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75 Cards in this Set
- Front
- Back
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capital stock
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the total amount of capital in a nation that is productively useful at a particular point in time
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positive economics
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the study of how the economy works
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normative economics
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the study of what should be; is used to make value judgments, identify problems, & prescribe solutions
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opportunity cost
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what we must forgo when we make a choice
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explicit costs
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dollars paid
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implicit costs
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the value of something sacrificed when no direct payment is made
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PPF
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production possibilities frontiers- a curve showing all combinations of two goods that can be produced with the resources and technology currently available
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law of increasing opportunity cost
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the more of something we produce, the greater the opportunity cost of producing one more unit
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comparative advantage
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the ability to produce a good or svc @ a lower opportunity cost than other producers
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absolute advantage
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the ability to produce a good or svc using fewer resources than other producers use
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aggregation
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combining a group of distinct things into a whole
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imperfectly competitive market
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a market where a single buyer or seller has the power to influence the price of the product
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household's qty demanded
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the specific amount a household would choose to buy over some time period given 1)particular price 2)all other constraints on the household
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market qty demanded
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specific amount of a good that all buyers in the market would choose to buy ""
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Qty demanded
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1-implies choice
2-is hypothetical 3-depends on price |
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Law of demand
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as the price of a good rises, qty demanded decreases
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A change in price of good
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causes movement ALONG the demand curve
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A change in any variable that affects demand except price
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causes the curve to shift
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Factors that cause shift
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income, wealth, prices of related goods, population, expected price
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normal good
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a good that people demand more of as their income rises
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inferior good
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demanded less of as income rises
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change in qty demanded
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a movement along a demand curve in response to a change in price
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change in demand
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a shift of a demand curve in response to a change in some variable other than price
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firm's qty supplied
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the specific amount a firm would choose to sell over some time pd given 1)price 2) all other constraints on the firm
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factors that shift the supply curve
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-input prices
-price of related goods -# of firms -expected price -changes in weather or other natural events |
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alternate goods
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other goods that a firm could produce, using some of the same inputs as the goods in question
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equilibrium price
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the market price that, once achieved, remains constant until either the demand curve or supply curve shifts
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price ceiling
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a govn't imposed maximum price in a market- creates a shortage & increases the time & trouble required to buy the good
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short side of the market
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the smaller of quantity supplied and qty. demanded at a particular price
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price floor
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a govn't imposed min. price in a mkt (price support programs)
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price elasticity of demand
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the sensitivity of qty. demanded to price: the % change in qty dmd caused by a 1% change in price
E(d)% change in dmd / % chg in price |
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when calculating elasticities:
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the base value for % change in price or qty is ALWAYS midway between the initial & new values
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elastic
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elasticity >1
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inelastic
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elasticity w/ absolute value between 0 and 1
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perfectly inelastic
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elasticity 0
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elasticity of demand varies along a
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straight line demand curve. Demand becomes more elastic as we move upward & leftward
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perfectly (indefinetly) elastic
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a price elasticity of demand approaching minus infinity
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unitary elastic demand
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elasticity 1
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inverse of elasticity
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tells us the % rise in price that would bring about 1% decrease in qty demanded
1/E(d) |
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income elasticity of demand
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the % change in qty demanded caused by a 1% change in income
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economic necessity
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a good w/ an income elasticity of demand between 0 & 1
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economic luxury
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a good w/ an income elasticity of dem. >1
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cross price elasticity of demand
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the % change in the qty dmd of one good cause by a 1% chg in the price of another good
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price elasticity of supply
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the % chg in qty supplied of a good or svc caused by a 1% chg in it's price
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supply will tend to be more elastic when
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suppliers can switch to producing alternate goods more easily
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excise tax
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a tax on a specific good or svc. shifs sup curve up the amt of tax
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on the supply curve, the more elastic is demand:
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the more of an excise tax is paid by sellers, and vise versa
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on the demand curve, the more elastic is supply:
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the more of an excise tax is paid by buyers, and vise versa
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rational preferences
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preferences that satisfy 2 conditions 1)any two alternatives can be compared and one is preferred or the 2 are valued equally 2) the comparisons are logically consistent or transitive
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utility
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a quantitative measure of pleasure or satisfaction obtained from consuming goods & svcs
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marginal utility
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the change in total utility an individual obtains from consuming an additional unit of a good or svc.
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law of diminishing marginal utility
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as consumption of a good or svc increases, marginal utility decreases
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substitution effect
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as the price of a good falls, the consumer substitutes that good in place of other goods whose prices have not changed
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income effect
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as the price of a good decreases, the consumer's purchasing power increases
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production function
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a function that indicates the maximum amount of output a form can produce over some period of time from each combination of units
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long run
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a time horizon long enough for a firm to vary all of it's inputs
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fixed input
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an input whose quantity must remain constant
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variable input
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an input whose usage can change as the level of output changes
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total product
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the max qty of output that can be produce from a given combination of inputs
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marginal product of labor
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the additional input produced when more workers are hired
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increasing marginal returns to labor
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the marginal product of labor increases as more labor is hired
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law of diminishing marginal returns
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as more & more of any input is added to a fixed amount of other inputs, it's marginal product will eventually decline
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sunk cost
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should not be considered when making decisons
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total fixed costs
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the cost of all inputs that are fixed in the short run
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total variable cost
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the cost of all variable inputs used in producing a particular level of output
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average fixed cost
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the total fixed cost / the qty of output produced (per unit of output)
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average variable cost
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total variable cost / the qty of output produced
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average total cost
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total variable + fixed cost/ qty output
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marginal cost
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the increase in total cost from producing one more unit of output
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LRTC
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the cost of producing each qty of output when all inputs are variable & least cost input mix is chosen
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LRATC
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the cost of producing each qty of output in the long run, when all inputs are variable
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constant returns to scale
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LRATC is unchanged as output increases
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minimum efficient scale
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the lowest output level at which the firms LRATC curve hits bottom
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accounting profit
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total revenue minus costs (explicit costs only)
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economic profit
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total revenue minus all costs of production (implicit & explicit)
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