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42 Cards in this Set
- Front
- Back
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Externality |
A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service |
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Private cost |
A producers or suppliers cost of providing a good or service |
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Social cost |
Includes both the private cost and the external cost of pollution |
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Private benefit |
The benefit recurved by the consumer of a good or service |
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Social benefit |
The total benefit from consuming a good or service including both the private benefit and any external benefit |
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Transaction costs |
The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services |
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Subsidy |
An amount paid to producers or consumers to encourage the production or consumption of a good |
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Pigovian tax |
Taxes and subsidies seen in the last few slides that “correct” the externality problem |
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Rivalry |
The situation that occurs when one persons consuming a unit of a good means no one else can consume it |
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Excludability |
The situation in which anyone who does not pay for a good cannot consume it |
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Price elasticity of Demand |
Percentage change in quantity demanded ——————————————— Percentage change in price |
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Price elastic |
If price elasticity of Demand is Larger than (absolute value) 1 |
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Price inelastic |
If it’s price elasticity of Demand is smaller (in absolute value) than 1 |
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Unit price elastic |
If the price elasticity of Demand is equal to (negative) 1 |
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Percentage change = |
(A-B) ———- (A+B) —— 2 |
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What determines the price elasticity of demand |
1. The availability of close substitutes 2. The passage of time 3. Wether the good is a luxury or a necessity 4. The definition of the market 5. The share of a good in a consumers budget |
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Total revenue |
The total amount of funds received by a seller of a good or service |
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Substitutes |
Goods and services that can be used for the same purpose |
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Substitutes |
Goods and services that can be used for the same purpose |
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Complements |
Goods and services that are used together |
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Cross-price elasticity of Demand |
Measures the strength of substitute or complement relationships between goods |
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Budget constraint |
The limited amount of income available to consumers to spend on goods and services |
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Marginal utility |
The amount by which it would change when consuming an extra unit of a good or service |
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Marginal utility |
The amount by which it would change when consuming an extra unit of a good or service |
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Law of diminishing marginal utility |
Consumers experience diminishing additional satisfaction as they consume more of a good |
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Income effect |
A price changes refers to the change in the quantity demanded of a good that results from the effect of the change in price on consumer purchasing power |
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Substitution effect |
Refers to the change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods |
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Network externalities |
Are situations in which the usefulness of a product increases with the number of consumers who use it |
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Network externalities |
Are situations in which the usefulness of a product increases with the number of consumers who use it |
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Sunk cost |
A cost that has already been paid and cannot be recovered |
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Technology |
The processes a firm uses to turn inputs into outputs of goods and services |
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Technological change |
A change in the ability of a firm to produce a given level of output with a given quantity of inputs |
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Short run |
A period of time during which at least one firms inputs is fixed |
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Short run |
A period of time during which at least one firms inputs is fixed |
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Long run |
No inputs are fixed |
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Variable cost |
Costs that change as output changes |
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Variable cost |
Costs that change as output changes |
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Fixed costs |
Costs that remain constant as output changes |
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Total cost formula |
TC=FC+VC |
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Explicit cost |
A cost that involves spending money |
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Implicit cost |
A non-monetary opportunity cost |
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Production function |
The relationship between the inputs employed and the maximum output of the firm |
