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159 Cards in this Set
- Front
- Back
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Economics |
The careful management of scarce resources to avoid waste |
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Goods |
Physical Objects people want and need |
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Services |
Non-physical activities |
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Microeconomics |
Focus on the actions of individuals in a market |
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Macroeconomics |
A wide-ranging view of the economy |
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Scarcity |
Finite nature of resources (Time and Money) |
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Natural Resources |
Resources that come from nature |
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Capital resources |
Processed material, buildings and equipment used in manufacturing (CAPITAL) |
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Financial Capital |
Stocks, bonds, shares (not physical stuff) |
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Human resources |
Human labour as well as human entrepreneurship |
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Wants |
Things consumers desire to have but aren't totally necessary (Infinite) |
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Needs |
Things consumers need to survive |
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Resource allocation |
Assigning resources to specific purposes (using money to make cars or steak) |
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Reallocation |
Changing the assignment of resources |
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Over-allocation |
Assigning too much of a resource to one purpose |
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Distribution of Income |
The difference in incomes that people in society have and how it affects the buying power of those people |
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Physical Capital |
Man-made capital to increase production (machines) |
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Human Capital |
The skills, abilities, and knowledge of people that make them more productive |
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Natural Capital |
Environmental capital that needs to survive in order for us to continue producing in the future (soil, air, climate, etc) |
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Opportunity cost |
When one opportunity is taken, the other ones are sacrificed. The ones sacrificed are the opportunity cost. The value of taking one opportunity over another. |
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PPC |
Production Possibilities Curve, a curve that shows the possible quantity of 2 different products in the case where all of the society's resources are put to use. (Refer to slide 29 of Chap 1.1 powerpoint) |
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Ceteris Paribus |
When looking for the relationship between 2 variables, it assumes that other variables are constant |
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Positive statements |
Explains how things actually work |
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Normative statements |
Explains how things should work |
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Economic Development |
raising the standard of living |
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Sustainable development |
Development that meets the needs of the present without screwing up the future |
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Sustainability |
Using resources in a way that doesn't decrease their quantity in the future, gov't uses Legislation, Carbon taxes, Cap and trade schemes, and fund for clean tech |
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Traditional Economy |
Differing jobs between sexes, mostly used in rural areas |
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Market Economy |
Resources are owned privately, consumers and businesses make the economic choices, agreements between sellers and buyers |
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Command Economy |
Government controls which products are produced and the quantity of those products |
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Mixed Economy |
Where there are aspects of both Command and Market economy, governments interfere a bit (taxes, subsidies, etc) |
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Economic Efficiency |
Getting the most out of limited resources |
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Income equity |
Sharing the income fairly |
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Price stability |
Reducing inflation |
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Economic Equity |
Same as Income Distribution, making income distribution fairer |
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Market |
An arrangement where buyers and sellers interact |
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Local market |
A market of only a community |
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Global market |
A market involving the world |
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Product market |
A market to sell goods/services |
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Competition |
Where rival businesses compete to sell more goods and make more money |
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Market/Monopoly power |
The ability to change the prices of a market |
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Demand |
The willingness a buyer is to buy something at a certain price |
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Marginal Benefit |
A measure of the benefit that one additional good/service does to the buyer |
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Market demand |
The demand of the entire market |
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Normal Goods |
Goods whose demand rises when income rises |
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Inferior goods |
Goods whose demand drops when income rises |
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Substitute good |
A good that can be used instead of another |
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Complementary goods |
Goods that are usually paired/bought with another good |
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Supply |
The amount a business is willing to produce at a certain price |
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Market supply |
Supply of the entire market |
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Market equilibrium |
The point where market supply and demand intersect. The place where buyers and sellers are most happy |
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Surplus |
When the quantity of a good supplied is greater than what should be supplied for market equilibrium |
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Shortage |
When the quantity of a good supplied is less than what should be supplied for market equilibrium |
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Allocative efficiency |
