question
Welfare Economics
answer
they study of how the allocation of resources affects economic well- being
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Willingness to Pay
answer
the maximum amount that a buyer will pay for a good
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Consumer Surplus
answer
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
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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 seller's cost of providing it
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Efficiency
answer
the property of a resource allocation of maximizing the total surplus received by all members of society
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Equality
answer
the property distributing economic prosperity uniformly among the members of society
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Deadweight Loss
answer
the fall in total surplus that results from a market distortion, such as a tax
question
World Price
answer
the price of a good that prevails in the world market for that good
question
Tariff
answer
tax on goods produced abroad and sold domestically
question
Total Revenue
answer
the amount a firm receives for the sale of its output
question
Total Cost
answer
the market value of the inputs a firm uses in production
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Profit
answer
total revenue minus total cost
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Explicit Cost
answer
input costs that require an outlay of money by the firm
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Implicit Cost
answer
input costs that do not require an outlay of money by the firm
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Economic Profit
answer
total revenue minus total cost, including both explicit and implicit costs
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Accounting Profit
answer
total revenue minus total explicit cost
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Production Function
answer
the relationship between quantity of inputs used to make a good and the quantity of output of that good
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Marginal Product
answer
the increase in output that arises from an additional unit of output
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Diminishing Marginal Product
answer
the property whereby the marginal product of an input declines as the quantity of the input increases
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Fixed Costs
answer
costs that do not vary with the quantity of output produced
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Variable Costs
answer
costs that vary with the quantity of output produced
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Average Total Cost
answer
total cost divided by the quantity of output
question
Average Fixed Cost
answer
fixed cost divided by the quantity of output
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Average Variable Cost
answer
variable cost divided by the quantity of output
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Marginal Cost
answer
the increase in total cost that arises from an extra unit of production
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Efficient Scale
answer
the quantity of output that minimizes average total cost
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Economies of Scale
answer
the property whereby long-run average total cost falls as the quantity of output increases
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Diseconomies of Scale
answer
the property of whereby long- run average total cost rises as the quantity of output increases
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Constant Returns to Scale
answer
the property whereby long- run average total cost stays the same as the quantity of output changes
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Competitive Market
answer
a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
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Average Revenue
answer
total revenue divided by the quantity sold
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Marginal Revenue
answer
the change in total revenue from an additional unit sold
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Sunk Cost
answer
a cost that has already been committed and cannot be recovered
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Monopoly
answer
a firm that is the sole seller of a product without close substitutes
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Natural Monopoly
answer
a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
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Price Discrimination
answer
the business practice of selling the same good at different prices to different customers
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Budget Constraints
answer
the limit on the consumption bundles that a consumer can afford
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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
answer
the rate at which a consumer is willing to trade one good for another
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Perfect Substitutes
answer
two goods with straight- line indifference curves
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Perfect Compliments
answer
two goods with right- angle indifference curves
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Normal Good
answer
a good for which an increase in income raises the quantity demanded
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Inferior Good
answer
a good for which an increase in income reduces the quantity demanded
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Income Effect
answer
the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve
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Substitution Effect
answer
the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
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Giffen Good
answer
a good for which an increase in the price raises the quantity demanded
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