Term
| Imperfectly Competitive Industry |
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Definition
| An industry in which individual firms have some control over the price of their output. |
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| An imperfectly competitive's firm's ability to raise price without losing all of the quantity demanded for its product. |
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| An industry with a single firm that produces a product for which there are no close substitutes and in which significant barriers to entry prevent other firms from entering the industry to compete for profits. |
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| Factors that prevent new firms from entering and competing in imperfectly competitive industries. |
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| An industry that realizes such large economies of scale in producing its product that single-firm production of that good or service is most efficient. |
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| A barrier to entry that grants exclusive use of the patented product or process to the inventor. |
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| The value of a product to a consumer increases with the number of that product being sold or used in the market. |
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| Actions taken by households or firms to preserve positive profits. |
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| Occurs when the government becomes the tool of the rent seeker and the allocation of resources is made even less efficient by the intervention of government. |
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| An economic theory that the public officials who set economic policies and regulate the players act in their own self-interest, just as firms do. |
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| Charging different prices to different buyers. |
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| Perfect Price Discrimination |
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Definition
| Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit. |
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| The criterion introduced by the Supreme Court in 1911 to determine whether a particular action was illegal or legal within the terms of the Sherman Act. |
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Definition
| Passed by Congress in 1914 to strengthen the Sherman Act and clarify the rule of reason, the act outlawed specific monopolistic behaviors such as tying contracts, price discrimination, and unlimited mergers. |
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| Federal Trade Commission (FTC) |
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Definition
| A federal regulatory group created by Congress in 1914 to investigate the structure and behavior of firms engaging in interstate commerce, to determine what constitutes unlawful "unfair" behavior, and to issue cease-and-desist orders to those found in violation of antitrust law. |
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| A form of industry structure characterized by a few dominant firms. Products may be homogenous or differentiated. |
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| A model developed by Michael Porter that helps us understand the forces that determine the level of competition and profitability in an industry |
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| The share of industry output in sales or employment accounted for by the top firms. |
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| Markets in which entry and exit is easy |
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| A group of firms that gets together and makes joint price and output decisions to maximize joint profits |
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| Occurs when price- and quantity-fixing agreements among producers are explicit. THIS occurs when such agreements are implicit. |
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| A form of oligopoly in which one dominant firm sets prices and all the smaller firms in the industry follow its pricing policy. |
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| Analyzes the choices made by rival firms, people, and even governments when they are trying to maximize their own well-being while anticipating and reacting to the actions of others in their environment. |
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| In game theory, a strategy that is best no matter what the opposition does. |
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| A game in which the players are prevented from cooperating and in which each has a dominant strategy that leaves them both worse off than if they could cooperate. |
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| In game theory, the result of all players' playing their best strategy given what their competitors are doing. |
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| In game theory, a strategy chosen to maximize the minimum gain that can be earned. |
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| A repeated game strategy in which a player responds in kind to an opponent's play. |
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| Extended the government's authority to control mergers. |
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Term
| Herfindahl-Hirschman Index (HHI) |
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Definition
| An index of market concentration found by summing the square of percentage shares of firms in the market. |
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Definition
| A common form of industry structure in the United States, characterized by a large number of firms, no barriers to entry, and product differentiation. |
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| A strategy that firms use to achieve market power. Accomplished by producing products that have distinct positive identities in consumers' minds. |
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| Horizontal Differentiation |
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Definition
| Products differ in ways that make them better for some people and worse for others. |
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| A branch of economics that use the insights of psychology and economics to investigate decision making. |
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| Actions that individuals take in one period to try to control their behavior in a future period. |
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| A product difference that, from everyone's perspective, makes a product better than rival products. |
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| Occurs when resources are misallocated or allocated inefficiently. |
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| A cost or benefit imposed or bestowed on an individual or a group that is outside, or external to, the transaction. |
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Term
| Marginal Social Cost (MSC) |
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Definition
| the total cost to society of producing an additional unit of a good or service. Equal to the sum of the marginal costs of producing the product and the correctly measure damage costs involved in the process of production. |
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Term
| Marginal Private Cost (MPC) |
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Definition
| The amount that a consumer pays to consume an additional unit of a particular good. |
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Term
| Marginal Damage Cost (MDC) |
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Definition
| The additional harm done by increasing the level of an externality-producing activity by 1 unit |
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| Under certain conditions, when externalities are present, private parties can arrive at the efficient solution without government involvement. |
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| A court order forbidding the continuation of behavior that leads to damage. |
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| Laws that require A to compensate B for damages imposed. |
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| Goods that are nonrival consumption and/or their benefits are nonexcludable |
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| A characteristic of public goods: One person's enjoyment of the benefits of a public good does not interfere with another's consumption of it. |
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| A characteristic of most public goods: Once a good is produced, no one can be excluded from enjoying its benefits. |
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| a problem intrinsic to public goods: because people can enjoy the benefits of public goods whether or not they pay for them, they are usually unwilling to pay for them. |
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| Drop-in-the-bucket problem |
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Definition
| A problem intrinsic to public goods: the good or service is usually so costly that its provision generally does not depend on whether any single person pays. |
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| Optimal level of provision for public goods |
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Definition
| The level at which society's total willingness to pay per unit is equal to the marginal cost of producing the good. |
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| An efficient mix of public goods is produced when local land/housing prices and taxes come to reflect consumer preferences just as they do in the market for private goods. |
