Term
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Definition
| The want-satisfying power of good or service. |
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Term
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Definition
| A representative unit by which utility is measured. |
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Term
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Definition
| The change in total utility due to a one-unit change in the quantity of a good service consumed. |
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Term
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Definition
Change in total utility
Change in number of units consumed |
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Term
| Diminishing Marginal Utility |
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Definition
| The principle that as more of any good or service is consumed, its extra benefit declines. Otherwise stated, increases in total utility from the consumption of a good or service become smaller and smaller as more is consumed during a given time period. |
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Term
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Definition
| A choice of a set of goods and services that maximizes the level of satisfaction of each consumer, subject to limited income. |
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Term
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Definition
| The tendency of people to substitute cheaper commodities for more expensive commodities. |
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Term
| Principle of Substitution |
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Definition
| The principle that consumers and producers shift away from good and resources that become priced relatively higher in favor of goods and resources that are now priced relatively lower. |
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Term
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Definition
| The value of money for buying goods and services. If your money income stays the same but the prices of one good that you are buying goes up, your effective purchasing power falls, and vice versa. |
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Term
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Definition
| The change in people's purchasing power that occurs when, other things being constant, the price of one good that they purchase changes. When that price goes up, real income, or purchasing power, falls, and when that price goes down, real income increases. |
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Term
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Definition
| A curve composed of set of consumption alternative, each of which yields the same total amount of satisfaction. |
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Term
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Definition
| All of the possible combinations of goods that can be purchased (at fixed prices) which a specific budget. |
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Term
| Price elasticity of demand (Ep) |
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Definition
| The responsiveness of the quantity demanded of a commodity to changes in its price; defined as the percentage change in quantity demanded divided by the percentage change in prices. |
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Term
| Unit Elasticity of Demand |
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Definition
| A demand relationship in which the quantity demanded changes exactly in proportion to the change in price. Total expenditures are invariant to price. Total expenditures and price are directly related in the inelastic region of the demand curve. |
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Term
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Definition
| A demand relationship in which a given percentage change in price will result in larger percentage change in quantity demand. Total expenditures and price changes are inversely related in the elastic region of the demand curve. |
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Term
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Definition
| A demand relationship in which a given percentage change in price will result in less then proportionate percentage change in the quantity demand. Total expenditure and price are directly related in the inelastic region of the demand curve. |
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Term
| Perfectly Inelastic Demand |
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Definition
| A demand that exhibits zero responsiveness to price changes; no matter what the price is, the quantity demanded remains the same. |
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Term
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Definition
| A demanded that has the characteristic that even the slightest increase in price will lead to zero quantity demanded. |
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Term
| Income Elasticity of Demand (Ei) |
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Definition
| The percentage change in demand for any good, holding its price constant, divided by the percentage change in income; the responsiveness of demand to change in income, holding the good's relative price constant. |
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Term
| Price Elasticity of supply (Es) |
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Definition
| The responsiveness of the quantity supplied of a commodity to change in its price; the percentage change in quantity supplied divided by the percentage change in price. |
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Term
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Definition
| A supply characterized by a reduction in quantity supplied to zero when there is the slightest decrease in price. |
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Term
| Perfectly Inelastic Supply |
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Definition
| A supply for which quantity supplied remains constant, no matter what happens to price. |
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Term
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Definition
| A payment for the use of any resource over and above its opportunity cost. |
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Term
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Definition
| A business organization that employs resources to produce goods or services for profit. A firm normally owns and operates at least one "plant" or Facility in order to produce. |
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Term
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Definition
| A business owned by one individual who makes the business decisions, receives all the profits, and is legally responsible for the debts of the firm. |
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Term
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Definition
| A business owned by two more joint owners, or partners, who share the responsibilities and the profits of the firm and are individually liable for all the debts of the partnership. |
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Term
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Definition
| A legal entity that may conduct business in its own name just as an individual does; the owners of a corporation, called shareholders, own shares of the firm's profits and enjoy the protection of limited liability. |
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Term
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Definition
| A legal concept in which the responsibility , or liability, of the owners of a corporation is limited to the value of the shares in the firm they own. |
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Term
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Definition
| Costs that business manages must take account of because they must be paid; example are wages, taxes, rent. |
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Term
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Definition
| Total revenues minus total explicit costs. |
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Term
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Definition
| Expenses that managers do not have to pay out of pocket and hence do not normally explicitly calculate, such as the opportunity cost of factors of production that are owned; examples are owner-provided capital and owner-provided labor. |
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Term
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Definition
| The amount that must be paid to an investor to induce investment in a business; also known as the opportunity cost of capital. |
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Term
| Opportunity Cost of Capital |
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Definition
| The normal rate return, or the available return on the next-best alternative investment. Economists consider this cost of production, and it is included in our cost example. |
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Term
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Definition
| Total revenues minus total opportunity costs of all inputs used, or the total of all inputs used, or the total of all implicit explicit costs. |
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Term
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Definition
| The payment for current rather then future command over resources; the cost of obtaining credit. |
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Term
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Definition
| The market rate of interest expressed in today's dollars. |
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Term
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Definition
| The nominal rate of interest minus the anticipated rate of inflation. |
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Term
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Definition
| The value of a future amount expressed in today's dollars; the most that someone would pay today to receive a certain sum at some point in the future. |
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Term
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Definition
| The method by which the present value of future sum or a future stream of sums in obtained. |
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Term
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Definition
| The rate of interest used to discount future sums back to present value. |
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Term
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Definition
| A legal claim to share of a corporation's future profits. If it is common stock, it incorporations certain voting rights regarding major policy decisions of the corporation. If it is proffered stock, its owners are accorded preferential treatment in the payment of dividends but do not have any voting rights. |
