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Final Micro
Jim Boretti fucks like a donkey
122
Economics
Undergraduate 1
12/16/2009

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Term
Corrective Tax
Definition
A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality.
Term
Effect of externalities on quantity produced
Definition
Negative externalities lead markets to produce a larger quantity than is socially desirable. Positive externalities lead them to produce a smaller quantity than designed.
Term
Effects of Positive Externalities on the Market
Definition
Demand increases (shifts rightO
Term
Prisoner's Dilemma
Definition
When members of an oligopoly fail to cooperate with each other even though it would be mutually beneficial.
Term
Internalizing the Externality
Definition
Incentives so that people take account fo the external effects of their actions.
Term
Effect of Negative Externality on the Market
Definition
supply curve shifts left
Term
Examples of Externalities
Definition
Exhaust from Cars - Negative
Restored Historic Buildings - Good
Research-positive
Term
Compensating Differential
Definition
A difference in wages that arises to offset the nonmonetary characteristics of different jobs.
Term
The uncompensated impact of one persons actions the well being of a bystander. Can be positive or negative.
Definition
Term
Side Effects of Antipoverty Policies
Definition
Since financial assistance declines asa income rises the poor often face very high effective marginal tax rates, which discourage poor families from escaping poverty on their own.
Term
Inequality of Income Distribution
Definition
Richest 20% families earn 10X as much as the 20% smallest.
Term
Workfare
Definition
Require any person collecting government benefits to accept a government provided job.
Term
Negative Income Tax
Definition
A tax system that collects revenue from high income households and gives subsidies to low income households.
Term
Welfare
Definition
government programs that supplement the incomes of the needy. Negative generates incentives for people to be needy.
Term
Policies to Reduce Poverty
Definition
welfare
negative income tax
in kind transfers
anti poverty programs
work incentives
Term
Libertarianism
Definition
Political philosophy according to which the government should punish crimes and enforce voluntary agreement but not redistribute income.
Term
Social Insurance
Definition
Government policy aimed at protecting people against the risk of adverse events.
Term
Maximum Criterion
Definition
The claim that the government should aim to maximize the well being of the least well off person in society. (John Rawles)
Term
Liberalism
Definition
The political philosophy according to which the government should choose policies deemed as just as evaluated by an impartial bystander.
Term
Utility
Definition
The measure of satisfaction or happiness.
Term
Utilitarianism
Definition
The political philosophy according to which the government should choose policies to maximize the total utility of society.
Term
Permanent Income
Definition
A person's normal income.
Term
Life Cycle
Definition
The regular pattern of income variation over one's life.
Term
In-Kind Transfers
Definition
Transfers to the poor given in the form of goods/services.
Term
Poverty Line
Definition
An absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty.
Term
Poverty Rate
Definition
Percentage of the population whose family income falls below the poverty line.
Term
Oligopoly
Definition
Market structure with few sellers that offer similar or identical products.
Term
Game Theory
Definition
The study of how people behave in situations in which a person must consider how others react to their action when deciding what to do.
Term
Duopoly
Definition
Oligopoly with two members.
Term
Collusion
Definition
An agreement among firms in a market about quantities to produce and prices to charge.
Term
Cartel
Definition
A group of firms acting in unison. (collusion)
Term
Nash Equilibrium
Definition
A situation in which economic factors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen.
Term
High Number of Sellers in an Oligopoly
Definition
Market looks more like a competitive market as the number of sellers increases. Price approaches marginal cost. Quantity approaches social optimum.
Term
Oligopolists acting Individually
Definition
Produce at higher levels increasing quantity and decreasing prices.
Term
Oligopolies Maximize profit by
Definition
forming a cartel and acting like a monopolist.
Term
Antitrust Laws
Definition
Used by policymakers to prevent oligopolies from engaging in behavior that reduces competition.
Term
Factors of Production
Definition
Inputs used to produce goods and services. Ex. Land labor capital entrepreneurship
Term
Efficiency WAges
Definition
above equilibrium wages paid by firms to increase worker productivity.
Term
Union
Definition
A worker association that bargains with employers over wages and working conditions.
Term
Human Capital
Definition
The accumulation of investments of people, such as education and on the job training.
Term
Discrimination in Competitive Markets
Definition
Non-discriminatory firms will be more profitable be more profitable. Profit maximizing behavior limits discrimination.
Term
Tragedy of the Commons
Definition
A parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole.
Term
Production Function
Definition
The relationship between the quantity of inputs used to make a good and the quantity of of outputs of that good.
Term
Marginal Product of Labor
Definition
The increase in the amount of output from an additional unit of labor.
Term
Diminishing Marginal Product
Definition
The property whereby the marginal product of an input declines as the quantity of the input increases.
Term
Value of Marginal Product
Definition
The marginal product of an input times the price of the output.
Term
Causes for a shift in the labor demand curve
Definition
Change in price
Technological Change
Supply of other factors
Term
Causes for a shift in the Labor supply curve
Definition
change in tastes
change in alternative opportunities
immigration
Term
Equilibrium in the Labor Market
Definition
Wage equals the value of the marginal product of labor

