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Definition
| The buyer who would leave the market first if the price were any higher |
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Definition
| The seller who would leave the market first if the price were any lower |
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Definition
| An investor whose buying or selling transactions are assumed to have no effect on the market. |
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Term
| Quantity demanded vs. Demand |
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Definition
| Quantity demanded is the amount of a good that buyers are will to purchase at a given price level. Demand shows the quantity demanded at each price level, holding constant everything else that influences how much consumers of the good want to buy. |
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Term
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Definition
| The property of a resource allocation that maximizes the total surplus received by all members of society |
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Definition
| The fairness of the distribution of well-being among the members of society; that is, the various buyers and sellers |
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Term
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Definition
| The inefficient allocation of resources and may occur where market power (the ability of a single buyer or seller, or a small group of them, to influence the price) or externalities (costs and benefits borne by those who are not participants in the market) are present |
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Term
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Definition
| A measure of the welfare that people gain from consuming goods and services. Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay (i.e. the market price). |
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Term
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Definition
| An economic measure of the difference between the amount that a producer of a good receives and the minimum amount that he or she would be willing to accept for the good. The difference, or surplus amount, is the benefit that the producer receives for selling the good in the market. |
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Term
| Why do taxes cause deadweight losses? |
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Definition
| Because they prevent buyers and sellers from realizing some of the gains from trade |
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Term
| When will deadweight loss from taxation likely to be the greatest? |
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Definition
| When both supply and demand are elastic |
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Term
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Definition
| A science that attempts to study how people make decisions and choices when faced with scarcity |
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Term
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Definition
| A good or service is scarce if the amount desired exceeds the amount that is available at price zero |
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Term
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Definition
| A statement with a judgement value |
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Term
| Law of Comparative Advantage |
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Definition
| The individual/country with the lowest opportunity cost of producing a particular good should specialize in producing that good |
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Term
| Production possibility frontier |
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Definition
| graph that compares the production rates of two commodities that use the same fixed total of the factors of production. Graphically bounding the production set, the PPF curve shows the maximum specified production level of one commodity that results given the production level of the other. |
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Term
| Law of diminishing marginal return |
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Definition
| As more of one input is added to a production process, holding all other inputs fixed, the associated increase in output will diminish (i.e. increasing opportunity costs) |
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Term
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Definition
| As price increases, quantity demanded decreases, holding everything else constant |
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Term
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Definition
| The idea that as prices rise (or incomes decrease) consumers will replace more expensive items with less costly alternatives. |
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Term
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Definition
| the change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service. The relationship between income and the quantity demanded is a positive one, as income increases, so does the quantity of goods and services demanded. |
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Term
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Definition
| Any good for which demand increases when income increases and falls when income decreases but price remains constant, i.e. with a positive income elasticity of demand. |
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Term
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Definition
| A good that decreases in demand when consumer income rises, unlike normal goods, for which the opposite is observed. |
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Term
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Definition
| A metaphor conceived by Adam Smith to describe the self-regulating behavior of the marketplace. |
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Term
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Definition
| governmental restrictions on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of staple foods and goods, to prevent price gouging during shortages, and to slow inflation, or, alternatively, to insure a minimum income for providers of certain goods. There are two primary forms of price control, a price ceiling, the maximum price that can be charged, and a price floor, the minimum price that can be charged. Not liked by economists. |
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Term
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Definition
| A government- or group-imposed limit on how low a price can be charged for a product. Example: minimum wage laws |
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Term
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Definition
| A government-imposed limit on the price charged for a product. Example: rent control |
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Term
| Who bears the majority of the tax burden? |
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Definition
| Whichever side (supply or demand) that is more inelastic |
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Term
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Definition
| A cost or benefit that is not transmitted through prices and is incurred by a party who was not involved as either a buyer or seller of the goods or services causing the cost or benefit. |
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Term
| Internalizing the externality |
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Definition
| Altering incentives so that people take account of the external effects of their actions. |
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Term
| What do negative externalities cause? |
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Definition
| They lead markets to produce a larger quantity than is socially desirable. |
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Term
| What do positive externalities cause? |
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Definition
| They lead markets to produce a smaller quantity than is socially desirable |
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Term
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Definition
| Tax designed to induce private decision makers to take account of the social costs that arise from a negative externality |
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Term
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Definition
| Describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. |
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Term
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Definition
| The property of a good whereby a person can be prevented from using it |
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Term
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Definition
| The property of a good whereby one person's use diminishes other people's use |
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Term
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Definition
| Both non-excludable and non-rival in consumption |
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Term
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Definition
| Rival in consumption but not excludable (e.g. fish, highways) |
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Term
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Definition
| Excludable and rival in consumption (e.g. clothing, ice cream) |
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Term
| The Tragedy of the Commons |
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Definition
| The depletion of a shared resource by individuals, acting independently and rationally according to each one's self-interest, despite their understanding that depleting the common resource is contrary to their long-term best interests. |
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Term
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Definition
| A limit on the quantity of a good that can be produced abroad and sold domestically. |
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Term
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Definition
| As long as bargaining transaction cost is low, an efficient outcome will be reached through negotiation. (Property rights are well-defined) |
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Term
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Definition
| A situation in which those on the informed side of the market self-select in a way that harms the uniformed side of the market |
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Term
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Definition
| Tendency of a person who is imperfectly monitored to engage in dishonest or undesirable behaviour |
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Term
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Definition
| The analysis of the effect of a particular tax on the distribution of economic welfare. Tax incidence is said to "fall" upon the group that ultimately bears the burden of, or ultimately has to pay, the tax. The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. |
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