question
opportunity cost
answer
whatever you must give up to obtain it
question
marginal
changes
changes
answer
small adjustments to an existing plan.
question
incentive
answer
something that induces a person to act
question
market
answer
a group of buyers and sellers who interact
question
market failure
answer
when the market fails to allocate society's resources
efficiently
efficiently
question
model
answer
a highly simplified representation of a more complicated reality
question
factors of production
answer
the resources the economy uses to produce goods & services
question
Production Possibilities Frontier (PPF)
answer
a graph that shows all
the combinations of two goods the economy can produce
the combinations of two goods the economy can produce
question
Exports
answer
goods produced domestically and sold abroad
question
Imports
answer
goods produced abroad and sold domestically
question
Absolute advantage
answer
the ability to produce a good using fewer
inputs than another producer
inputs than another producer
question
Comparative advantage
answer
the ability to produce a good at a lower
opportunity cost than another producerf
opportunity cost than another producerf
question
competitive market
answer
has many, many buyers and many, many
sellers
sellers
question
quantity demanded
answer
the amount of the good that buyers are willing and able to purchase
question
law of demand
answer
the claim that the quantity demanded of a good falls when the price of a good rises
P↑, D ↓
P↑, D ↓
question
normal good
answer
positively related to income. as income increases demanded increases
question
inferior good
answer
negatively related to income. as income increases demand decreases
question
luxury good
answer
if income goes up, demand for a luxury good goes up by a greater percentage
question
giffen good
answer
demand for this good goes up if its price goes up
question
substitutes
answer
an increase in the price of one good causes
an increase in demand for the other
an increase in demand for the other
question
complements
answer
if an increase in the price of one good causes a fall in the demand for the other (they go together)
question
quantity supplied
answer
the amount that sellers are willing and able to sell
of any good
of any good
question
law of supply
answer
the claim that the quantity supplied of a good rises
when the price of the good rises
P↑, S ↑
when the price of the good rises
P↑, S ↑
question
Equilibrium price
answer
the price where quantity
supplied = quantity demanded
supplied = quantity demanded
question
Equilibrium quantity
answer
the quantity supplied
and demanded at the equilibrium price
and demanded at the equilibrium price
question
Surplus
answer
when quantity supplied is greater than
quantity demanded
"excess supply"
quantity demanded
"excess supply"
question
Shortage
answer
when quantity demanded is greater
than quantity supplied
"excess demand"
than quantity supplied
"excess demand"
question
Change in supply
answer
a shift in the S curve occurs when a non-price
determinant of supply changes
determinant of supply changes
question
Change in the quantity supplied
answer
a movement along a fixed S
curve occurs when P changes
curve occurs when P changes
question
Change in demand
answer
a shift in the D curve occurs when a nonprice
determinant of demand changes
determinant of demand changes
question
Change in the quantity demanded
answer
a movement along a fixed D
curve occurs when P changes
curve occurs when P changes
question
elasticity
answer
a measure of the responsiveness
of quantity demanded
or quantity supplied
of quantity demanded
or quantity supplied
question
Price elasticity of demand
answer
measures how much quantity demanded
responds to a
change in price
responds to a
change in price
question
Price elasticity of supply
answer
how much supply quantity responds to change in price
question
Income elasticity of demand
answer
measures the response of quantity demanded to a
change in consumer income
change in consumer income
question
Cross-price elasticity of demand
answer
measures the response of
demand for one good to changes in the price of another good
demand for one good to changes in the price of another good
question
price ceiling
answer
a legal maximum on the price of a good or service
question
price floor
answer
a legal minimum on the price of a good or service
question
welfare economics
answer
studies how the allocation of resources
affects economic well-being
affects economic well-being
question
willingness to pay
answer
the maximum amount the buyer will pay for a good
question
consumer surplus
answer
the amount a buyer is willing to pay minus the amount she actually pays
question
cost
answer
the value of everything a seller must give up to produce a good
question
producer surplus
answer
the amount a seller is paid for a good minus the sellers cost
question
efficient
answer
a good is _______ if it maximizes total surplus
question
tax
answer
drives a wedge between the price buyers pay and the price sellers receive
question
deadweight loss
answer
the fall in total surplus that results from a market distortion such as tax
question
world price (Pw)
answer
the price that prevails in world markets
question
