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Autarky
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An economic system of self-sufficiency and limited trade (absence of trade)
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Autocratic / command and control economic system
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a system of government in which absolute power over a state is concentrated in the hands of one person
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labor
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all of the attributes of humanity (ex. skills, strengths, stamina, intelligence)
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relative price
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value of one things with respect to other things
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traditional economic system
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an economic system in which tradition, customs, and beliefs help shape the goods and services the economy produces
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market system
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the network to buyers, sellers, and other actors that come together to trade in a given product or service
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markets
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a means of allocating goods and services
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supply
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(seller behavior) shows the various quantities of a specific good producers are willing and able to sell at various prices
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substitute
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goods used as alternatives to one another
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economics
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the study of how scarce resources are used to satisfy unlimited wants
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microeconomics
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study of individual behavior (prices and choices) (individual consumers and individual producers)
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macroeconomics
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study of aggregate behavior (growth rate, unemployment rate, inflation rate) (all consumers together and all producers together)
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capital
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all those man-made goods which are used in further production of wealth (ex. equipment, tools, factories)
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exogenous variable
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(independent variable) things which are used to explain the endogenous variables
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Adam smith
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considered the father of modern economics (the wealth of nations 1776)
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specialization of labor
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countries will specialize in the good in which they have a comparative advantage
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absolute advantage
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the ability to produce a good or service using fewer resources than someone else
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comparative advantage
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the ability to produce a good or service at a lower opportunity cost than someone else
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substitute relationship to good
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price of good increases, demand of substitute increases
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complement relationship to good
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price of good increases, demand of complement decreases
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factors of production
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what people use to produce goods and services
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land
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all of the attributes on the universe (ex. soil, water, air, minerals)
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model
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something designed to explain a regularity
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endogenous variable
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(dependent variable) things we are trying to explain
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production possibilities frontier
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shows the maximum combination of two goods that can be produced with a given set of resources and a given technology
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opportunity cost
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the highest valued alternative that has to be given up to receive one additional units of something
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decreasing opportunity cost
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you have to give pu an ever decreasing amount of the highest valued alternative to get additional units of a good
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increasing opportunity cost
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we have to give up an ever increasing amount of one good to get additional units of another
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constant opportunity cost
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we have to give up a constant amount of the highest additional units of something
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laissez faire
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limited government interference in market
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gains from specialization
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(discovered by David Ricardo) when an economy can specialize in production, it benefits from international trade
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demand
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(buyer behavior) various quantities of a specific good consumers are willing and able to purchase at various prices
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law of demand
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as the price of a good increases, people buy a lower quantity (they buy less of the good whose price increases, and more of the other goods which satisfy a similar need)
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alexander's law of supply
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to produce additional units per unit cost of production increase and therefore to produce additional units, producers need to receive a higher price
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shortage /excess demand
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consumers compete with each other to get the product, which drives price higher until equilibrium in reached
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surplus /excess supply
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producers compete with each other to sell their product, which drives price lower until equilibrium is reached
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complement
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goods used together as a package
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allocation
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resources and goods are "moved" and used into he area which they have the highest value
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ceteris paribus
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latin phrase meaning "all things remaining unchanged"
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equilibrium
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a situation from which there is no tendency for change
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expectations
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perceptions about what will happen in the future
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momentary supply
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the various quantities of a specific good producers are willing and able to sell at various prices at a specific moment in time
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quota
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govt imposed maximum amount that can be produces and/or consumed
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tax
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govt policy that typically increases the price to consumers and decreases the price for producers to curtail behavior
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externality
