Term
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Definition
| maximization means equating returns at the margin |
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Term
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Definition
| voluntary exchange benefits both parties |
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Term
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Definition
| assumes competitive markets, rational consumers, profit maximizing firms |
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Term
| Price Elasticity of Demand |
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Definition
| percentage change in quantity divided by percentage change in price -> minus sign is implicit, is unit free, is not the same as slope |
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Term
| Two reasons for downward sloping demand |
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Definition
| Income Effect and Substitution Effect |
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Term
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Definition
| lower prices means your real income has increased (you can afford to consume more) |
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Term
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Definition
| lower relative price induces a shift from other goods to this one |
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Term
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Definition
| horizontal sum of individual demand curves (literally add up the quantities on the individual graphs to calculate the market curve) |
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Term
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Definition
| horizontal sum of firm supply curves (add up the quantities and graph the summed points to construct the market curve) |
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Term
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Definition
| fixed 'highest price' charged for an item -> creates shortages, dead weight loss, Qs < Qd |
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Term
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Definition
| fixed 'lowest price' charged for an item -> creates surpluses, dead weight loss, Qd > Qs |
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Term
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Definition
| sum of fixed costs and variable costs |
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Term
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Definition
| do not vary with output (ex. buying a factory) |
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Term
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Definition
| vary with output (ex. paying a higher water bill if you use more water) |
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Term
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Definition
| change in total cost due to one unit change in quantity produced -> curve goes through minimum of Average Cost curve |
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Term
| Firm's level of production (competitive) |
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Definition
| where price equals marginal cost -> if this is a competitive market, price = market price since the firm is a price taker |
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Term
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Definition
| = (price - average total cost) * quantity |
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Term
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Definition
| shifts as new firms enter -> slides show that short term produces a higher quantity than before for a higher price and then tends to an even higher quantity for a slightly lower price over the long run |
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Term
| Long run competitive equilibrium |
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Definition
| zero profit for a firm because P = ATC, market tends toward competitive equilibrium |
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Term
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Definition
| not possible to make someone better off without making someone else worse off |
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Term
| Pareto Efficiency Conditions |
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Definition
1. Marginal Benefit = Marginal Cost
2. Marginal cost is equal for every producer
3. Marginal benefit is equal for every consumer |
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Term
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Definition
| price setter rather than price taker -> sets production quantity where marginal cost = marginal revenue, produce less for a higher price and create deadweight loss |
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Term
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Definition
| situation in which the fixed or start up costs are extraordinarily high (high barriers to entry) and it is most efficient (lowest long run average cost) for production to be concentrated in one firm |
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Term
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Definition
| charging different prices to different groups of customers |
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Term
| Price Discrimination Rule |
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Definition
| equalize marginal revenue in all markets -> the less elastic the demand, the higher the price |
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Term
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Definition
| many differentiated products, free entry and exit into industry |
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Term
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Definition
| few large firms, aware of interaction with rivals, barriers to entry, less product differentiation |
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Term
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Definition
| when firms act jointly (collude) to maximize joint profits -> creates an incentive for them to cheat, since P > MC while they are underproducing |
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Term
| Reasons for Market Failure |
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Definition
| imperfect information, externalities, public goods |
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Term
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Definition
| when private and social costs diverge (create deadweight loss) -> negative externalities cause oversupply, positive cause undersupply (surplus and shortage) |
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Term
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Definition
| Private - E and R, Common - NE and R, Club - E and NR, Public - NE and NR -> E = excludable, R = rivalrous |
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Term
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Definition
| nonexcludability means that people have no reason to pay |
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Term
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Definition
| graphs wage v. quantity of labor with labor supply and labor demand. Market wage and quantity are the same as equilibrium elsewhere |
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Term
| Marginal Revenue Product of Labor |
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Definition
| change in total revenue from one more unit of labor -> for competitive firm, MRP = P*MPl, for firm with market power, MRP = MR*MPl |
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Term
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Definition
| choice between work and leisure (meaning all other activities) |
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Term
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Definition
| is backward bending -> at bottom, substitution effect dominates and people work more for more pay; at middle, sub. and income effects balance and people work the same for more pay; at top, income effect dominates and people work less for more pay |
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Term
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Definition
| Occurs where marginal expenditure on labor equals marginal revenue product of labor (MEl = MRPl), MEl curve is above the wage curve (both are supply lines and MRPl is demand line) |
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Term
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Definition
| as quantity of capital stock issued goes up, price goes down -> long-run equilibrium equals the cost of production (I don't understand this graph, tbh) |
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Term
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Definition
| PDV = R/(1+i) + R/(1+i)^2 + ... + R/(1+i)^n + F/(1+i)^n -> n = num periods, i = yield (market interest rate), R = coupon value, F = face value |
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Term
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Definition
| higher risk should correlate to higher return -> the graph is an upward sloping line, with risk on x axis and return on y. when points are off the risk/return line they tend to move towards it by shifting their price |
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Term
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Definition
| when one country has a lower opportunity cost for making a good than another |
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Term
| Bases for Comparative Advantage |
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Definition
| factor abundance (applies especially to exports), technology, specialization (increasing returns - has intraindustry trade written here) |
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Term
| Factor Price Equalization |
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Definition
| the relative prices for two identical factors of production in the same market will eventually equal each other because of competition |
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Term
| S&D in Small Country Imports |
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Definition
| if Pworld is lower than Peq -> domestic consumption, quantity increase, price decreases, domestic production decreases but imports fill the gap |
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Term
| S&D in Small Country Exports |
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Definition
| if Pworld > Peq -> domestic consumption decreases, price increases to Pworld, domestic production increases, starts to export good |
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Term
| Effects of Tariff (Small Country) |
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Definition
| new price = Pworld + tariff, domestic production increases, imports decrease, consumption decreases |
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Term
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Definition
| Gains from Trade (comparative advantage), international relations, opportunities for poor countries |
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Term
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Definition
| national security, gov't revenue, infant industry, wage standards, environment, unfair practices, open foreign markets, terms of trade, job creation, strategic industries with spillovers |
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Term
| S&D for Large Country Imports |
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Definition
| effects look the same as small country...I really don't get this part... |
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Term
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Definition
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Term
| Growth rate of Y/L (yield over labor) |
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Definition
| = growth rate of T (technology) + 1/3 * growth rate of K/L (capital over labor) |
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Term
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Definition
| those countries with lower Real GDP per capita should have higher growth rates because they benefit more from increased capital investment (so people invest more there) |
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Term
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Definition
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Term
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Definition
| Real GDP is calculated in terms of prices according to some base year, nominal GDP is calculated according to current prices |
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Term
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Definition
| actual is the actual GDP. potential is what you would get if everything was utilized perfectly efficiently |
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Term
| Real v. Nominal Interest Rates |
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Definition
| Real i (interest rate) = i - expected inflation |
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Term
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Definition
| Unemployment Rate (14/150), Labor-Force Participation Rate (150/300), Employment-Population Ratio (135/300) |
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Term
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Definition
| seasonal, frictional, structural, cyclical (zero at the natural rate -> means the number of unemployed workers exceeds the number of job vacancies) |
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Term
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Definition
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Term
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Definition
| insiders v. outsiders, the invisible handshake |
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Term
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Definition
| Y = C + I + G + (X-M), consumption investment gov't exports imports |
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Term
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Definition
| labor income + capital income (profits, rent, interest, NOT capital gains) + indirect taxes + depreciation |
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