that remain as output changes

21

Opportunity Cost

The highest valued alternative that must be given up to engage in an activity

22

Explicit cost

A cost that involves spending money

23

Implicit Cost

A nonmonetary opportunity cost

24

Marginal product of labor

the additional output a firm produces as a result of hiring one more worker

25

Law of diminishing return

The principle that at some point adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginl product of the variavle input to decline

26

Average product of labor

The total output produced by a firm divided by the quantity of workers

27

Marginal cost

The change in a firm's total cost from producing one more unit of a good or service

28

Average fixed cost

FC / Q

29

Average Variable Cost

VC / Q

30

Average Total Cost

TC /Q

31

Constant returns to scale

A situation in which a firm's long-run average costs remain unchanged as it increases output

32

Minimum efficient scale

The level of output at which all economies of scale are exhausted.

33

Diseconomies of scale

The situation i which a firm's long-run average costs rise as the firm increases output

34

Monopolistic Competition

A market structure in which barriers to entry are low and many firms compete by selling similar but not identical products

35

Profit

TR-TC or (P-ATC)xQ

36

Marketing

All the activities necessary for a firm to sell a product to a consumer

37

Brand Management

The actions of a firm intended to maintain the differentiation of a product over time

38

Inputs

In the short run, at least one input is fixed, in the long run ALL inputs are variable

39

Long Run Average Cost (LRAC)

Lowest cost at which a firm can produce a given quantity of output in the long run

40

Economies of scale

long run average costs fall as output increases

41

Maximum efficient scale

level of output at which diseconomies of scale begin

42

Perfectly Competitive Market (3 Requirements)

1) There must be buyers and many firms, all of which are small relative to the market
2) All firms in the market must sell identical products
3) There must be no barriers to new firms entering the market.

43

Price taker

A buyer or seller that is unable to affect the market price

44

Profit

TR-TC

45

Average Revenue (AR)

Total revenue divided by the quantity of the product sold.

46

Marginal Revenue (MR)

The change in total revenue from selling one more unit of a product

Change in TR / Change in TC

47

Marginal =

Change in

48

Sunk Cost

A cost that has already been paid and cannot be recovered

49

Economic Profit

A firm's revenues minus all its costs, implicit and explicit

50

Economic Loss

The situation in which a firm's total revenue is less than its total cost, including all implicit costs

51

Long-run compeititive equilibrium

the situation in which the entry and exit of firms has resulted in the typical firm breaking even

52

long-run supply curve

A curve that shows the relationship in the long run between market price and quantity supplied

53

Productive efficiency

The situation in which a good or service is produced at the lowest possible cost

54

Allocative efficiency

A state of the economy in which producion represents consumer preferences.

55

Perfectly Competitive Market Requirements

1) Many buyers and sellers
2) Identical products
3) No barriers for entry for new sellers

56

Monopoly

A firm that is the only seller of a good or service that does not have a close substitute

57

Patent

The exclusive right to a product for a period of 20 years from the date the patent application is filed with the government

58

Copyright

A government-granted exclusive right to produce an sell a creation

59

Public franchise

A government designation that a firm is the only legal provider of a good or service

60

Natural monopoly

A situation in which economies of scale are so large that one firm can supply the entire market at a lower average total cost than can two or more firms.

61

3 effects of monopolies

1) Monopoly causes a reduction in consumer surplus
2) Monolopy causes a dead weight loss, which represents a reduction in economic efficiency
3) Monopoly causes an increase in producer surplus

62

Market power

The ability of a firm to charge a price greater than marginal cost

63

Collusion

An agreement among firms to charge a proce greater than marginal cost

64

Antitrust laws

Laws aimed at eliminating collusion and promoting competition among firms

65

Horizontal merger

A merger between firms in the same industry

66

Vertical merger

A merger between firms at different stages of production of one good

67

Monopolistically Competitive Market Requirements

1) Many Sellers
2) Differentiated products
3) low barriers to entry

68

Monopoly market structure requirements

1) single firm
2) unique product
3) entry blocked

69

Barriers to entry in monopolies

1) government action
2) control of a key resource
3) network externalities

70

antitrust policies

to impede several firms from colluding together, behaving like a monopolist, and splitting profit.

71

Oligopoly Market Structure Characteristics

1) Few Firms
2) Identical or differentiated products
3) difficult for new firms to enter

72

Dominant Strategy

Best for one player no matter what the other player does

73

Nash Equilibrium

Each player chooses their best strategy, given the strategies chosen by other players

74

Prisoner's dilemma

Each player has a dominant strategy and when each plays it, the resulting payoffs are lower than if each player had played the dominated strategy.