ECON 450 Definitions - Assignment Essays

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Economics

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-The discipline that studies the allocation of scarce resources among competing ends, to agents with unlimited wants and desires

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Equilibrium

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-State at which opposing forces are balanced

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Elasticicity

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-% change in one variable given a % change in another

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Isoquant

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-Line that shows all input bundles that yield same output

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Production Function

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-Relationship between input quantities and output quantities

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Production Possibilities Frontier

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-Relationship that illustrates the tradeoff between outputs

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Efficiency

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-Allocation is efficient if and only if it is feasible and no other allocation exists that can increase output without reducing output of another

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Opportunity Cost

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-What you give up in order to get something

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Total Cost

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-Fixed costs plus variable costs

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Fixed Costs

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-Cost incurred independent of output

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Variable Costs

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-Costs related to output only

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Short run

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-Period of time which at least one production is fixed

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Long run

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-Period of time which all production is variable

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Present value

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-Current vale of future payments

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Future value

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-The amount of PV that will become

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Interest Rate

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-Market rate of payment on borrowed funds that captures the risk and opportunity costs of capital

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Discount Rate

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-Individuals minimum rate of return; Includes opportunity cost and risks

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Compounding

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-Method of calculating future value of an investment with present value payments for investments

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Discounting

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-Method for calculating present value of an investment given future value payments

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Simple Rate of Return

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-Average Annual Net Revenue divided by initial costs

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Internal rate of Return

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-Discount rate resulting in NPV of 0

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Net Present Value (NPV)

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-Sum of present value net cash flows - the initial costs

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Benefit-cost ratio

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-Present value benefits divided by present value costs

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Payback Period

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-# of periods required to recover the nominal value of the investment

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Inflation

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-A rise in nominal price level

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Consumer Surplus

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-Area below demand and above price

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Producer Surplus

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-Area below price and above supply

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Gains from Trade

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-Total increase in welfare from a market transaction

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World Prices

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-Price set by intersection of excess supply and excess demand

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Economic Agent

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-Decision marker in economic model that attempts to optimize objective function subject to constraints
-Domestic Consumers & Producers
-Foreign Consumers and Producers

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Binding Constraints

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-Constraints that contain the optimal solution

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Non-binding Constraints

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-Constraints that do not contain the optimal solution

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Slack Variables

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-Variables that must be less than or equal to a defined constraint

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Surplus Variables

answer

Variables that must be greater than or equal to a defined constraint

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Revenue

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Money you make before expenses

1 of 35

question

Economics

answer

-The discipline that studies the allocation of scarce resources among competing ends, to agents with unlimited wants and desires

question

Equilibrium

answer

-State at which opposing forces are balanced

question

Elasticicity

answer

-% change in one variable given a % change in another

question

Isoquant

answer

-Line that shows all input bundles that yield same output

question

Production Function

answer

-Relationship between input quantities and output quantities

question

Production Possibilities Frontier

answer

-Relationship that illustrates the tradeoff between outputs

question

Efficiency

answer

-Allocation is efficient if and only if it is feasible and no other allocation exists that can increase output without reducing output of another

question

Opportunity Cost

answer

-What you give up in order to get something

question

Total Cost

answer

-Fixed costs plus variable costs

question

Fixed Costs

answer

-Cost incurred independent of output

question

Variable Costs

answer

-Costs related to output only

question

Short run

answer

-Period of time which at least one production is fixed

question

Long run

answer

-Period of time which all production is variable

question

Present value

answer

-Current vale of future payments

question

Future value

answer

-The amount of PV that will become

question

Interest Rate

answer

-Market rate of payment on borrowed funds that captures the risk and opportunity costs of capital

question

Discount Rate

answer

-Individuals minimum rate of return; Includes opportunity cost and risks

question

Compounding

answer

-Method of calculating future value of an investment with present value payments for investments

question

Discounting

answer

-Method for calculating present value of an investment given future value payments

question

Simple Rate of Return

answer

-Average Annual Net Revenue divided by initial costs

question

Internal rate of Return

answer

-Discount rate resulting in NPV of 0

question

Net Present Value (NPV)

answer

-Sum of present value net cash flows - the initial costs

question

Benefit-cost ratio

answer

-Present value benefits divided by present value costs

question

Payback Period

answer

-# of periods required to recover the nominal value of the investment

question

Inflation

answer

-A rise in nominal price level

question

Consumer Surplus

answer

-Area below demand and above price

question

Producer Surplus

answer

-Area below price and above supply

question

Gains from Trade

answer

-Total increase in welfare from a market transaction

question

World Prices

answer

-Price set by intersection of excess supply and excess demand

question

Economic Agent

answer

-Decision marker in economic model that attempts to optimize objective function subject to constraints
-Domestic Consumers & Producers
-Foreign Consumers and Producers

question

Binding Constraints

answer

-Constraints that contain the optimal solution

question

Non-binding Constraints

answer

-Constraints that do not contain the optimal solution

question

Slack Variables

answer

-Variables that must be less than or equal to a defined constraint

question

Surplus Variables

answer

Variables that must be greater than or equal to a defined constraint

question

Revenue

answer

Money you make before expenses

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