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Economics
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how scarce or limited resources are used to satisfy our unlimited wants and needs as much as possible
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Resources
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anything that we use to produce a good or provide a service
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Scarcity
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not enough good and services to satisfy all of our wants and needs
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Trade
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we need a buyer, a seller, and an agreed upon price
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Law of Comparative Advantage
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the total output of society will be greatest when each good is produced by the person with the lowest opportunity cost
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Absolute Advantage
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when a person or country can produce the products under consideration at a higher quantity or quality than another person
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Export
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something you sell abroad
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Import
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something you purchase from abroad
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Benefits of Exports
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Economic growth occurs
Capitalize on our comparative advantage
Forces us to be efficient
Capitalize on our comparative advantage
Forces us to be efficient
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Benefits of Imports
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We have access to plenty of items where we have opportunity cost
We get resources where we have comparative advantage
Forces us to be efficient
Economic growth occurs
We get resources where we have comparative advantage
Forces us to be efficient
Economic growth occurs
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Protectionism
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the idea that it is in the best interest of the nation to restrict free trade
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Free Trade
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the movement of goods and services among nations without political or economic barriers
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Advantages of Free Trade
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efficiency and growth
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Tariff
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a restriction on trade through tax
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Quota
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limiting the quantity
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Embargo
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complete and total ban
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Domestic Content
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components that have to go into it
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Bureaucracy
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process you have to walk through to get something done
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Residual Claimants
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ownership of cash flows and value after other claimants are paid
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Proprietorship
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A business owned by one person
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Partnership
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a business owned by two or more people
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Corporation
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a business that is owned by many investors.
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Principal-agent Problem
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a problem caused by an agent pursuing his own interests rather than the interests of the principal who hired him
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Explicit Costs
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actual expenses the company is incurring
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Implicit Costs
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opportunity costs
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Trade Subsidy
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domestic manufacturer reduces the domestic cost and limits imports
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Dumping
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selling goods in another country below market prices
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NAFTA
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North American Free Trade Agreement
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GATT
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General Agreement on Tariffs and Trade
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WTO
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World Trade Organization
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Tax Incidence
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determine how the burden of the tax is actually shared between the buyers and the sellers
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Deadweight Loss
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the fall in total surplus that results from a market distortion, such as a tax
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Progressive Tax
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average tax rate goes up with income
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Proportional Tax
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average tax rate is always the same
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Regressive Tax
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average tax rate falls with income
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Laffer Curve
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shows the relationship between the size of the tax and tax revenue
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Subsidy
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a government payment that supports a business or market
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Marginal Utility
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an additional amount of satisfaction
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Marginal Benefit
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the additional benefit received from pursuing one more unity of a good or a service
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Law of Diminishing Marginal Utility
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the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time
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Total Value
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the contribution that management can make to the organization, the customers, the products, and the stakeholders
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Marginal Value
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the value of one more unit
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Price Elasticity of Demand
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a measure of the sensitivity of demand to changes in price
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Inelastic
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Describes demand that is not very sensitive to a change in price
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Elastic
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describes demand that is very sensitive to a change in price
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Unit Elasticity
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product demand for which relative price changes and changes in quantity demanded are equal
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Total Revenue
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Price x Quantity
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Income Elasticity
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% change in quantity demanded / % change in income
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Price Elasticity of Supply
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% change in quantity supplied/ % change in price
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Total Cost
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TFC + TVC
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Profit
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total revenue - total cost
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Total Fixed Cost
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costs that do not vary with changes in output
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Average Fixed Cost (TFC) equation
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TFC/ quantity
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Total Variable Cost (TVC)
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costs that vary as output or production changes
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Total Variable Cost (TVC) equation
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Inputs x Input Price
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Average Variable Cost (AVC) equation
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TVC/Quantity
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Average Total Cost (ATC) equation
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Total Cost/ Quantity
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Marginal Cost
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change in TC/ change in Q
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Marginal Price
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change in TP/ change in Input
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Average Price
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TP/ Input
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Accounting Profit
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total revenue - total cost (EXPLICIT)
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Economic Profit
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total revenue - total cost (EXPLICIT & IMPLICIT)
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Normal Profit
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total revenue - total cost (EXPLICIT & IMPLICIT) no money left
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