Term
| Reasons demand curve is downward sloping |
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Definition
| Law of diminishing marginal utility; income effect (real income increases as price decreases); substitution effect |
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Term
| Veblen (ostentatious) goods |
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Definition
| exception to law of demand; conspicuous consumption (increase in price, increase in Q demanded) |
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Definition
| exception to law of demand; goods which are absolutely vital for a person; inferior goods; income effect is more powerful than the substitution effect; |
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Definition
| exception to law of demand; As share prices increases, so does the quantity demanded of shares, as individuals predict further price increases |
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Definition
| overcrowding; too many individuals acting in self-interests deplete a good; lack of rationing |
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Term
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Definition
| where a product is bought and sold outside of the manufacturer's authorized trading channels; eg. pay at price ceiling for rent, but then have to pay more for furniture (skirting around the price control) |
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Term
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Definition
| government tries to regulate the price level of a good or service by buying the good up when demand is too low or selling off any surplus when demand is too high; tend to be expensive (storage costs, opportunity costs); alternative = pay to leave fields fallow |
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Definition
| agreements between countries to attempt to stabilise commodity prices; eg. OPEC |
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Term
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Definition
| Income elasticity of demand |
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Term
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Definition
| a tax which is a percentage of the price of a good |
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Term
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Definition
| he loss in social net benefits that no-one receives: it occurs because less is supplied than is socially optimal |
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Term
| income elasticity for different sectors |
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Definition
| primary > secondary > tertiary |
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Term
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Definition
| financing by borrowing money from the bank or by selling bonds in the bond market or through retained earnings |
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Term
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Definition
| financing by issuing shares |
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Term
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Definition
| financing from retained earnings or by short term loans from banks |
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Term
| Opportunity Cost Rate of Return |
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Definition
| minimum amount that must be earned to get economic profits |
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Term
| most small companies fail for three reasons: |
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Definition
| poor marketing, poor financing, poor management |
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Term
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Definition
| Companies must balance revenues and costs so as to maximize profit |
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Term
| Three types of inventories |
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Definition
| raw materials, intermediate (semi-finished) goods, and final goods |
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Term
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Definition
| must be financed by working capital and require storage space; act as shock absorbers |
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Term
| When does the firm reaches long run equilibrium? |
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Definition
| when there is no opportunity for cost reducing substitutions: the ratio of MPs to factor costs is equal |
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Term
| Technical change is often "endogenous" |
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Definition
| (it is in response to something going on in the production process rather than just some accidental discovery going on in a totally unrelated way |
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Term
| T or F? The growth in productivity does not appear to be as rapid for services as there are less opportunities to substitute machines for people |
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Definition
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Term
| Return on investment (ROI) |
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Definition
| The net revenue is divided by the total investment in the firm |
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Term
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Definition
| occurs when output is at society's optimum level. P=MC |
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Term
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Definition
| when a firm produces at the lowest possible cost per unit. ATC=MC |
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Term
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Definition
| oligopolies, illustrates the downward-stickiness of prices. The fear of changing prices and then loosing numerous customers is too big to actually change prices. |
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Term
| Theory of contestable markets |
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Definition
| even in a monopoly or oligopoly, the existing companies will behave competitively when there is a lack of barriers to prevent new companies from entering the market |
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Term
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Definition
| A monopoly which has gained its status because of massive economies of scale |
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Term
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Definition
| appropriately balances short run and long run concerns; the ability to adapt quickly and at low cost to changed economic conditions |
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Term
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Definition
| make it illegal (USA), state control, consider advantages/disadvantages, issue licence |
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Term
| First degree price discrimination |
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Definition
| Each person buying a good or service pays as much as they are wiling to pay. (eg. auction) |
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Term
| Second degree price discrimination |
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Definition
| Consumers are charged differing prices determined by the quantity that they purchase. |
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Term
| Third degree price discrimination |
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Definition
| Different market segments identified by the seller are charged at varying rates. Highly dependent on separating the market segments. Good examples are youth discounts or senior citizen rates. |
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Term
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Definition
| Many people work and is unrecorded by the authorities. This includes both black markets (selling illegal goods) and informal markets (selling legal goods illegally to circumvent price restrictions). |
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Term
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Definition
| a graph showing the relationship between tax rate and government revenue |
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Term
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Definition
| a graph showing the distribution of wealth in the economy. |
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Term
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Definition
| a number between 0 and 1 quantifying the distribution of wealth in the economy. 1 is perfectly unequal distribution and 0 representing perfectly equal distribution. |
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Term
| Producer Price Indexes (PPI) |
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Definition
| A family of indexes that measure the average change over time in selling prices by domestic producers of goods and services. |
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Term
| What are the major objectives of macroeconomic policy? |
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Definition
| (i) full employment, (ii) price stability, (iii) a high, but sustainable, rate of economic growth, and (iv) keeping the Balance of Payments in equilibrium |
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