Wage adjusts to balance the supply and demand for labor.
Term
Shift in labor supply
Definition
Supply shifts right
Term
Capital
Definition
The equipment and structures used to produce goods and services.
Term
Derived Demand for Factors of Production
Definition
demand that comes from firms that use the factors to produce goods services. Profit maximizing firms hire each factor to the point where value of marginal product equals price.
Term
Who provides public goods?
Definition
Government they make their decision about quantity on the cost benefit analysis.
Term
Important Common Resources
Definition
Clean air and water
Congested roads
Fish whales and other wildlife
Term
Discrimination
Definition
The offering of different opportunities to similar individuals who differ only by race sex ethnic group age or other personal characteristics.
Term
Wage in Relation to Human Capital
Definition
More human capital means higher wages, less human capital means lower wage.
Term
Reasons for above equilibrium wages
Definition
minimum wages
unions
efficiency wages
Term
Importance of Property Prices
Definition
If property rights are not established, the market will not allocate resources efficiently. Also externalities are a result of poorly established property rights.
Term
Dominant Strategy
Definition
Strategy that is best for a player in a game regardless of the strategies chosen by other players.
Term
Strike
Definition
The organized withdrawal of labor from a firm by a union.
Term
A change in supply of one factor effects...
Definition
All of the factors of production because they each depend on the quantities of all the others.
Term
Cost Benefit Analysis
Definition
A study that compares the costs and benefits to society of providing a public good.
Term
Important Public Goods
Definition
National Defense
Basic Research
Fighting Poverty
Term
Free Rider
Definition
A person who receives the benefit of a good but avoids paying for it.
Term
Four Types of Goods
Definition
[image]
Term
Good Produced by a Natural Monopoly
Definition
Good that is excludable but not rival in consumption.
Term
Common Resources
Definition
Goods that are rival in consumption but nonexcludable.
Term
Public Goods
Definition
Goods that are neither excludable nor rival in consumption.
Term
Private Goods
Definition
Goods that are excludable and rival in consumption.
Term
Rivalry in Consumption
Definition
The property of a good whereby one person's use diminshes other people's use/
Term
Excludability
Definition
The property of a good whereby a person can be prevented from using it.
Term
Private Solutions to Externalities
Definition
Internalize the externality by the Margins
Negotiate a contract
Charities
Term
Why Private Solutions Don't Always Work
Definition
Transaction Costs
Negotiations breakd own
Number of parties interested is large so coordination is costly.
Term
Transaction Costs
Definition
Costs that parties incur in the process of agreeing to and following through on a bargain.
Term
Coase Theorem
Definition
The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities of their own.
Term
Market Based Strategies to Limit Pollution
Definition
Corrective Tax
Tradable Pollution Permits (Cap and Trade)
Term
Four Principles of How Individuals Make Decisions
Definition
People Face Tradeoffs

The Cost of something is what you give up to get it (Opportunity Cost)

Rational People Think at The Margin

People Respond to Incentives
Term
Three Principles Concerning How People Interact with one Another
Definition
Trade Can make Everyone better off

Markets are usually a good way to organize economic activity

Governments can sometimes improve market outcomes
Term
Three Principles Concerning the Workings of the Economy as A Whole
Definition
A country's standard of living depends on its ability to produce.

