Term
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Definition
| soc. science that studies production, distribution, and consumption of g/s (allocation of resources among competing users) |
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Term
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Definition
Capital- final g used in production of other g
Entrepreneurship- assembling of tings/tech/ideas in *innovative* way
Land- the nat'l resources and its ground
Labor- employed individuals and their skill set |
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Term
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Definition
| lack of enough resources to satisfy all desired uses |
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Term
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Definition
| limited amount of something |
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Term
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Definition
| the most desired g/s that are forgone in order to obtain something else |
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Term
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Definition
| the alt. combos of final g/s that could be produced in a given time period w/ all the available resources/tech ceteris paribus |
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Definition
| holding everything else constant/unchanged |
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Term
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Definition
| efficient, inefficient, impossible |
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Term
| Law of Increasing Opportunity Costs |
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Definition
1. Resources don't transfer perfectly from production of one good to another.
2. Increasing quantities of any good can be obtained only by sacrificing ever increasing quantities of other good. |
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Term
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Definition
| increase in potential output, an expansion of production possibilities; facilitated by increase in resources and/or advancement in technology |
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Term
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Definition
| shrinkage of PPF b/c of loss of resources (destroyed) |
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Term
| marginal rate of transformation |
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Definition
| the amount of 1 good that must be given up to produce 1 additional un. of another good |
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Term
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Definition
| the ability and willingness to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus (negative slope) |
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Term
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Definition
| as price of product decreases, the quantity demanded increases |
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Term
| 2 intuitive reasons behind Law of Demand |
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Definition
1. Substitution Effect- if price of good increases, the opp cost increases and it becomes more likely that consumer will substitute some other good instead
2. Income effect- as price of good increases, the consumer's real income decreases, leading to decrease in quantity demanded for all normal goods |
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Term
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Definition
| income adjusted for price changes; the purchasing power of income |
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Term
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Definition
| if income increases, consumer will buy more of that good |
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Term
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Definition
1. normal goods
2. inferior goods |
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Term
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Definition
| income decreases, buy more (top ramen) |
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Term
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Definition
1. complements
2. substitutes |
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Term
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Definition
1. Taste and preferences
2. Income
3. Expectations
4. Other goods
5. Number of buyers |
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Term
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Definition
| the willingness and ability for producers to sell specific quantities of a good at alternative prices ina given time period, ceteris paribus |
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Term
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Definition
| as price of good increases, quantity supplied increases |
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Term
| 2 intuitive reasons behind Law of Supply |
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Definition
1. Price of product increases, each producer has an increased incentive to up production (capture higher profits)
2. Diff producers have diff production costs as price of good increases, more producers can enter market b/c that higher price covers their costs |
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Term
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Definition
1. Number of sellers
2. Expectations
3. Factor costs
4. Technology
5. Taxes and subsidies |
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Term
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Definition
| the interaction btwn consumers and producers for a specific goal |
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Term
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Definition
| price and quantity where quantity supplied = quantity demanded; compromise btwn actual buyers willing/able to buy product @ equil. price and actual sellers w/a to produce @ equil. amount; OPTIMAL |
