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85 Cards in this Set
- Front
- Back
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accounting costs
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part of total costs; includes only actual money expenditures
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accounting profit
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profit that does not include opportunity costs
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average cost
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total production costs divided by quantity produced; total production cost of one input
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barriers to entry
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prevents competitors from entering a market
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binding
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describes a price floor above the equilibrium price, or a price ceiling below the equilibrium price
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cartel
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what results when firms in an oligopoly agree to behave as a monopolist
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Coase Theorem
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theory that any private market can resolve externalities given low negotiation costs and clearly defined property rights
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collusion
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a situation in which firms in an oligopoly make decisions as one
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complement
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two goods for which a rise in the price of one leads to the decline in demand for another
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consumer surplus
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surplus that consumers receive when buying something at a lower value than they would be willing to pay
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contracts
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agreements entered into voluntarily
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contrived scarcity
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deliberate under-provision of a good by a monopolist, increasing prices above the market equilibrium
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creative destruction
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when old practices or goods disappear in favor of newer, more efficient, better goods that increase social welfare
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deadweight loss
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reduction in social welfare that results from a distortion of the market, such as government intervention
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demand curve
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diagram of quantity demanded against a good's price
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demand schedule
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table depicting the quantity demanded of a good at certain prices
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economic costs
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the total cost of producing a good, including opportunity cost
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economic profit
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difference between the revenue a producer receives and the opportunity cost of producing the good
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elasticity
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percent change in quantity due to a percent change in price
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entrepreneurs
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individuals who take on risk when creating new goods and services, and are rewarded with economic profits
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equilibrium
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in economics, the single combination of price and quantity where a market settles (intersection of supply/demand curve)
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excludability
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ability to prevent someone from consuming a good
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externalities
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when the actions of one person affects another's well-being, but neither party pays or is paid for these effects
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firms
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the economic actors who supply goods and services for an economy
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fixed costs
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costs that cannot be changed in the short run
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homogenous
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when goods are exactly the same as each other
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imperfectly competitive
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markets with only one or a few suppliers
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inferior goods
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goods for which quantity demanded falls as income rises
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innovate
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what entrepreneurs do in an attempt to establish market power
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institutions
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formal (and informal) rules that govern human interactions
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internalize
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accounting for externalities' cost and benefits in market decisions
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law of demand
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negative relationship between price and quantity demanded
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law of supply
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positive relationship between price and quantity supplied
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logrolling
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vote trading by legislators to gain support for pet projects
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marginal cost
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the additional cost of producing one more of a good
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marginal revenue
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the additional revenue of selling one more of a good
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marginal tax
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tax that creates "price wedge" between consumers and producers
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market
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composed of all the buyers and sellers of a good
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market demand curve
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relationship between quantity demanded of a good and its price; obtained by adding the quantities demanded by all buyers
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market failure
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lack of a socially desirable outcome in competitive markets
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market power
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firms with a downward sloping demand curve that can choose from combinations of price and quantity determined by market demand
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market supply curve
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shows relationship between quantity supplied of a good and its price; obtained by adding the quantities supplied by all firms
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microeconomics
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branch studying supply and demand within markets
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monopolistic competition
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combines parts of the monopoly and perfectly competitive models; firms sell similar, but differentiated, products
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monopoly
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a market with only one supplier
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negative externalities
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externalities that harm third parties
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normal goods
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goods whose quantity demanded rises as income rises
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oligopoly
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a market with a small number of sellers; often involves collusion
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organizations
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institutions that have formal rules and structures for interactions
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perfect price discrimination
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when firms can sell their product to each customer at the exact value the customer placed on the product
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perfectly competitive market
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market characterized by price taking behavior, homogenous goods, no barriers to entry, no transaction costs, and perfect infomation
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perfectly price-elastic
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a characteristic in which increasing prices above equilibrium results in nothing supplied or demanded, and decreasing prices results in an infinite amount being supplied or demanded; purely theoretical
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perfectly price-inelastic
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a characteristic in which prices can be raised or lowered without changing the quantity demanded or supplied; on the demand side, purely theoretical
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pork barrel politics
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the tendency for elected officials to steer money into their constituents via pet projects
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positive externalities
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externalities that benefit third parties
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price ceilings
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a maximum price on a good
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price controls
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limits on the prices of a good
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price elasticity of demand
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measures how much the quantity demanded of a good responds to changes in price
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price elasticity of supply
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degree to which the quantity supplied by a good responds to changes in price
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price floors
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the minimum price of a good
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price taker
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for a perfectly competitive market; when buyers and sellers must accept the market price
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price-elastic
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goods where a change in prices results in a greater change in quantity
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price-inelastic
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goods where a change in price results in a lesser change in quantity
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producer surplus
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the surplus that producers receive when selling something for more than they would be willing to
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product differentiation
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distinguishing between different goods that serve the same purpose in the same market
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property
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social institution that allows an individual exclusive use of a good
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quantity demanded
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the amount of a good that consumers are willing and able to buy
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quantity supplied
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the amount of a good that suppliers are willing and able to produce
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quota
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a numerical limit on how much of something is allowed
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rent seeking
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socially unproductive activities that redirect economic benefits
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revenue
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what firms receive from selling goods
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rivalry
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goods whose quantity is reduced when consumed by one person
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shortage
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when quantity demanded exceeds quantity supplied; often happens with an effective price ceiling
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specialization
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when individuals and countries focus on producing what they produce best (for the lowest opportunity cost relative to others)
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substitute
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goods for which an increase in the price of one increases the demand of the other
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supply curve
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diagram of quantity supplied of a good and that good's price
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supply schedule
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a table depicting the quantity supplied of a good at certain prices
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surplus
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when quantity supplied exceeds quantity demanded; often happens with an effective price floor
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tax revenue
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the tax per unit times the quantity of units; sits as a rectangle between producer and consumer surplus
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total costs
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the comprehensive cost of supplying a good or service
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total market surplus
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the sum of producer and consumer surplus; the total benefit market participants receive from buying and selling
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total revenue
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equal to equilibrium price times equilibrium quantity; shown graphically as a rectangle
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tragedy of the commons
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when a resource that is owned jointly is overused because no one accounts for negative externalities caused by overuse
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unit elastic
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when a 1% change in price results in a 1% change in quantity
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variable costs
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costs that can be altered in the short run
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