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Definition
| the limit to a household's consumption choices |
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Term
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Definition
| a situation in which a consumer has allovated all his or her available imcome in the way that, given the prices of goods and services, maximizes his or her total utility |
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Term
| Diminishing marginal utility |
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Definition
| the decrease in marginal utility as the quantity consumed increases |
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Definition
| the change in total utility resulting from a one-unit increase in the quantity of a good consumed |
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Term
| marginal utility per dollar |
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Definition
| the marginal utility from a good divided by its price |
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| a household's income expressed as a quantity of goods that the household can afford to buy |
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Definition
| the ratio of the price of one good or service to the price of another good or service. A relative price is an opportunity cost |
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| the total benefit that a person gets from the consumption of goods and services |
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| the benefit or satisfation that a person get from the consumption of a good or service. |
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| a method of allocating resources by the order (command) of someone in authority. In a firm a managerial hierarchy organizes production |
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| the change in the market value of capital over a given period. |
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| A situation that occurs when the firm produces a given output at the least cost. |
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| A firm's total revenue minus its total cost. |
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| Features of a firm's technology that lead to a falling long-run average cost as output increases. |
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| Decreases in average total cost that occur when a firm uses specialized resources to produce a range of good and services |
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Definition
| an economic unit that hires factors of production and organizes those factors to produce and sell goods and services. |
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Term
| four-firm concentration ratio |
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Definition
| A measure of market power that is calculated as the percentage of the value of sales accounted for by the four largest firms in an industry. |
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Term
| Herfindahl-Hirschman Index |
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Definition
| A measure of market power that is calculated as the square of the market share of each firm (as a percentage) summed over the largest 50 firms (or over all firms if there are fewer than 50) in a market. |
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Definition
| The firm's opportunity cost of using its own capital. |
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| A method of organizing production that uses a market-line mechanism inside the firm. |
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Definition
| A market structure in which a large number of firms compete by making similar but slightly different products. |
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| A market structure in which there is one firm, which produces a good or service that has no close substitutes and in which the firm is protected from competition by a barrier preventing the entry of new firms. |
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| The return that an entrepreneur can expect to receive on the average. |
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Definition
| A market structure in which a small number of firms compete. |
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| A market in which there are many firms each selling an identical product |
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Definition
| the problem of devising compensation rules that induce an agent to act in the best interest of a principal |
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| Making a product slight different from the product of a competing firm. |
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| a situation that ocurs when the firm produces a given output by using the least amount of inputs |
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Definition
| any method of producing a good or service |
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Definition
| the opportunity costs of making trades in a market. |
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Definition
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Definition
| the average product of a factor of production. it equals total product divided by the quantity of the factor employed |
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| total cost per unit of output |
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Definition
| total variable cost per unit |
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Term
| constant returns to scale |
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Definition
| features of a firm's technology that lead to constant long-run average cost as output increases. When constant returns to scale are present LRAC curve is horizontal. |
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Term
| diminishing marginal returns |
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Definition
| the tendency for the marginal product of an additional unit of a factor of production to be less than the marginal product of the previous unit of the factor |
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Term
| diminishing marginal utility |
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Definition
| the decrease in marginal utility as the quantity consumed increases |
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Term
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Definition
| features of a firm's technology that lead to rising long-run average cost as output increases |
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Term
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Definition
| features of a firm's technology that lead to a falling long run average cost as output increases |
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Term
| law of diminishing returns |
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Definition
| as a firm uses more of a variable input, with a given quantity of other inputs (fixed inputs), the marginal product of the variable input eventually diminishes. |
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Term
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Definition
| a period of timein which the quantities of all resources can be varied |
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Term
| long-run average cost curve |
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Definition
| the relationship between the lowest attainable average total cost and output when both plant size and labor are varied. |
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Term
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Definition
| the opportunity cost of producing one more unit of a good or service |
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Term
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Definition
| the increase in total product that results from a one unit increase in the variable input, with all other inputs remaining the same. |
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Definition
| the smallest quantity of output at which the long-run average cost curve reaches its lowest level |
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Term
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Definition