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Term
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Definition
| A legal claim against a firm, usually entitling the owner of the bond the receive a fixed annual coupon payment, plus a lump-sum payment at the bond's maturity date. Bonds are issued in return for funds lent to the firm. |
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Term
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Definition
| Profits (or depreciation reserves) used to purchase new capital equipment. |
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Term
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Definition
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Term
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Definition
| The theory that there are no predictable trends in securities prices that can be used to "get rich quick." |
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Term
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Definition
| Information that is not available to the general public about what is happening in a corporation. |
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Term
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Definition
| Any activity that results in the conversion of resources into products that can be used in consumption. |
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Term
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Definition
| The relationship between inputs and maximum physical output. A production function is a technological, not an economic, relationship. |
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Term
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Definition
| Total product divided by the variable input. |
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Term
| Marginal Physical Product |
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Definition
| The physical output that due to the addition of one more unit of a variable faction of production; the change in total product occurring when a variable input is increased and all other inputs are held constant; also called marginal product. |
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Term
| Law of Diminishing Marginal Product |
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Definition
| The observation that after some point, successive equal-sized increases in a variable factor of production, such as labor added to fixed factors of production, will result in smaller increases in output. |
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Term
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Definition
| The sum of total fixed costs and total variable costs. |
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Term
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Definition
| Cost that do not vary with output. Fixed costs typically include such things as rent on building. These costs are fixed for certain period of time (in the long run, though, they are variable). |
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Term
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Definition
| Costs that very with the rate of production. They include wages paid to workers and purchases of materials. |
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Term
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Definition
| Total fixed costs divided by the number of units produced. |
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Term
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Definition
| Total variable costs divided by the number of units produced. |
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Term
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Definition
| Total costs divided by the number of units production; sometimes called average per-unit total costs. |
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Term
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Definition
| The change in total costs due to a one-unit change in production rate. |
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Term
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Definition
| The long run, during which all inputs are variable. |
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Term
| Long-run Average Cost Curve |
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Definition
| The locus of point representing the minimum unit cost of producing any given rate of output, given current technology and resource prices. |
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Term
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Definition
| The long-run average cost curve. |
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Term
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Definition
| Decreases in long-run average costs resulting from increases in output. |
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Term
| Constant Returns to Scale |
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Definition
| No change in long-run average costs when output increases. |
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Term
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Definition
| Increases in long-run average costs that occur as output increases. |
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Term
| Minimum Efficient Scale (MES) |
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Definition
| The lowest rate of output per unit time at which long-run average costs for a particular firm are at a minimum. |
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Term
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Definition
| A market structure in which the decisions of individual buyers and sellers have no effect on market price. |
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Term
| Perfectly Competitive Firm |
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Definition
| A firm that is such a small part of the total industry that it cannot affect the price of the product it sells. |
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Term
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Definition
| A perfectly competitive firm that must take the price of its product as given because the firm cannot influence its price. |
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Term
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Definition
| The price per unit times total quantity sold. |
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Term
| Profit-maximizing Rate of Production |
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Definition
| The rate of production that maximizes total profits, or the difference between total revenues and total costs; also, the rate of production at which marginal revenue equals marginal cost. |
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Term
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Definition
| The change in total revenues resulting from a change in output (and sale) of one unit of the product in question. |
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Term
| Short-run Break-even Price |
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Definition
| The price at which a firm's total revenues equal its total costs. At the break-even price, the firm is just making a normal rate of return on its capital investment. (It is covering its explicit and implicit costs.) |
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Term
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Definition
| The price that covers average variable costs. It occurs just below the intersection of the marginal cost curve and the average variable cost curve. |
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Term
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Definition
| The locus of points showing the minimum prices at which given quantities will be forthcoming; also called the market supply curve. |
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Term
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Definition
| Compact ways of conveying to economic decision markers information needed to make decisions. An effective signal not only conveys information but also provides the incentive to react appropriately. Economic profits and economics losses are such signals. |
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Term
| Long-run Industry Supply Curve |
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Definition
| A market supply curve showing the relationship between prices and quantities after firms have been allowed the time to enter into or exit from an industry, depending on whether there have been positive or negative economic profits. |
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Term
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Definition
| An industry whose total output can be increased without an increase in long-run per-unit costs; its long-run supply curve is horizontal. |
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Term
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Definition
| An industry in which an increase in industry output is accompanied by an increase in long-run per-unit costs, such that the long-run industry supply curve slopes upward. |
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Term
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Definition
| An industry in which an increase in output leads to reduction in long-run per-unit costs, such that the long-run industry supply curve slopes downward. |
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Term
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Definition
| A system of pricing in which the price charged is equal to the opportunity cost to society of producing one more unit of the good or service in question. The opportunity cost is the marginal cost to society. |
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Term
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Definition
| The single supplier of a good or service for which there is no close substitute. The monopolist therefore constitutes its entire industry. |
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Term
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Definition
| A monopoly that arises from the peculiar production characteristics in an industry. It usually arises when there are large economies of scale relative to the industry's demand such that one firm can produce at a lower average cost then can be achieved by multiple firms. |
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Term
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Definition
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Term
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Definition
| An association of production in an industry that agree to set common prices and output quotas to prevent competition. |
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