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Definitions |
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Inelastic
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0"unresponsive"
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Monopoly:
P __ MR
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>
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Price Ceiling
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max charging price
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artificially scarce goods
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excludable but nonrivaled
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Average Total Cost
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TC/Q = (FC+VC)/Q
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taxes and subsidies
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taxes lead to underproduction,sunsidies lead to overproduction
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Deduction
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Any item or expenditure subtracted from gross income to reduce the amount of income subject to tax.
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Opportunity Cost
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the highest valued alternative forsaken (re-routing one's time or resources toward one good or service over another)
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Labor
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People’s physical and mental talents and efforts that are used to help produce goods and services.
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Price discrimination occurs every time a firm sells a good for two different prices
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FALSE
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luxuries
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a good that usually has many subs*elastic demand
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user cost of capital formula
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=(economic depreciation)+(int rate)(value of capital)
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Quasi-public goods
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Goods that could be provided privately
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Microeconomics
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The part of economics concerned with decision making by individual units susch as a household, a firm, or an industry and with individual markets, specific goods and services, and product and resource prices
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ATC > P = profit __ 0.
<,>,=
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<
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Crowding
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forcing members of a group into certain kinds of occupations
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Government purchases
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Expenditures by government for goods and services that government consumes in providing public goods and for public (or social) capital that ahs a long lifetime; the expenditures of all governments in the economy for those final goods and services.
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business firm
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a business organization controlled by a single management. firm: company, enterprise, business
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In maximizing profit a firm will always produce that output where total revenues are at a maximum
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FALSE
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Excess Supply
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A situation in which, at the prevailing price, producers are willing to sell more than consumers are willing to buy
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Euro
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The currency unit used by 12 European nations in the Euro zone.
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free riders
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individuals that have no incentive to pay for their own consumption of a good and instead will take a free ride on anyone who does pay
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Marginal Cost (MC)
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The extra (additional) benefit of consuming 1 more unit of some good or service; the change in total benefit when 1 more unit is consumed.
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TOTAL CONSUMER SURPLUS
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sum of individual consumer surplus achieve by all the buyers of a good
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Capital
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A manufactured good that is used to produce something else; a produced means of further production: i.e. machines, buildings, office furniture, lumber (not timber)
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Total Revenue
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Price ($/unit) x Quantity (amount of units)
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Incentive Pay Plan
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A compensation structure that ties worker pay directly to performance. Such plans include piece rates, bonuses, stock options, commissions, and profit sharing.
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Inferior Goods
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A good or service whose consumption declines as income rises (and conversely), price remaining constant.
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Demand
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A schedule showing the amounts of a good or service that buyers (or a buyer) wish to purchase at various prices during some time period.
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determination of income
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your income determines your ability to pay. income is obtained by selling the services of resources. ownership of resources determines who gets what goods and services in a market system
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An increase in the price of capital will reduce the demand for labor if capital and labor are complementary resources
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FALSE
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Underemployed Resources
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The less than full utilization of a resource's productive capabilities.
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Depreciation
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A decrease in the value of the dollar relative to another currency, so a dollar buys a smaller amount of the foreign currency and therefore of foreign goods.
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returns to scale
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rate at which output increases as inputs are increased proportionately
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Important to know concerning supply and demand
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Equilibrium price and quantity
Changes in demand
Changes in quantity demanded
Changes in supply
Changes in quantity supplied
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Economic Growth
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(1) An outward shift in the production possibilities curve that results from an increase in resources supplies or quality or an improvement in technology; (2) an increse of real output or real output per capita
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Inelastic Good
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a good in which price is independent of demand, or when changes in the quantity demanded does not effect the price of the good, these goods are often seen to be necessary, or those with no substitutes (ie vaccines, gasoline, medical needs)
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Law of Diminishing Returns
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The hypothesis that if increasing quantities of a variable factor are applied to a given quantity of fixed factors, the marginal product of the variable factor will eventually decrease
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Fixed Costs are...
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Costs that do not change with quantity; cost where Q = 0
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Equilibrium Price
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The price in a competitive market at which the quantity demanded and the attainable supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.