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| The problem of deciding what society wants. The process of adding up individual preferences to make a choice for society as a whole. |
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| A proposition demonstrated by Kenneth Arrow showing that no system of aggregating individual preferences into social decisions will always yield consistent, nonarbitrary results. |
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| A simple demonstration of how majority rule voting can lead to seemingly contradictory and inconsistent results. A commonly cited illustration of the kind of inconsistency described in the impossibility theorem. |
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| Occurs when congressional representatives trade votes, agreeing to help each other get certain pieces of legislation passed. |
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| The stock of knowledge, skills, and talent that people possess; it can be inborn or acquired through education and training. |
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| Compensating differentials |
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Definition
| differences in wages that result from differences in working conditions. risky jobs usually pay higher wages; highly desirable jobs usually pay lower wages. |
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| the lowest wage that firms are permitted to pay workers |
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| income from the ownership of real property and financial holdings. it takes the forms of profits, interest, dividends, and rents. |
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| payments by governments to people who do not supply goods or services in exchange. |
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| the amount of money a household can spend during a given period without increasing or decreasing its net assets. wages, salaries, dividends, interest income, transfer payments, rents, and so on are sources of economic income. |
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| the measure of income used by the Census Bureau. Because money income excludes noncash transfer payments and capital gains income, it is less inclusive than economic income. |
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| A widely used graph of the distribution of income, with cumulative percentage of households plotted along the horizontal axis and cumulative percentage of income plotted along the vertical axis. |
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| A commonly used measure of the degree of inequality of income derived from a Lorenz curve. It can range from 0 to a maximum of 1. |
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| The officially established income level that distinguishes the poor from the nonpoor. It is set at three times the cost of the Department of Agriculture's minimum food budget. |
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Term
| Utility Possibilities frontier |
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Definition
| A graphic representation of a two-person world that shows all points at which I's utility can be increased only if J's utility is decreased. |
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Definition
| The idea that "a dollar in the hand of a rich person is worth less than a dollar in the hand of a poor person." If the marginal utility of income declines with income, transferring income from the rich to the poor will increase total utility. |
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| A theory of distributional justice that concludes that the social contract emerging from the "original position" would call for an income distribution that would maximize the well-being of the worst-off member of society. |
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Definition
| Stated most simply, the theory that the value of a commodity depends only on the amount of labor required to produce it. |
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Definition
| The federal system of social insurance programs. Has 3 separate programs each funded differently. |
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Term
| Public assistance, or welfare |
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Definition
| Government transfer programs that provide cash benefits to: 1) families with dependent children whose incomes and assets fall below a very low level and 2) the very poor regardless of whether they have children. |
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| Unemployment Compensation |
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Definition
| A state government transfer program that pays cash benefits for a certain period of time to laid-off workers who have worked for a specified period of time for a covered employer. |
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| In-kind government transfer programs that provide health and hospitalization benefits: Medicare to the aged and their survivors and to certain of the disabled, regardless of income, and Medicaid to people with low incomes. |
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Definition
| Vouchers that have a face value greater than their cost and that can be used to purchase food at grocery stores. |
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Definition
| the situation when a country exports more than it imports. |
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| The situation when a country imports more than it exports. |
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Definition
| The tariffs, subsidies, and restrictions enacted by the British Parliament in the early nineteenth century to discourage imports and encourage exports of grain. |
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| Theory of Comparative Advantage |
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Definition
| Ricardo's theory that specialization and free trade will benefit all trading partners (real wages will rise), even those that may be absolutely less efficient producers. |
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| The advantage in the production of a good enjoyed by one country over another when it uses fewer resources to produce that good than the other country does. |
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| The advantage in the production of a good enjoyed by one country over another when that good can be produced at a lower cost in terms of other goods than it could be in the other country. |
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| The ratio at which a country can trade domestic products for imported products. |
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| The ratio at which two currencies are traded. The price of one currency in terms of another. |
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| The quantity and quality of labor, land, and natural resources of a country. |
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| A theory that explains the existence of a country's comparative advantage by its factor endowments. A country has a comparative advantage in the production of a product if that country is relatively well endowed with inputs used intensively in the production of that product. |
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| The practice of shielding a sector of the economy from foreign competition. |
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| Government payments made to domestic firms to encourage exports. |
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| A firm's or an industry's sale of products on the world market at prices below its own cost of production. |
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| A limit on the quantity of imports. |
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| The U.S. tariff law of the 1930's, which set the highest tariffs in U.S. history (60%). It set off an international trade war and caused the decline of trade that is often considered one of the causes of the worldwide depression of the 1930's. |
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Term
| General Agreement on Tariffs and Trade |
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Definition
| An international agreement signed by the United States and 22 others in 1947 to promote the liberalization of foreign trade. |
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| A negotiating forum dealing with rules of trade across nations. |
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| An initiative of the World Trade Organization focused on issues of trade and development. |
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| Occurs when two or more nations join to form a free-trade zone. |
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| The European trading bloc composed of 27 countries. |
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| U.S.-Canadian Free Trade Agreement |
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Definition
| An agreement in which the United States and Canada agreed to eliminate all barriers to trade between the two countries in 1998. |
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Term
| North American Free Trade Agreement (NAFTA) |
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Definition
| An agreement signed by the United States, Mexico, and Canada in which the three countries agreed to establish all North America as a free-trade zone. |
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Term
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Definition
| A young industry that may need temporary protection from competition from the established industries of other countries to develop an acquired comparative advantage. |
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