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137 Cards in this Set

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area of decreasing marginal cost
Any quantity of production before the minimumpoint on the marginal cost function; i.e., beforethe inflection point on the total cost function.The area of increasing returns.
Area of decreasing returns
Any quantity of production beyond the point of diminishing returns. The area of increasing marginal cost.
area of increasing marginal cost
Any quantity of production beyond the minimum point on the marginal cost function; i.e., beyond the inflection point on the total cost function.The area of decreasing returns.
area of increasing returns
Any quantity of production before the point of diminishing returns. The area of decreasing marginal cost
artificial barrier to trade
A non-economic barrier to a market such as a union contract, an intellectual property law, or crime.
asymptote
A function which continuously approaches a line or axis without meeting it at any finite distance; e.g., an indifference curve or average fixed cost function. Technically, a tangent at infinity.
asymptotic
What happens if you get scared half-to-death -- twice.
auction with reserve
The seller reserves the right to influence the price by setting a minimum price, using a shill, or withdrawing the item prior to the falling of the gavel.
average costs (AC)
Total costs (TC) divided by the number of units produced (q).
average fixed cost function
An asymptote found by dividing fixed cost by the number of units produced.
black market
An illegal transaction; i.e., the sale of a prohibited good or service.
break-even point
Where total revenue (TR) equals total cost (TC).
capacity point
The optimal level of production, when all factors of production are being employed at their highest and best use. The minimum point on the average cost curve.
capitalism
A legal system that safeguards private property and permits free enterprise without government interference.
cardinal numbers
Numbers that assign specific value; e.g., 1, 2, 10. (see ordinal numbers)
cartel
A syndicate of two or more firms that divide up the market (by geography, quantity, or product differentiation) for the purpose of colluding. (see collusion)
caveat emptor
(Latin) In business, let the buyer beware. In economics, this term encapsulates the essence of the market system; i.e., that everyone must be responsible for his or her own economic decisions.
ceteris paribus
Latin) All else remains constant. Examining the changes in two or three variables while assuming that all other variables do not change.
collusion
Two or more firms acting in concert to manipulate the market to their benefit, thereby adversely affecting the consumer. (see mergers and acquisitions, cartel, and price fixing)
complementary goods
When the use of one good requires the use of another ; i.e., they are mutually dependent. (see substitution good, factor good, and interdependent markets)
concave vs. convex
A description of a curvilinear function as per its relationship to a point of reference. A bowl is concave relative to the ceiling, but convex relative to the table it sits on. The lunar surface is convex from the perspective of the earth, but concave relative to the center of the moon.
conspicuous consumption
Thorstein Veblen’s thesis that some goods are preferred to others because of their social implications; i.e., that prestige is afforded as a function of price.(see reverse substitution effect)
constant costs
Marginal costs (per unit) that remain the same regardless of the number of units produced
consumer price line
The average revenue function; the demand curve.
consumer surplus
Utility received, but not paid for.
consumption good
A good or service used by the household sector. (see investment good)
demand
Both the ability and willingness to enter the market at some specific price. (see effective demand)
differentiated products
Competitive goods made different by physical characteristics or distinguished by advertising. (see homogenous products)
diminishing marginal utility
(see law of diminishing marginal utility
Duopoly
Two producers.
Dutch auction
A reverse auction, where the offering price begins high and proceeds down until there is a buyer
effective demand
Both the ability and willingness to pay the current market price. (see demand)
elasticity
Responsiveness of a dependent variable to a change in an independent variable.In economics, Q = f (P)
entitlement
A unilateral transfer payment from the government to the household sectorrequired by law. (see unilateral transfer payment and welfare)
entrepreneurial capacity constraint
Milton Friedman’s explanation of how decreasing cost industries eventually experience diminishing returns when “reach exceeds the grasp” of the CEO. When an organization becomes so vertical that a decision to innovate becomes confused in communication, enthusiasm for change lost in translation, and feedback from subordinates too muffled to be heard
equilibrium price
The price that clears the market; i.e., the price at which the quantity supplied equals the quantity demanded. The quintessence of supply and demand theory.
equilibrium theory
Leon Walras’ synthesis of two disparate mathematical concepts; i.e., supply and demand. Arguably the most important natural law of economics, whether applied to a market (partial equilibrium) or an economy (general equilibrium).
excess profit
The accounting profit in excess of normal profit.