Prices rise when government prints too much money.

Society Faces a Short-Run trade-off between inflation and unemployment.
Term
Scarcity
Definition
The limited nature of society's resources
Term
Economics
Definition
The study of how society manages its scarce resources.
Term
Equality
Definition
The property of society distributing wealth uniformly among its members.
Term
Efficiency
Definition
The property of society getting the most it can from its scarce resources.
Term
Opportunity Cost
Definition
Whatever one must give up in order to obtain some item.
Term
Rational People
Definition
People who systematically and purposefully do the best they can to achieve their objectives.
Term
Marginal Changes
Definition
Small incremental adjustments to a plan of action
Term
Incentive
Definition
Something that induces a person to act.
Term
Market Economy
Definition
An economy that allocates resources through the decrentralized decisons of many firms and households as they interact in markets for goods and services.
Term
Property Rights
Definition
The ability of an individual to own and exercise control over scarce resources
Term
Market Failure
Definition
A situation in which the ability of a single economic actor has a substantial influence in market prices.
Term
Productivity
Definition
The quantity of goods and services produced from each unit of labor input.
Term
Inflation
Definition
an increase in the overall level of prices in the economy
Term
business cycle
Definition
fluctuations in economic activity, such as employment and production.
Term
Circular Flow Diagram
Definition
A visual model of the economy that shows how dollars flow through markets among households and firms.
Term
Production Possibilities Frontier
Definition
A graph that shows the combination of output that the economy can possibly produce given the available factors of production and the available production technology.
Term
absolute advantage
Definition
the ability to produce a good using fewer inputs than another producer.
Term
Comparative Advantage
Definition
The ability to produce a good at a lower opportunity cost than another producer.
Term
Imports
Definition
Goods produced abroad and sold domestically.
Term
Exports
Definition
Goods produced within and sold abroad.
Term
Variables that Shift the Demand Curve
Definition
Income
Price of substitutes
Price of Compliments
Tastes
Expectations
Number of Buyers
Term
Substitutes
Definition
Rise in one price means a higher demand for the other product.
Term
Compliment
Definition
A fall in one price leads to a higher demand for the other product.
Term
Variables that Shift supply Curve
Definition
Input prices
Technology
Expectations
Number of Sellers
Term
Normal Good
Definition
A good for which, other things equal, an increase in income leads to an increase in demand.
Term
Inferior Good
Definition
A good for which, other things equal, an increase in income leads to a decrease in demand.
Term
Price Elasticity of Demand
























































Elasticity
Definition
Percentage Change in Quantity Demanded / Percentage Change in Price
Term
Price of Elasticity of Demand
Definition
(Q2-Q1) / [(Q2+Q1) / 2]
(P2-P1) / [(P2+P1) / 2]
Term
Goods With Close Substitutes
Definition
tend to have more elastic demand
Term
Necessities tend to have more
Definition
inelastic demand
Term
Goods Elasticity in the Long Run
Definition
They tend to be more elasticity in the long run.
Term
Elasticity Over 1
Definition
More elastic
Term
Elasticity Below 1
Definition
the demand is inelastic
Term
Elasticity equals 1
Definition
Unit elastic. A change in quantity demanded equals a change in supply demanded.
Term
Income Elasticity
Definition
Percentage Change in Quantity Demanded
Percentage Change in Income
Term
Cross Price Elasticity
Definition
Percentage Change in Quantity Demanded of Good1

Percentage Change in Quantity Demanded of Good2
Term
Price Elasticity of Supply
Definition
Percentage Change in Quantity Supplied
Percentage Change in Price
Term
Perfectly Inelastic Curve
Definition
Vertical Line
Term
Perfectly Elastic
Definition
Flat
Term
Elasticity
Definition
A measure of the responsiveness of quantity demanded or quantity demanded or quantity supplied to one of its determinants.
Term
Price Ceiling
Definition
A legal maximum on the price at which a good can be sold.
Term
Price Floor
Definition
A legal minimum on the price at which a good can be sold.
Term
Tax Incidence
Definition
The manner in which the burden of a tax is shared among participants in the market.
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