Term
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Definition
| the amount of a good or service that a buyer is able and willing to purchase at a given price |
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Term
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Definition
| the difference between the maximum price a consumer is willing to pay for a good or service and its market price |
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Definition
Income
Population
Tastes and Preferences
price of substitues and complements
expectations |
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Definition
| a function that shows the quantity demanded at different prices |
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Definition
an inverse relationship between price and quantity demanded
price rises, quantity falls |
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Definition
| the change in total utility generated by consuming one additional unit of that good or service |
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Term
| Principle of diminishing marginal utility |
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Definition
| each successive unit of a good or service consumed adds less to total utility than the previous unit. |
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Definition
| the sum of consumer surplus of all buyers |
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Term
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Definition
| a good for which demand increases(decreases) when income increases(decreases) |
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Term
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Definition
| a good for which demand decreases(increases) when income increases(decreases) |
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Term
Important Demand Shifters
Income |
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Definition
| the effect of changes in income on demand deends on the nature of the good in question |
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Term
Important Demand Shifters
Population |
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Definition
| as the population of an economy changes, the number of buyers of a particular good also changes, directly influencing its demand |
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Term
Important Demand Shifters
Expectations |
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Definition
| the expectation of a higher (lower) price for a good in the future increases (decreases) current demand for the good |
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Term
Important Demand Shifters
Tastes |
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Definition
| tastes and preferences are subjective and will vary among consumers |
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Term
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Definition
| price received by sellers - price paid by buyers |
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Definition
the value of the opportunities lost
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Term
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Definition
| price changes a lot when quantity demanded/supplied goes up/down |
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Term
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Definition
price doesn't change as much when quantity demanded/supplied goes up or down
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Term
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Definition
| price goes up, revenues go up |
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Term
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Definition
| price goes up, revenue goes down |
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Term
| when you move along a demand curve |
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Definition
| all non- price determinants of demand are held constant |
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Term
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Definition
lost deadweight loss.
lower floor = more gains
higher floor = less gains |
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Term
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Definition
| quantity demanded x (floor- willingness to sell) |
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Term
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Definition
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Term
| Deadweight loss is the total of |
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Definition
| lost consumer producer surplus when all mutually profitable gains from trade are not exploited |
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Term
| Consumer surplus with a shortage and a highes value used |
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Definition
| from controlled price up to top of demand curve |
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Term
| price ceiling on gas in imposed total price of gas a buyer pays is likely to equal |
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Definition
| legal price plus the value of corrpution |
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Term
do price ceilings misallocate resources?
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Definition
| yes, because people who value the good the most are unable to bid it away from low-valued uses |
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Term
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Definition
| amount paid by buyers - price received by sellers |
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Term
if elasticity of demand is 1 and elasticity of supply is 1
how much of a tax burden will the buyer bear relative to seller |
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Definition
| exatly the same amount of the tax burden |
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Term
unlike price floors,
subsidies |
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Definition
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Term
| economies of scale describe |
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Definition
| reductions in per unit costs as production is increased |
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Term
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Definition
| costs per unit fall with increases in production |
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Term
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Definition
| the ability to produce the same good using fewer inputs than another producer |
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Term
| Theory of comparitive advantage |
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Definition
| every country can produce some good with a lower opportunity cost |
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Definition
| increases price and decreases quantity consumed |
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Term
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Definition
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Term
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Definition
| is a restriction on the quantity of goods that can be imported. Imports greater than the quota amount are forbidden or heavily taxed |
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Term
| a trade quota on imports benefits ______ and hurts ________ |
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Definition
| domestic producers... domestic consumers |
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Term
| with free trade, the domestic price of a good must be ______ to the world price of a good |
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Definition
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Term
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Definition
the cost of producing a given quantity of output
average cost x quantity
AC x Q |
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Term
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Definition
costs that do not vary with output
AC-MC |
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Term
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Definition
| are costs that do vary with output |
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Term
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Definition
the change in total revenue from selling an additional unit
MR =change in total revenue / change in quantity |
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Term
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Definition
the change in total cost from producing an additional unit
MC = change in total cost / change in quantity |
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Term
| the pursuit of profits in a competitive market minimizes |
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Definition
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Term
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Definition
Total cost / quantity
TC/Q |
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Term
if the total amount of money that your making is equal to the total cost
TR = TC |
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Definition
the price charged is equal to the average cost to make
P = AC |
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Term
| since a competetive firm has MR=P for all quantities in the short run, we can conclude that |
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Definition
| the demand curve faced by each individual competitive firm is perfectly elastic |
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Term
| when the level of production is relatively low, the average cost per unit of output would ______ if output increased |
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Definition
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Term
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Definition
| marginal cost = marginal revenue |
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Term
| Competitive firm making zero profits |
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Definition
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| competitive firm making loss |
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Definition
AC>MR
AC is above MR on a graph |
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Term
| firms in a perfectly competitive industry max profits by |
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Definition
| setting a price equal to the market price |
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Term
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Definition
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| Firms will enter an industry when the |
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Definition
| price rises above the minimum of the average cost curve |
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Term
| If one industry has a better Profit than another we should expect that |
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Definition
| labor and capital will be reallocated from the first to second industry |
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Term
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Definition
| cost increase with freater industry output and this generates an upward sloping supply curve |
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Term
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Definition
| costs do not change with changes in industry output and this generates a flat supply curve |
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Term
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Definition