factor good
A good used in the production of another good. When a change in the market price of a good (e.g., autos) affects the market price of a factor good (e.g., steel), the two goods are said to be interdependent. (see intermediate good, factors of production, substitution good, complementary good, and interdependent markets)
fixed cost (FC)
A cost that is incurred regardless of the level of production; i.e., even if output were zero. The height of the total cost function; i.e., where TC crosses the vertical axis
fixed supply
Totally inelastic supply; i.e., the quantity supplied remains the same regardless of price.(see price taker)
free enterprise
A market that permits free entry and free exit by buyers and sellers. A market without artificial barriers to trade. (see free entry and free exit)
free entry
The absence of artificial (non-economic) barriers to entering a market; e.g., patents, copyrights, trademarks, crime, tariffs, licenses, etc. (see free enterprise and free exit)
free exit
The absence of artificial (non-economic) barriers to leaving a market; e.g., government regulation,union contract, legal injunction, etc. (see free enterprise and free entry)
frontier line
production possibilities curve
Giffen good
inferior good
government paternalism
The condition that exists when the political leadership believes that the principle of caveat emptor cannot or should not be relied upon
height of a function
Where a function intersects the y-axis when x = 0
homogeneity
The condition that exists when all physical characteristics are identical
(Standardized)
homogenous products
Goods standardized by government regulation or industrial convention.(see differentiated products)
incidence of a tax
The ultimate burden of a tax. The tax paid that would otherwise be captured by the buyer or seller if there were no tax
income effect
When the price of a good is decreased and it thereby increases real income, and, as a result, the quantity demanded is increased. (see substitution effect, superior good, and reverse income effect)
income redistribution
The result of a change in government policy whereby one group or sector is made better off by making another group or sector worse off; e.g., a Robin Hood scheme
indifference curve
A function that shows how much of one good it takes to make someone ambivalent to a given amount of some other good. An asymptotic isoquant that assumes convexity, rationality, and transitivity
inferior good
A good that is bought in smaller quantities as real income increases, or vice versa; a Giffen good. (see superior good and reverse income effect)
inflection point
The point on a function where the course changes from clockwise (cw) to counterclockwise (ccw), or from ccw to cw. A point on a function formed by the tangency of two arcs. (see Note F, No 9)
interdependent markets
To the extent that a price change in one market affects either the supply or demand in another market, the two markets are said to be interdependent. (see complementary good, substitution good, and factor good)
isoquant
A curve that shows the various combinations of inputs that will produce the same amount of output
law of demand
Alfred Marshall’s law of downward sloping demand;i.e., the quantity demanded increases as the price decreases
law of diminishing marginal utility
law of diminishing marginal utility
law of substitution
The assumption in ordinal utility theory that the trading value of each unit increases as the number of units decreases. (see law of diminishing marginal utility)
long run
The time it takes to change all the factors of production.
luxury
In economics, a good for which the elasticity of demand is greater than one. (see necessity)
Madison Avenue
A euphemism for the advertising industry. The street in New York where most of the powerful advertising agencies once had their headquarters
marginal cost (MC, TC’ )
The change in total cost caused by the production of one additional unit
marginality
The concept of slope or differential calculus; also called the marginal function, the first derivative, y prime (y’), the rise over the run, et. Al
marginal revenue (MR, TR’
The change in total revenue caused by the sale of one additional unit.
marginal utility (MU, TU’ )
The change in total utility caused by the onsumption of one additional unit; the slope of TU. (see total utility)
market
All the potential buyers and sellers of a particular good or service. (see market price)
market price
The competitively arrived at price of one good, in one place, at one time.
mergers and acquisitions
In economics, explicit forms of collusion which may be scrutinized by the Anti-trust Division of the U.S. Justice Department for evidence of behavior that threatens competitive markets. (see collusion)
minimum average cost
The capacity point; i.e., an optimal level of production where output cannot be increased without increasing the average cost per unit. Where MC = AC. Where the slope of a vector from the origin is equal to the slope of the total cost function
minimum marginal cost
The inflection point on the total cost function; i.e., the point of diminishing returns
minimum price line
The marginal cost function; the price below which a rational producer will not sell.