price taker
answer
a small economy in a world market
question
tariff
answer
a tax on imports
question
import quota
answer
a quantitative limit on imports of a good
question
explicit costs
answer
require an outlay of money
question
implicit costs
answer
does not require a cash outlay
question
accounting profit
answer
total revenue minus total explicit costs
question
economic profit
answer
total revenue minus total cost
question
production function
answer
shows the relationship between the quantity of inputs used to produce a good and the quantity produced of that good
question
marginal product
answer
the increase in output arising from one additional unit of that input
question
diminishing marginal product
answer
the marginal product of an input declines as the quantity of the input increase
question
marginal cost
answer
the increase in total cost from producing one more unit
question
fixed cost
answer
a price firms have to pay regardless
question
variable cost
answer
vary with the quantity produced. will increase as production increases
question
economies of scale
answer
average total cost falls as quantity increases
question
constant returns to scale
answer
average total cost stays the same as quantity increases
question
diseconomies of scale
answer
average total cost rises as quantity increases
question
marginal revenue
answer
the change in total revenue from selling one or more unit
question
shutdown
answer
short run decision not to produce anything
question
exit
answer
a long run decision to leave the market
question
sunk cost
answer
a cost that has already been committed and cannot be recovered
question
monopoly
answer
a firm that is the sole seller if a product that has no close substitiutes
question
output effect
answer
higher output raises revenue
question
price effect
answer
lower price reduces revenue
question
price discrimination
answer
selling the same good at different prices to different buyers
question
concentration ratio
answer
percentage of the markets total output supplied by its four largest firms
question
oligopoly
answer
a market structure in which only a few sellers offer similar or identical products
question
game theory
answer
the study of how people behave in strategic situations
question
collusion
answer
when firms in a market agree about what quantities to produce or what prices to charge
question
cartel
answer
a group of firms acting in unison
question
nash equilibrium
answer
a situation in which players each choose their best strategy given what all the other players have chosen
question
dominant strategy
answer
a strategy that is best for a player in a game no matter what strategies the other players chose
question
prisoners dilemma
answer
a "game" between two criminals that illustrate why cooperation is difficult even when it is mutually beneficial
question
factors of production
answer
the inputs used to produce goods and services
question
marginal product of labor
answer
the increase in the amount of output from one additional unit of labor
question
value of marginal product
answer
the marginal product of an input times the price of the output
question
externality
answer
the uncompensated impact of one person's actions on the well-being of a bystander
question
private cost
answer
the cost directly incurred by the sellers
question
private value
answer
the value to buyers
question
internalizing the externality
answer
make it so that people take the external effects of their actions into account when they do things
question
market based policies
answer
provide incentives so that people can choose how to solve the problem on their own
question
command and control policies
answer
regulate behavior directly
question
corrective tax
answer
a tax designed to encourage people ti consider the social costs that arise from a negative externality
question
the Coase theorem
answer
if private parties can bargain over the
allocation of resources, they can solve the externalities
problem on their own.
allocation of resources, they can solve the externalities
problem on their own.
question
Transaction costs
answer
the costs parties incur in the process of
agreeing to and following through on a bargain
agreeing to and following through on a bargain
question
Stubbornness
answer
even if a beneficial agreement is possible,
each party may hold out for a better deal.
each party may hold out for a better deal.
question
Coordination problems
answer
if # of parties is very large,
coordinating them may be costly, difficult, or impossible.
coordinating them may be costly, difficult, or impossible.
question
excludable
answer
if a person can be prevented from using it
question
rival in consumption
answer
if one persons use of it diminishes others' use
question
private goods
answer
excludable, rival in comparison
question
public goods
answer
not excludable, not rival
question
common resources
answer
rival but not excludable
question
club goods
answer
excludable but not rival
question
free rider
answer
a person who receives the benefit of a good but avoids paying for it
question
cost benefit analysis
answer
a study that compares the cost and benefits of providing a public good
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