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Term
| 3 core economic questions |
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Definition
1. What to produce?
2. How to produce?
3. For whom to produce? |
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Term
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Definition
| the collective actions of all buyers and sellers will adjust the price of good in market to an equilibrium level |
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Term
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Definition
| the idea that gov't should stay out of the market so the invisible hand can create an equilibrium |
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Term
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Definition
| gov't controls every aspect of the economy |
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Term
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Definition
| gov't not intervene; free market |
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Term
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Definition
| combo of command and complete market; some regulation for fairness and some freedom |
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Term
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Definition
| gov't set max price for a good; if set below EP = shortage |
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Term
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Definition
| gov't set minimum price for a good; if set above EP = surplus |
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Term
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Definition
| costs/benefits of the market activity borne by a third party; the diff btwn soc. and private costs/benefits of a market activity |
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Term
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Definition
| not part of transaction btwn consumer and producer but are impacted by production/consumption of product |
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Term
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Definition
| market tends to underproduce goods that have a posi externality and overproduce goods that have a negative externality |
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Term
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Definition
| consumer's max price at which they'll buy a good |
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Term
| individual consumer surplus |
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Definition
| net gain to an individual buyer from the purchase of a good; equal to the diff btwn buyer's willingness to pay and price paid |
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Term
| individual producer surplus |
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Definition
| net gain to a seller from selling a good; diff btwn price received and seller's cost |
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Term
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Definition
| minimum price at which a seller is willing to sell a good |
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Term
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Definition
| the upper limit on the amount of g/s that can be bought/sold |
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Term
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Definition
| the potential per un. revenue accrued by a holder of a license by a supply price |
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Term
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Definition
| a tax on the sales of a g/s |
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Term
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Definition
| aimed at reducing negative externality |
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Term
| 3 kinds of market failure |
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Definition
1. Presence of public goods
2. Externalities
3. Market power |
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Term
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Definition
| product that is nonexcludable and nonrivaled |
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Term
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Definition
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Term
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Definition
| not excludable but rivaled |
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Term
| artificially scarce goods |
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Definition
| excludable but nonrivaled |
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Term
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Definition
| society deems everyone should have a minimum of this |
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Term
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Definition
| 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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Term
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Definition
| features that make 1 product appear different from competing products in the same market |
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Term
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Definition
1. many producers
2. producers have monopoly over their brand
3. low entry barriers
4. product differentiation
5. short run profits, 0 in long run
6. some market power
7. close substitutes |
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Term
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Definition
| an industry in which 1 firm can achieve economies of scale over entire range of mkt supply |
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Term
| natural monopoly characteristics |
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Definition
1. downward sloping ATC curve
2. high entry barriers b/c of fixed costs
3. low variable costs
4. very low marginal cost
5. for some levels of output, firm requires gov't subsidy |
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Term
| monopoly market structure characteristics |
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Definition
1. only ONE producers of entire supply of g/s
2. no close substitutes
3. higher barriers to entry
4. demand is downward
5. producer has total market pwr
6. price setter |
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Term
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Definition
| no firm can impact price of product no matter how much it produces |
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Term
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Definition
| if P > MC, increase production; if P < MC, decrease production; want P=MC |
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Term
| perfect competition characteristics |
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Definition
1. many firms
2. perfect info
3. identical products
4. low barriers to entry
5. 0 economic profit
6. all firms are price takers |
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Term
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Definition
| reductions in min avg costs for the production of related multiple products |
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Term
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Definition
| reductions in minimum acg costs that come about thru increase of size of plant and equipment |
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Term
| 2 reasons for diseconomies of scale |
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Definition
1. coordination and communication probs
2. inefficiency due to increased level of bureaucracy |
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Term
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Definition
| fixed cost + variable cost |
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Term
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Definition
| change in total cost / change in output |
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Term
| marginal physical product |
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Definition
| change in total output / change in input quantity |
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Term
| Law of Diminishing Returns |
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Definition
| the MPP of a variable input declines as more of it is employed with a given quantity of other inputs |
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Term
| marginal rate of substitution |
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Definition
| the rate at which a consumer is willing to exchange one good for another |
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Term
| 2 properties of an ordinary good |
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Definition
1. consumer requires more of 1 good to compensate for another good
2. consumer experiences a diminishing marginal rate of sub. when substituting 1 good for the other |
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Term
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Definition
| the mix of consumer purchases that maximizes the utility attainable from available income |
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Term
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Definition
| one should purchase the item that gives more marginal utility per dollar until income is exhausted |
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Term
| Law of Diminishing Marginal Utility |
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Definition
| each successive unit of a g/s consumed adds less to total utility than the previous unit |
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Term
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Definition
cardinal- size matters!
ordinal- order matters! |
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Term
| price elasticity of demand |
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Definition
| the % change in quantity demanded / % change in price |
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Term
| 3 things impact elasticity |
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Definition
1. availability of substitutes
2. necessity or luxury?
3. time |
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