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complementary goods
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Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely).
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inferior good
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a good that consumers demand less of when their incomes increase
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short-run supply curve
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the upward-sloping portion of its marginal cost curve above the minimum of its average variable costs (its shutdown point).
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long-run supply curve
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the industry can be constant-cost (horizontal long-run supply), increasing-cost (upward-sloping long-run supply), or decreasing cost (downward-sloping long-run supply).
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ceteris paribus
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other things being equal
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changes in the price of the good do not shift the supply curve for that good.
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True
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If the number of firms increases, the supply curve will shift down and to the right.
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True
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Short Run decrease in demand that leads to a lower price.
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Firms will continue to produce as long as price remains above their respective shutdown points.
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Long Run decrease in demand that leads to a lower price.
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firms will exit if they expect to continue making losses.
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Short Run increase in demand that leads to a higher price.
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firms will respond to the higher price by expanding their output.
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Long Run increase in demand that leads to a higher price.
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new firms will enter the market as long as they, too, can expect to make a profit. As this happens, the increase in supply (that is, a shift of the supply curve down and to the right) will lead to more being produced but at a lower price.
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Triangular intervention
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occurs when the intervener either forces or prohibits an exchange between two people. These are the cases most often analyzed by economists, such as price controls, trade quotas, or occupational licensing.
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Autistic intervention
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occurs when the intervener (e.g., the government) tells a property owner to do or not do something with their property without affecting a third party. This includes cases where the intervention is directed against multiple people, so long as it's directed against each individually.
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Binary Intervention
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occurs when the intervener forces a property owner to make an exchange with the intervener, e.g., through taxation or conscription.
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In a Free Market what rations the available units of a good?
answer
Prices
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A change increases total surplus
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...
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Pareto efficient
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No change is possible that will help some people without harming others
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Pareto Inefficient
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any allocation from which it is possible to reallocate resources and make at least one person better off without making anyone worse off
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Pareto Improvement
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Makes at least one person better off, and harms no one
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Pareto Superior
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when at least one person's economic position is better but only when no one else's situation is made worse
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Kaldor-Hicks improvement
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any change that raises the dollar value of social resources
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Suppose, thanks to technological advances in the oil drilling industry, gasoline prices fall to $1.00 per gallon. How will this affect the market for automobiles?
answer
Gas and (non-electric) autos are complements, so cheaper gas will increase the demand for autos, and that will increase auto prices even as more as sold.
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The term that means "equal balance" is:
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Equilibrium
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A binding price ceiling
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A maximum legal price that is set below the existing equilibrium price.
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The imposition of a binding price floor on a market
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causes quantity demanded to be less than quantity supplied
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Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?
answer
Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.
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A binding price ceiling
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A maximum legal price that is set below the existing equilibrium price. Because the market equilibrium price is greater than the price ceiling, the ceiling restricts trade and is said to be binding.
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Suppose a city facing a shortage of rental apartments eliminates rent controls. Which of the following is most likely to occur?
answer
An increase in rents and an increase in the number of apartment units supplied.
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explicit cost
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a cost that requires an outlay of money
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Implicit cost
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A firm's opportunity cost of using its own resources or those provided by its owners without a corresponding cash payment
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production function
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the relationship between quantity of inputs used to make a good and the quantity of output of that good
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Production Function Equation
answer
Q = f(K,L)
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Vertical Integration
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where a firm produces one good that is an input into another good it produces, may lead to economies of scope, especially when the production of the input can benefit from information gleaned in the production of the end-product.
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Horizontal Integration
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Type of monopoly where a company buys out all of its competition. Ex. Rockefeller
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perfect competition
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a market structure in which a large number of firms all produce the same product
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agglomeration economies
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where transportation and other transaction costs decrease as firms in an industry—along with their employees, customers, and suppliers—locate close to one another.
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increasing cost industry
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Entry of new firms shifts the cost curves for all firms upward
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Elasticity
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A measure of how much one economic variable responds to changes in another economic variable.
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Semi-elasticity
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The percentage change in the dependent variable given a one-unit increase in an independent variable.
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price elasticity of demand
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the percentage change in quantity demanded relative to a percentage change in price
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The Law of Demand
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consumers will buy more of a good when its price is lower and less when its price is higher
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price elasticity of supply
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the responsiveness of the quantity supplied to a change in price.
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income elasticity of demand
answer
a measure of the responsiveness of the quantity demanded to changes in income, measured by the percentage change in the quantity demanded divided by the percentage change in income
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cross-price elasticity
answer
...
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