| the period of time in which the quantity of at least one factor of production is fixed and the quantities of the other factors can be varied. The fixed factor is uauly capital- that it, the firm has a given plant size |
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Definition
| the past cost of buying a plant that has no resale value |
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Definition
| the cost of all the productive resources that a firm uses |
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Definition
| the cost of the firm's fixed inputs |
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Definition
| the total output produced by a firm in a given period of time |
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Definition
| the cost of all the firm's variable inputs |
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Definition
| factors outside the control of a firm that raise the firm's costs as the industry produces a larger output |
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Term
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Definition
| factors beyond the control of a firm that lower the firm's costs as the industry produces a larger output |
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Term
| long-run industry supply curve |
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Definition
| a curve that shows how the quantity supplied by an industry varie |
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Term
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Definition
| the change in total revenue that results from a one unit increase in the quantity sold |
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Term
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Definition
| a market in which there are many firms each selling an identical product |
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Term
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Definition
| a firm that cannot influence the price of the good or service it produces |
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Term
| short-run industry supply curve |
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Definition
| a curve that shows the quantity supplied by the industry at each price when the plant size of each firm and the number of firms in the industry remain the same |
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Term
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Definition
| the output and price at which the firm just covers its total variable cost |
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Term
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Definition
| the value of a firm's sale its calc as the price of the good multiplied by the quantity sold |
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Term
| average cost pricing rule |
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Definition
| a rule that sets price to cover cost including normal profit, which means setting the price queal to average total cost |
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Term
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Definition
| legal or natural constraints that protect a firm from potential competitors |
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Term
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Definition
| any surplus- consumer surplus, producer surplus or economic profit. the income received by the owener of a factor of production over and above the amount required to induce that owner to offer the factor for use |
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Term
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Definition
| a market structure in which there is one firm and entry is restricted by the granting of a public franchise, government license, patent, or copywright |
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Term
| marginal cost pricing rule |
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Definition
| a rule that sets the price of a good or service equal to the marginal cost of producing it |
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Term
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Definition
| the ability to influence the market and in particular the market price, by influencing the total quantity offered for sale |
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Term
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Definition
| a market structure in which there is one firm, which produces a good or service that has no close substitutes and in which the firm is protected from competition by a barrier preventing the entry of new firms |
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Term
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Definition
| a monopoly that occurs when one firm can supply the entire market at a lower price than two or more firms can |
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Term
| perfect price discrimination |
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Definition
| price discrimination that extracts the entire consumer surplus |
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Term
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Definition
| the practice of selling different units of a good or service for different prices or of charging one customer different prices for different quantities bought |
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Term
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Definition
| the pursuit of wealth by capturing economic rent- consumer surplus, producer surplus, or economic profit |
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Term
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Definition
| a monopoly that must sell each unit of its output for the same price to all its customers |
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Term
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Definition
*A household's choices are determined by its consumption possibilites and preferences
*a household's consumption possibilities are constrained by its income and by the prices of goods and services. Some combinations of goods and services are affordable, and some arent affordable. |
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Definition
*a household's preferences can be described by marginal utility
*The key assumption of marginal utility theory is that the marginal utility of a good or serivce decreses as consumption of the good or service increases
*marginal utility theory assumes that people buy the affordable combination of goods and services that maximizes their total utility |
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Term
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Definition
*a household's preferences can be described by marginal utility
*The key assumption of marginal utility theory is that the marginal utility of a good or serivce decreses as consumption of the good or service increases
*marginal utility theory assumes that people buy the affordable combination of goods and services that maximizes their total utility |
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Term
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Definition
*Total utility is maximized when all the available income is spent and when the marginal utility per dollar for each good is equal
*if the marginal utility per dollar for good A exceeds that for good B, total utility increases if the quantity purchased of good A increases and the quantity purchased of good B decreases. |
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Term
| predictions and marginal utility theory |
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Definition
*marginal utility theory predicts the law of demand. That is, other things remaining the ame, the higher the price of a good, the smaller is the quantity demanded of that good
*marginal utility theory also predicts that, other things remaining the same, the larger the consumer's income, the larger is the quantity demanded of a normal good |
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Term
| effieciency, price, and value |
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Definition
*when a consumer maximizes utility, he or she is using resources efficiently
*marginal utility theory resolves the paradox of value
*when we talk loosely about value, we are thinking of total utility and a large consumer surplus. But price is related to marginal utility. |
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Term