When firms are producing the exact number of products that society wants |
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Productive efficiency |
When firms use minimum resources to make maximum products |
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Consumer surplus |
Max price consumers are willing to pay - what consumers actually pay |
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Producer surplus |
What producers are selling for - the min price they are willing to sell for |
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Marginal Cost |
The cost to produce 1 more product |
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Social surplus |
Consumer + producer surplus, Maxed at equilibrium |
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PED |
How much demand changes based on price PED = Delta Q/average Q divided by Delta P/average P |
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Determinants of PED |
Number and closeness of substitutes, Necessity or Luxury, Length of time, Proportion of Income spent |
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Total Revenue |
PxQ |
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Profit |
TR - Cost |
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Primary Commodities |
Goods from natural resources, inelastic PED, but price volatility |
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XED |
Effect of a price change in one product affecting another's demand and shows closeness of product. (Price change of one/Demand change of other) Positive = Substitute, Negative = Compliment, 0 = Unrelated |
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Merger |
When 2 firms merge to form 1 firm |
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YED |
How much demand changes based on income change. (Percent change in demand/Percent change income). Positive = Normal. Negative = Inferior |
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PES |
Change in supply based on change in price (Percent change in supplied/percent change in price), in short run, usually pretty inelastic |
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Indirect Taxes |
Taxes imposed on spending on goods/services |
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Excise taxes |
Taxes that are imposed on specific goods |
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Taxes on Spending on all/most |
Regular spending taxes |
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Direct tax |
Citizens pay taxes to gov't |
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Specific taxes |
A fixed amount per unit sold |
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Ad Valorem taxes |
A fixed percentage of price of good/service |
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Stakeholders |
People affected by the choices of a company |
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Welfare loss |
Social surplus that is lost due to taxes, subsidies or externalities aka deadweight loss |
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Tax incidence |
Which side (Consumer or producer) takes the heaviest load of tax |
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Subsidy |
When the gov't gives firms money or some other perk per unit made. Lowers cost of production and increase revenue and encourage producers to keep producing, encourage exports, and growth |
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Price controls |
Max/min prices set by gov't for products, do not let market settle to equilibrium |
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Price ceiling |
A max price for something, set below an equilibrium price, causes a shortage and welfare loss and requires non-price rationing. |
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Non-price rationing |
Rationing limited goods without using price (lines, Coupons, favoured customers, etc) |
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Underground/Parallel Markets |
Illegal trade of goods above the legal limit |
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Price floor |
A minimum price limit that causes surplus, aka price supports, gov't has to buy and dispose of surplus, can cause firm inefficiency, and not equilibrium, welfare loss |
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Market Failure |
Failure of the Market to allocate resources efficiently |
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Externality |
When the actions of consumers or producers can positively or negatively affect others |
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MPC |
Marginal Private Costs: cost to producers to produce another good |
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MSC |
Marginal Social Costs: cost to society to produce another good |
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MPB |
Marginal Private Benefit: benefit to consumers for consuming another unit of good |
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MSB |
Marginal Social Benefit: Benefit to society if one more unit of good is consumed |
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Negative Production Externality |
When it costs society more to produce 1 more good than it costs the firm. Too much good produced. Corrected with taxes, tradable permits |
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Negative Consumption Externality |
When it costs society more than it does for the consumer to consume 1 more unit of good. Too much good consumed. Corrected with Gov't Regulations, Ads, or Taxes |
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Demerit good |
a good that is undesirable to consumers but overprovided |
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Positive Production externality |
When society benefits more than a producer benefits when a good is produced, not enough goods produced, corrected with gov't provision or subsidies |
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Positive Consumption externality |
When society benefits more than a consumer does when consuming a good. Not enough good consumed. Corrected with Legislation, Ads, or direct gov't provision, or subsidy |
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Merit good |
Goods that are desirable but underprovided |
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Private goods |
Rivalrous (consumption by one person makes it unavailable for another) and Excludable (costs money) |
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Public Good |
Not a private good, under-allocation cuz firms can't make money off of it so no one wants to do it. Corrected by gov't provision (only if its worth) |
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Free Rider problem |
People can use the good without paying for it |
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Quasi-public goods |
Goods that have attributes of both private and public goods |
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CAS |
Common Access Resources (Rivalrous but not excludable), can be overused. Corrected like a neg. externality |
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Pollution of Affluence |
When rich countries pollute a lot |
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Pollution of Poverty |
When poor countries pollute to stay alive |