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household
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one or more persons who occupy a unit of housing
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income effect
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the change in the quantity of that good consumed that results from a chane in the consumer's purchasing power due to the change in the price of the good
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Market Failure
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A situation in which a market fails to be efficient because of external benefits, externalcosts, imperfect information, or imperfect competition.
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economies of scope
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reductions in min avg costs for the production of related multiple products
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Height of supply curve shows...
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minimum price necessary to induce producers to supply add. unit.; and the opportunity cost of producing that add. unit.
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fixed costs (FC)
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do not vary with the level of output
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Absolute Price
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The amount of money that must be spent to acquire one unit of a commodity. Also called money price.
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Marginal factor cost (MFC)
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the additional cost of an additional unit of a resource
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Marginal tax rate
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The tax rate paid on each additional dollar of income.
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Cost of production
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the cost of manufacturing a good or service
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General Agreement on Tariffs and Trade (GATT)
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The international agreement where multiple nations agreed to give equal and nondiscriminatory tretment to one another, to reduce tariff rates by multinational negotiations, and to eliminate import quotas. Now the WTO
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Price earnings ratio definition
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measure of how highly a stock is valued.-average is about 15.- >15, the stock is relatively expensive in terms of recent earnings, might be overvalued or investors are expecting share prices to rise in the future-
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Where is Q set in a monopolistic competition market?
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where MR = MC
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Cost- Benefit Principle
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Take action if, and only if, the extra benefits outweigh the extra costs.
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The ease of substitution of a good...
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means that the good is ELASTIC
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give an example of an industry with a small minimum efficiency scale and an industry with a large minimum efficiency scale.
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Small MES-pizza parlorLarge MES-aircraft producer
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When consumers face rising gasoline prices, they typically....
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reduce their qty demanded more in the LR than in the SR
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When a firm adds more labor to the production process with a fixed amount of capital equipment
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nthe marginal product of labor first increases and eventually declines.
Total product eventually will rise at a diminishing rate, then reach a maximum, and finally decline
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To find the price ratio or the market trade off
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you find the slope of the budget line (the rise) divided by the run
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ed/es=1=
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unit elastic
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Competition
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Exists because of scarcity
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Tax Rate
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Average tax rate.
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Production possibilities frontier
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More resources
Better resources
Technology
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Cartels
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multiple oligopolies acting together as a monopoly to maximize profits (reduces total surplus)
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marginal utility
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additional utility or satisfaction derived from consuming one more unit of any good or service
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SPECIALIZATION
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a situation in which different people each engage in a different task
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Discrimination
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prejudice that occurs when factors unrelated to marginal revenue product affect the wages or jobs that are obtained
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Imports
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goods produced abroad and sold domestically.
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Anti-trust laws-
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purpose is to prevent monopolization, promote competition, and achieve allocative efficiency.
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Nontariff Barriers
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All barriers other than protective tariffs that nations erect to impede international trade, including import quotas, licensing requirements, unreasonable product-quality standards, unnecessary bureaucratic detail in customs procedures, and so on.
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ECONOMIC SIGNAL
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any piece of information that helps people make better economic decisions
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Supply
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The relationship between the price of an item and the amount of it that producers/sellers are willing to sell
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Natural Monopoly
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An industry characterized by economies of scale sufficiently large that only one firm can cover its costs while producing at its minimum efficient scale
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Factors that shift Supply
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Input prices, Technology, Expectations, Number of sellers
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Economic Principle
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A widely accepted generalization about the economic behavior of individuals or institutions.
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surplus
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a situation where quantity supplied is greater than quantity demanded
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H1-B provision-
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A provision in the U.S. immigration law that allows the annual entry of 65,000 high-skilled workers in "specialty occupations" such as science and computer programming to work legally and continuously in the U.S. for 6 years.
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Cross Elasticity of Demand
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Measures the responsiveness in quantity demanded of one good to changes in the price of another good
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Inelastic Demand
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Product or resource demand for which the elasticity coefficient for price is less than 1. This means the resulting percentage change in quantity demanded is less than the percentage change in price.
