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75 Cards in this Set

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