Econ 201

Front 1

Deadweight loss

Back 1

caused by a policy is the reduction in economic surplus that results from adoption of that policy.

Front 2

Pareto Efficient

Back 2

A situation is effecient if no change is possilbe that will help some people without harming others

Front 3

Accounting profit

Back 3

The difference between a firms total revenue and its explicit costs

Front 4

Economic Profit

Back 4

The difference between a firms total revenue and the sum of its explicit and implicit costs, also called excess profit

Front 5

Allocative function of price

Back 5

Changes in prices direct resources away from overcrowded markets and toward markets that are underserved.

Front 6

Rational function of price

Back 6

Changes in prices distribute scarce goods to those consumers who value them most highly.

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Barrier to entry

Back 7

Any force that prevents firms from entering a new market

Front 8

economic rent

Back 8

The part of the payment for a factor of production that exceeds the owners reservation price, the price below which the owner would not supply the factor.

Front 9

Explicit costs

Back 9

The actual payments a firm amkes to its factors of production and other suppliers

Front 10

Implicit costs

Back 10

The opportunity costs of the resources supplied by the firms owners

Front 11

Normal profit

Back 11

The opportunity cost of the resources supplied by the firms owners; Normal profit= Accounting Profit- Economic profit

Front 12

Present value

Back 12

For an annual interest rate r, the present value (PV) of a perpetual annual payment (M) is the amount that would have to be deposited today at that interest rate to generate annual interest earnings of M: PV=M/r

Front 13

time value of money

Back 13

The fact that a given dollar amount today is equivalent to a larger dollar amount in the future because the money can be invested in an interest bearing account in the meantime.

Front 14

Economies of scale

Back 14

a

Front 15

Hurdle method of price discrimination

Back 15

THe practice by which a seller offers a discount to all buyers who overcome some obstacle

Front 16

Imperfectly competitve firm

Back 16

A firm that has at least some control over the market price of its product

Front 17

Marginal revenue

Back 17

The change in a firms total revenue that results from a one unit change in output

Front 18

Market power

Back 18

A firms ability to raise the price of a good without losing all its sales

Front 19

Monopolistic competition

Back 19

Industry struture in which a large number of firms produce slightly differentiated products that are reasonably close substitutes for one another

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Natural monopoly

Back 20

A monopoly that results from economies of scale

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Oligopoly

Back 21

An industry structure in which a small number of large firms produce products that are either close or perfect substitutes

Front 22

Perfectly discriminating monopoly

Back 22

A firm that charges each buyer exactly his or her reservation price

Front 23

Price discrimination

Back 23

The practice of charging different buyers different prices for essentially the same good or service.

Front 24

Price setter

Back 24

A firm with atleast some latitude to set its own price

Front 25

Cartel

Back 25

A coalition of firms that agree to restrict output for the purpose of earning an economic profit

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Commitment device

Back 26

A way of changing incentives so as to make otherwise empty threats or promises

Front 27

Credible promise

Back 27

A promise to take an action that is in the promisers interest to keep

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Credible threat

Back 28

A threat to take an action that is in the threateners interst to carry out

Front 29

Decision tree

Back 29

A diagram that describes the posible moves in a game in sequence and lists the payoffs that correspond to each possible comibation of moves

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Dominant strategy

Back 30

One that yields a higher payoff no matter what the other players in the game choose

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Dominated strategy

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Any other strategy available to a player who has a dominate strategy

Front 32

Nash equilibrium

Back 32

Any combination of strategy choices in which each player's choice is his or her best choice, given the other player's choices

Front 33

payoff matrix

Back 33

A table that describes the payoffs in a game for each possible combination of strategies.

Front 34

Prisoners Dilemma

Back 34

A game in which each player has a dominant strategy and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategy

Front 35

Tit for Tat

Back 35

A strategy for the repeated prisoners dilemma in which players cooperate on the first move then mimic their partners last move on each successive move.