question
Total Revenue
answer
Price x Quantity
question
Explicit Costs
answer
The monetary payment a firm must make to an outsider to obtain a resource.
question
Implicit Costs
answer
Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur
question
Total Economic Cost
answer
Sum of opportunity costs of market-supplied resources plus opportunity costs of owner-supplied resources.
question
Porter's Five Forces
answer
threat of entry, threat of substitute, supplier power, buyer power, and competitive rivalry
question
Threat of Entry
answer
the risk that potential competitors will enter an industry
question
Threat of Substitute
answer
The power of customers to purchase alternatives. High when there are many alternatives to a product or service and low when there are few alternatives.
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Supplier Power
answer
The suppliers' ability to influence the prices they charge for supplies
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Buyer Power
answer
the ability of buyers to affect the price they must pay for an item
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Competitive Rivalry
answer
the ongoing set of competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position
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Economic Incentives
answer
gains and losses
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Moral Incentives
answer
do the right thing
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Consumer - Producer Rivalry
answer
Consumers attempt to locate low prices, while producers attempt to charge high prices
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Social Incentives
answer
one's behavior is based on what is socially accepted/ desired
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Consumer - Consumer Rivalry
answer
Scarcity of goods reduces consumers' negotiating power as they compete for the right to those goods.
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Producer - Producer Rivalry
answer
Scarcity of consumers causes producers to compete with one another for the right to service customers.
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Time Value of Money
answer
Money's potential to grow in value over time. The relationship between time, money, a rate of return, and earnings growth.
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Present Value Analysis
answer
PV = FV/((1 + i)^n)
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Marginal Analysis
answer
To analyze extent decisions, we break down the decision into small steps and compute the costs and benefits of taking another step.
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Marginal Revenue (MR)
answer
The additional revenue gained from selling one more unit.
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Marginal Cost (MC)
answer
The additional cost incurred by producing and selling one more unit.
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The Economic Decision Rule
answer
If the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don't do it.
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Quantity Demanded
answer
the amount of a good or service that a consumer is willing and able to purchase at current market price
question
Demand
answer
the amount of a good or service that consumers are willing and able to buy at all market prices
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Law of Demand
answer
consumers will buy more of a good when its price is lower and they buy less when its price is higher
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The Linear Demand Function
answer
An equation in the form Qd = a - bP which shows the relationship between the price and the quantity of a product demanded.
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Price Ceiling
answer
A maximum price that can be legally charged for a good or service.
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Price Elasticity of Demand
answer
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
question
Determinants of Elasticity of Demand
answer
- the availability of one or more substitute goods
- necessity or luxury good (the more a good is thought to be an absolute necessity the less the demand will be affected due to any price change)
- time (a longer time frame allows consumers to adjust their behavior)
- portion of income
- payer
- necessity or luxury good (the more a good is thought to be an absolute necessity the less the demand will be affected due to any price change)
- time (a longer time frame allows consumers to adjust their behavior)
- portion of income
- payer
question
Utility
answer
Measures one's satisfaction from participating in an economic activity
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Ceteris Paribus
answer
all other things held constant
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Indifference Curve
answer
A curve that shows consumption bundles that give the consumer the same level of satisfaction.
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Marginal Rate of Substitution (MRS)
answer
the rate at which a consumer would be willing to trade off one good for another
question
Budget Constraint
answer
the limited amount of income available to consumers to spend on goods and services
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Utility Maximizing
answer
the primary goal of a consumer is to gain the most value possible from scarce resources
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