costs decrease with greater industry output and this generates a downward sloping supply curve
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Term
| what is a firm's short-run supply curve? |
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Definition
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Term
| short run supply curve is the sum of |
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Definition
| the MC curves for each firm in the industry |
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Term
| if a marginal cost is less than average cost then, |
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Definition
| average cost is decreasing |
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Term
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Definition
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Term
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Definition
| the power to raise price above marginal cost without fear that other firms will enter the market |
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Term
| what is always true for monopolies? |
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Definition
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Term
| Profit maximizing quantity in monopolies |
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Definition
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Term
| when comparing a monopoly price with a competitive industry |
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Definition
| monopoly quantity will be lower and monopoly price will be higher |
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Term
| monopolies arise naturally when |
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Definition
| a large firm can produce at lower cost than other small firms |
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Term
| monopoly power is best described as |
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Definition
| the ability to earn economic profits without causing new firms to enter the market |
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Term
| in a monopoly MR is always less than P because |
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Definition
| when a monopolist lowers the price to sell more units, it must lower the prices of all units sold. |
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Term
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Definition
| sellint the same product at two different prices in two different markets |
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Term
| In price discrimination you always want to charge more money in a __________ (elastic/inelastic) market |
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Definition
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Term
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Definition
| taking advantage of price differences for the same good in different markets by Buying low in one market and selling high in another |
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Term
| price discrimination is used when a seller faces different demand curves in different markets because |
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Definition
| profits are greater than selling at a single price |
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Term
| when maxing a profit for monopolists |
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Definition
| find the point where MR= (AC=MR) then go up to the demand curve to find price |
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Term
| perfect price discrimination |
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Definition
| occurs when a seller charges each separate consumer an amount that is exactly equal to his or her max willingness to pay |
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Term
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Definition
| requiring that products be bought together in a bundle or package |
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Term
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Definition
| a form of price discrimination in which one good, called the base good, is tied to a second good called the variable good |
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Term
| in order for a firm to successfully use tying |
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Definition
| it must be difficult for other firms to sell the second good |
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Term
| bundling increases _______ and hence increases the incentives to _______ |
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Definition
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Term
| smuggling is arbitrage because |
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Definition
| you can buy low, sneak into a market who are willing to pay more |
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Term
| what must a monopolist do to prevent arbitrage? |
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Definition
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Term
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Definition
| a good whose value to one cunsumer increases the more that other consumers use the good |
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Term
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Definition
| a group of suppliers that tries to act as if they were a monopoly |
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Term
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Definition
| situations where the pursuit of individual interest leads to a group outcome that is in the interest of no one |
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Term
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Definition
| a situation in which no player has an incentive to change their strategy unilaterally |
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Term
| Marginal product of labor |
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Definition
| the increase in a firm's revenues created by hiring an additional worker |
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Term
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Definition
| a market dominated by small number of firms |
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Term
| statistical discrimination |
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Definition
| using information about group averages to make conclusions about individuals |
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Term
| preferenced based discrimination |
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Definition
discrimination by employers
discrimination by customers
discrimination by employees |
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Term
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Definition
compenation schemes in which payment is based on relative perfomance
reduces risk |
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Term
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Definition
| the risk that certain members of a team will have a higher ability than other members of the same team |
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Term
| Compensating differential |
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Definition
| a difference in wages that offsets differences in working conditions |
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Term
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Definition
| cost paid by people other than the consumer or the producer trading in the market |
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Term
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Definition
| the cost paid by the consumer or the producer |
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Term
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Definition
| the cost to everyone, the private cost plus the external cost |
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Term
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Definition
| add marginal cost and external cost... whichever is equal to benefit |
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Term
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Definition
| when marginal benefit and marginal cost are equal |
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Term
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Definition
posits that if transaction costs are low and property rights are clearly defined, private bargains will ensure that the market equilibrium is effecient even when there are exernalities
only want to do something when the benefit is greater than the cost |
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Term
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Definition
costs necessary to reach an agreement
prevent private parties from solving externality problems |
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Term
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Definition
| goods that people can be prevented from using |
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Term
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Definition
when one person's use decreases the use of somebody else
they include common resources and private groups |
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Term
| private goods are _____ and ______ |
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Definition
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Term
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Definition
a good that is likely to be overutilized
rival but nonexcludable
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Term
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Definition
| the tendency for any good which is rival and non excludable to eb overused and undermaintained |
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| positive economic statement |
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Definition
| matter of fact statements |
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| normative economic statements |
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Definition
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Term
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Definition
| justice requires maximizing the benefits going to society's most disadvantaged group |
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Term
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Definition
| the idea that the best society maximizes the sum of utility |
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Term
| nozick's entitlement theory of justice |
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Definition
| says that the distribution of income in a society is just if property is justlyu acquired and voluntarily changed. |
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Term
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Definition
| happens when the benefits of being informed are less than the costs of becoming informed |
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Term
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Definition
| says that when voters vote fot the policy that is closest to their ideal pint on a line then the ideal point of the median voter will beat any other policy in a majority rule election |
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Term
| one way to achieve political success is to |
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Definition
| concentrate benefits and diffuse costs |
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Term
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Definition
| requires that firms reduce polutants by specific quantities |
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