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Asymmetric Information |
When buyers and sellers don't know the same thing. Dealt with regulations, provision of information, Licensure, |
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Adverse selection |
When buyers know themselves better than sellers do (Problem about insurance) |
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Monopoly |
Market structure where 1 firm dominates market |
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Oligopoly |
Market structure where a few firms dominate market |
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Monopoly/Oligopoly power |
Ability for the firm to control price, dealt with regulations and legislation, Nationalization, and Trade liberalism |
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Government Failure |
When governments intervene, and the result is less efficient |
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Short Run |
When at least 1 input is fixed and can't change |
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Long Run |
When all inputs can be changed |
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TP |
Total product produced |
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Marginal Product |
The amount of output that can be made with 1 additional variable input unit. |
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Average Product |
Average quantity of output per unit of variable input |
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The law of diminishing returns |
As more Variable input is added, Marginal product first increases, then decreases |
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Costs of production |
The capital used in production |
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Economic costs |
Production Cost/Opportunity Cost |
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Explicit Cost
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direct payment made to others for running a business |
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Implicit cost |
Opportunity cost = to what a firm must give up to use a factor of production that it already owns (and no rent) OR The sacrificed income from the use of self-owned resources |
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Economic costs |
Implicit plus explicit |
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Fixed Costs |
Costs of fixed inputs |
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Variable costs |
Costs of variable inputs |
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Total costs |
Variable and fixed costs put together |
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Average cost |
Total cost/units of output |
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Marginal costs |
Costs to produce 1 extra output |
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Constant Returns to scale |
Output increases at same proportion as all inputs |
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Increasing returns to scale |
Output increases more than proportion increase in inputs |
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Decreasing returns to scale |
Output goes up less than proportion of input up |
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Long-run average total costs |
Lowest possible average cost that can be attained |
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Economies of scale |
Decreases in average cost of production in long run as firm ups input (Specialization of labour, specialization of management, Efficiency of capital equipment, indivisibility of capital equipment, Indivisibilities of efficient processes, Spreading of certain costs over larger volumes of output) |
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Increasing returns to scale |
Output increases more than in proportion to the increase in all inputs |
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Diseconomies of scale |
When average cost of production increases as inputs increase (Coordination and monitoring activities, Communication difficulties, Poor worker motivation) |
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Decreasing returns to scale |
Output goes up less than input |
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Revenue |
Payments firms receive by selling things over time |
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Total revenue |
PxQ |
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Marginal revenue |
Additional revenue by selling 1 more thing |
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Average revenue |
TR/quantity of output sold |
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Profit |
TR-TC |
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Normal profit |
0 money gain TR = TC aka break even point |
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Supernormal profit |
aka abnormal profit TR>TC |
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Negative Economic Profit |
TC>TR |
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Profit maximization |
Maxing profit |
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revenue maximization |
maxing revenue |
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Growth maximization |
Maxing growth of firm |
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Utility Maximization |
Maxing/developing utilities |
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Satisficing |
achieve satisfactory results |
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CSR |
Corporate social responsibility (business can't be a dick to society) |
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Industry |
A group of firms who produce similar things |
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Market structure |
Characteristics of market organization (Perfect comp. Monopoly. Monopolistic comp, OLIGOPOLY) |
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price taker |
When firm as 0 monoply power |
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Game theory |
Using math to predict firms' behaviour |
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Nash Equilibrium |
Conflict in self interest and firm interest |
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Collusion |
When 2 firms agree to fix prices/quantity produced |
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Cartel |
Formal collusion |
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Price leadership |
Informal collusion |
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Price Discrimination |
Charging different prices for same product for different consumers |
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First Degree price discrimination |
Charging the max price a consumer is willing to pay (Plane) |
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2nd degree price discrimination |
Charging different prices based on quantity (Bulk shops) |
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3rd degree price discrimination |
Charging different prices based on particular market segments (Time used, age, income group) (MOOOOOOVIES) |
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4th degree price discrimination |
Reverse price discrimination (Producer faces different costs, but consumer faces same costs) (Clothes) |