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a side effect from production or consumption that is not taken into account by the market
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negative production externality
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a negative side effect of production that is not taken into account by the producers in that market
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Qc
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quantity consumers wish to buy
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Qp
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quantity producers wish to sell
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Qe
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quantity exchanged
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Pc
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price consumers pay
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Pp
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price producers receive
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normal good
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a good for which an increase in income leads to an increase in demand
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inferior good
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a good for which an increase in income leads to a decrease in demand
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effective price floor
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govt imposed minimum price; to be effective it must be set above he market clearing price
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effective price ceiling
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govt imposed maximum price; to be effective it must be set below the market clearing price
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short-run supply
answer
the various quantities of a specific good producers are willing and able to sell at various prices in the short-run
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long-run supply
answer
the various quantities of a specific good producers are willing and able to sell at various prices in the long-run
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ad valorem tax
answer
a tax that is a percent of the price charged
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quantity tax
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a tax that is a specific dollar amount added to the price charged
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tax adjusted demand
answer
mathematical aid to help solve for Pc, Pp, and Q after a tax is imposed
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tax adjusted supply
answer
mathematical aid to help solve for Pc, Pp, and Q after a tax is imposed
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negative consumption externality
answer
a negative side effect of consumption that is not taken into account by the consumers in that market
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Consumer's burden from a tax
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share of the govts revenue from a tax that is due to the increase in Pc
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producer's burden from a tax
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share of the govts revenue from a tax that is due to the decrease in Pp
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consumer's benefit from a subsidy
answer
share of the govts expenditures on a subsidy that is due to the decrease in Pc
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producer's benefit from a subsidy
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share of the govts expenditures on a subsidy that is due to the increase in Pp
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price elasticity of demand
answer
percent change in the quantity demanded from a given percent change in the price of a good
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elastic demand
answer
when the percent change in Q is greater than the percent change in P
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Perfectly elastic demand
answer
when the elasticity of demand = infinity
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inelastic demand
answer
when the percent change of Q is less than the percent change in P
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perfectly inelastic demand
answer
when the elasticity of demand = 0
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unit elastic demand
answer
when the elasticity of demand = 1
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market structure
answer
used to describe the competitive environment firms find themselves in
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income elasticity
answer
shows the percent change in demand for a good from a given percent change in the consumers income
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cross price elasticity
answer
shows the percent change in the demand for 1 good from a given percent change in the price of another goos
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elasticity of supply
answer
shows the percent change in the quantity supplied from a given percent change in the price of the good
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law of diminishing marginal product
answer
adding increasing amounts of one input to find amounts of another eventually increases in output occur at a decreasing rate
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product function
answer
mathematical relation showing the varying amounts of output that can be produced with varying inputs and the available technology
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total product curve
answer
graphical depiction of the production
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marginal product
answer
additional output from using one more of a variable input
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average product
answer
Q/L
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variable input
answer
input whose use can be changed
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Fixed input
answer
input whose use cannot be changed in the short-run
question
implicit costs
answer
costs that do not involve a transfer of money
question
explicit costs
answer
costs that involve a monetary transaction
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opportunity cost (costs)
answer
implicit and explicit costs
question
short-run
answer
period of time when at least 1 input is fixed
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ling-run
answer
period of time when all inputs are variable
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profits
answer
TR - TC
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total variable costs
answer
costs of the variable inputs (cost per unit vs. # of units of the input used)
question
total fixed costs
answer
costs of the fixed inputs
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total costs
answer
total costs of producing a given level of output
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average variable costs
answer
TVC / Q
question
average fixed costs
answer
TFC / Q
question
average total costs
answer
TC / Q
question
Marginal costs
answer
additional costs from producing 1 more unit
question
marginal revenue
answer
additional revenue from selling 1 more unit
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total revenue
answer
P * Q
question
perfect competition
answer
occurs when all companies sell identical products, and buyers have perfect information
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price taker
answer
someone who has no ability to affect the price through their behavior
question
shut-down point
answer
price she the losses from producing exactly equal the losses from not producing
question
firm's supply curve
answer
MC above the minimum of AVC
question
long run average cost curve
answer
outside envelope of all ATC using all possible combos of inputs
question
increasing returns to scale
answer
a given percent change in the use of all inputs results in a greater percent change in the output produced
question
constant returns to scale
answer
a given percent change in the use of all inputs results in an equivalent percent change in the output produced
question
decreasing returns to scare
answer
a given percent change in the use of all inputs results in a smaller percent change in the output produced
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increasing cost competitive industry
answer
competitive industry where SLR is upward sloping
question
constant cost competitive industry
answer
competitive industry where SLR is horizontal
question
decreasing cost competitive industry
answer
competitive industry where SLR is downward sloping
question
monopoly
answer
a market with a single seller of a unique product
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barriers to entry
answer
legal or technical reasons that prevent firms from entering a market
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