| effieciency, price, and value cont |
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Definition
*Water, which we consume in large amounts, has a high total utility and a large consumer surplus, but the price of water is low and the marginal utility from water is low
*diamonds, which we consume in small amounts, have a low total utility and a small consumer surplus, but the price of a diamond is high and the marginal utility from diamonds is high |
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Term
| the firm and its economic problem |
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Definition
*firms hire and organize factors of production to produce and sell goods and services
*firms seek to maximize economic profit, which is total revenue minus opportunity cost
*a firm's opportunity cost of production is the sum of explicit costs and the implicit costs of using the firm's capital and the owner's resources
*Normal profit is the opportunity cost of entrepreneurship and is part of the the firm's explicit costs
*technology, information, and markers limit a firm's profit |
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Term
| technological and economic efficiency |
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Definition
*A method of production is technologically efficient when a firm produces a given output by using the least amount of inputs
*a method of production is economically efficient when the cost of producing a given output is as low as possible |
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Term
| information and organization |
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Definition
*Firms use a combination of command systems and incentive systems to organize production
*Faced with incomplete info and uncertainty, firms induce managers and workers to perform in ways that are consisitent with the firm's goals
*Proprietorships, partnerships, and comporations use ownership, incentive pay, and long-term contracts to cope with the principal-agent problem |
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Term
| markets and the competitive enviroment |
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Definition
*in perfect competition, many sellers offer an identical product to many buyers and entry is free
*in monopolistic competition, many sellers offer slightly different products to many buyers and entry is free
*In oligopoly, a small number of sellers compete
*in monopoly, one firm produces an item that has no close subs and the firm is protected by a barrier to entry that prevents the entry of competitors. |
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Term
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Definition
*firms coordinate economic activities when they can perform a task more effieciently- at lower cost- than markets can
*Firms economize on transaction costs and achieve the benefits of economies of scale, economies of scope, and economies of team production |
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Term
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Definition
*in the short run, the quantity of at least one factor of production is fixed and the quantities of the other factors of production can be varied
*in the long run, the quantities of all factors of production can be varied |
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Term
| short run technology constraint |
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Definition
*a total product curve shows the quantity a firm can produce with a given quantity of capital and different quantities of labor
*initially, the marginal product of labor increases as the quantity of labor increases, but eventually, marginal product diminishes- the law of the diminishing returns
*average product increases initially and eventally diminishes |
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Term
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Definition
*as output increases, total fixed cost is constant, and total variable cost and total cost increase
*as output increases, average fixed cost decreases and average variable cost, average total cost, and marginal cost decrease at low outputs and increase at high outputs. These cost curves are U-shaped |
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Term
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Definition
| *there is a set of short run cost curves for each different plant size. THere is one least-cost plant size for each output. The larger the output, the larger is the plant size that will minimize average total cost |
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Term
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Definition
*the long run average cost curve traces out the lowest attainable average total cost at each output when both capital and labor inputs can be varied
*with economies of scale, the long-run average cost curve slopes downward. with diseconomies of scale, the long run average cost curve slopes upward |
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Term
| What is a perfect competition? |
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Definition
| *a perfectly competitive firm is a price taker |
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Term
| The firm's decisions in perfect competition |
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Definition
*the firm produces the output at which marginal revenue (price) equals marginal cost.
*in short run equilibrium, a firm can make an economic profit, incur an economic loss, or break even.
*if price is less than minimum average variable cost, the firm temporarily shuts down
*a firm's supply curve is the upward-sloping part of its marginal cost curve about minimum average variable cost
*An industry supply curve shows the sum of the quantities supplied by each firm at each price |
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Term
| output, price, and profit in perfect competition |
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Definition
*market demand and market supply determine price
*persistent economic profit induces entry. Persistant economic loss induces exit
*entry and plant expansion increase supply and lower price and profit. Exit and downsizing decrease supply and raise price and profit.
*In long-run equilibrium, economic profit is zero (the entrepreneur make normal profit). There is no entry, exit, plant expansion, or downsizing. |
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Term
| changing tastes and advancing technology |
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Definition
*a permanent decrease in demand leads to a smaller industry output and a smaller number of firms
*A permanent increase in demand leads to a larger industry output and a larger number of firms |
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Term
| changing tastes and advancing technology cont |
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Definition
*the long run effect of a change in demand on price depends on whether there are external economies (the price falls) or external diseconomies (the price rises) or neither (the price remains the constant)
*new technologies increase supply and in the long run lower the price and increase the quantitiy |
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Term
| competition and effieciency |
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Definition
*resources are used efficiently when we produce goods and services in the quantities that people value most highly
*when there are no external benefits and external costs, perfect competition achieves an efficient allocation. In long-run equilibrium, consumers pay the lowerst possible price, marginal social nefit equals marginal social cost, and the sum of consumer surplus and producer surplus is maximized |
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Term
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Definition
*a monopoly is an industry with a single supplier of a good or service that has no close subs and in which barriers to entry prevent competition
*barriers to entry may be legal (public franchise, license, patent, copyright, firm owns control of resource) or natural (created by economies scale)
*a monopoly might be able to price discriminate when there is no resale possibility
*where resale is possible, a firm changes one price |
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