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marginal cost
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increase in cost resulting from the production of one extra unit of output
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Optimal Point is where...
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Marginal Revenue = Marginal Cost
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Herfindahl Index
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A measure of the concentration and competitiveness of an industry; calculated as the sum of the squared percentage market shares of the individual firms in the industry.
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Production Possibilites Boundary
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A curve showing which alternative combinations of commodities can just be attained if all available resources are used efficiently; it is the boundary between attainable and unattainable output combinations
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Zero-coupon bond
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a bond that provides no interest payments but is issued at a value lower than its face value
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Normal Goods
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A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.
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market equilibrium
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a situation in which quantity demanded eqals quantity supplied
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Alcoa case (1945)-
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Found guilty of violating the Sherman act because even though a firm's behavior might be legal, the mere possession of monopoly power (Alcoa held 90% of the aluminum ingot market) violated antitrust laws. The market for this product is defined narrowly in this case.
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Nominal Value
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The face value of an amount of money
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shut down point(perf comp)
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if price is less than AVC
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What do we measure utility in?
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hypothetical units called utils
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Rule #4
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When the total curve is increading at an increasing rate, the marginal curve is rising
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Derived Demand
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The demand for a resource that depends on the demand for the products it helps to produce.
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Exclusive Unionism
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The practice of a labor union of restricting the supply of skilled union labor to increase the wages received by union members; the policies typically employed by a craft union.
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Substitute Good
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Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises
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Total Revenue (TR)
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The total number of dollars received by a firm (or firms) from the sale of a product; equal to the total expenditures for the product by the firm (or firms); equal to the quantities sold (demanded) multiplied by the price at which it is sold.
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infeior good
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a good that the dmand increases as income falls and decreases as income rises
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3 Health Care reform concepts-
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o Play-or-Pay
o Tax Credits and Vouchers
o National health insurance (NHI)-
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short run average cost curve
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curve relating average cost of production to output when level of capital is fixed
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Principle of Diminishing Marginal Utility
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the additional satisfaction a consumer gets from one more unit of a good or service declines as the amount of that good or service consumed rises
the more of a good or service you consume, the closer you are to being satiated (reaching a point @ which more of the good adds nothing to your satisfaction)
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Consumer Surplus
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Amount of money willing to pay but did not have to
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Minimum Efficient Scale (MEC)
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The smallest output at which LRAC reaches its minimum. All available economies of scale have been realized at this point
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Factor that shift Labor Demand
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output price, technology, supply of other factors
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if the price elasticity of supply is infinity, the good has
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perfectly elastic supply
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Efficiency gains from immigration vs. emigration-
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additions to output from immigration in the destination nation exceeds the loss of output from emigration from the origin nation.
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monopoly market structure characteristics
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1. only ONE producers of entire supply of g/s2. no close substitutes3. higher barriers to entry4. demand is downward5. producer has total market pwr6. price setter
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10 PRINCIPLES 2...
normative statement
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judgmental description or states how something should be according to morals and ethics
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The economic way of thinking takes the following into consideration
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nScarcity and Choice
nPurposeful Behavior
nMarginal Analysis: Benefits and Costs
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Housing markets and rent ceilings
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*a decrease in the supply of housing raises rents*higher rents stimulate building, and in the long run, the quantity of housing increases and rents fall*a rent ceiling that is set below the equilibrium rent creates a housing shortage, wasteful search, and a black market
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Average Product of Labor (APL)
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the total output produced by a firm divided by the quantity of workers
APL = Q/L
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change in revenue depends on:
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*if demand is elastic, a 1% price cut increases the quantity sold by more than 1% and total revenue increases*if demand is elastic, a 1% price cut increases the quantity sold by less than 1% and total revenue decreases*if demand is unit elastic, a 1% price cut increases the quantity sold by 1% and so total revenue doesn't change
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Two goods are substitutes when a decrease in the price of one good....
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decreases the qty demanded of another good
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5 things that will shift the demand curve
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1) changes in the price of related goods and services
2) changes in Income
3) changes in taste
4) changes in expectations
5) Changes in number of consumers
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