minimum wage
Based on the Fair Labor Standards Act of 1938, the minimum compensation that may be agreed to by employers and employees
momentary period
In economics, when the market supply is fixed. (see short run and long run)
Monopoly
A single seller ; i.e., with no close substitutes
monopsony
A single buyer (Govt. buying submarines)
MPP (Marginal Physical Product)
Extra output. The difference between the current output and the previous output
MU/P ratio
Satisfaction per dollar spent. (see marginal utility)
MU/P ratio standard
The unique MU/P ratio that an individual consumer requires with each purchase
mutually exclusive vs. mutually dependent
(see substitution goods and complementary goods)
necessity
In economics, a good for which the elasticity of demand is less than one. (see luxury)
negative income tax
Milton Friedman’s proposal that would replace welfare entitlement programs with automatic payments from the IRS to those with incomes below the poverty line, thereby eliminating unnecessary bureaucracies
normal good
In demand theory, a good or service which has two characteristics, both of which are necessary conditions: a substitution effect and an income effect
normal profit
The amount of accounting profit required to maintain a business without attracting competitors
oligopoly
A few sellers
oligopsony
A few buyers
ordinal numbers
Numbers that assign rank; e.g., first, second, tenth. (see cardinal numbers)
OSHA
Occupational Safety and Health Administration
peak-load pricing
A legal form of price discrimination whereby buyers pay more during periods of high demand; e.g., airlines, telephones
perfect competition
Alfred Marshall’s theory of markets demonstrating that an economy will eventually optimize the use of its scarce productive resources if no single firm can significantly affect the market price, goods are standardized, and there are no artificial barriers to trade
point of diminishing returns
The minimum point on the marginal cost function.The inflection point on the total cost or variable cost function. The benchmark beyond which a business must go to maximize profits. (see law of diminishing returns
preliminary injunction
An order that may be issued at the outset of a case if the judge believes that the prima facie evidence is substantially valid and that the plaintiff will untilmately prevail against the defendant, thereby resulting in a permanent injunction
price discrimination
The act of inducing different buyers to pay different prices for the same good
price fixing
The elimination of price competition through illegal collusion, regulated monopolies, or government permitted “fair trade” pricing. (see collusion)
price line
(see consumer price line and producer price line)
price maker
The buyer if demand is totally elastic (e.g., wheat) or supply is totally inelastic (e.g., a rare painting); the seller if supply is totally elastic (e.g., paper clips) or demand is totally inelastic (e.g., salt). (see price taker)
price taker
The buyer if demand is totally inelastic or supply is totally elastic; the seller if supply is totally inelastic or demand is totally elastic. (see price maker)
prima facie
(Latin) At first view; so far as it first appears
producer price line
The marginal cost function; i.e., the minimum price the seller can charge and still cover marginal cost
production possibilities curve
The frontier line of maximum output possible when all available factors of production are fully employed at their highest and best use;i.e., when all goods and services are produced at the minimum average cost.
profit maximization point
Where marginal cost (MC) equals marginal revenue (MR).
profit theory
Any model that explains how a business enterprise maximizes profit. (see theory of the firm)
rationality
The assumption in ordinal utility theory that more is preferred to less
reverse income effect
When the price of a good is decreased and it thereby increases real income, and, as a result, the quantity demanded is decreased. (see income effect and inferior good)
reverse substitution effect
When the price of a good is increased and it thereby becomes an attractive alternative to another good previously purchased. (see substitution effect and conspicuous consumption)
satiation point
The point on a total utility function where satisfaction is maximized; i.e., where marginal utility equals zero.
Sherman Anti-Trust Act
The 1890 law that makes monopolistic restraint of trade illegal
shill
An agent of the seller.
Short-run
The time it takes to change some, but not all, factors of production. (i.e. when there are both fixed and variable inputs)
shut-down point
Where total revenue (TR) equals variable cost (VC)
standardized products
homogenous products
stare decisis
The decision stands. All future decisions must be in common with the previous decision.
Subsidy
A unilateral transfer payment from the government to the business sector. (see welfare)
substitution effect
When the price of a good is decreased and it thereby becomes an attractive alternative to another good previously purchased, and, as a result, the quantity demanded is increased. (see income effect and reverse substitution effect)
substitution good
When the use of one good precludes the use of another; i.e., they are mutually exclusive. (see complementary good, factor good, and interdependent markets)
superior good
A good that is bought in larger quantities as real income increases, or vice versa; i.e., a normal income effect. (see income effect and inferior good)
supply curve
A horizontal aggregation of marginal cost functions beyond the point of diminishing returns for all member firms in a market
Tariff
A tax on imports; i.e., a customs duty
Temporary Restraining Order (TRO)
This order may be issued ex parte (without the defendant) if the judge believes the alleged danger is imminent and potential damage irreparable
theory of the firm
Alfred Marshall’s profit theory; i.e., an explanation of how a business maximizes profit
tie-in-sales
A transaction whereby the initial sale (usually low-priced) requires an additional purchase of a related good or service only from the original seller; e.g., Polaroid cameras, video game systems, or home alarm services
total cost (TC)
Fixed cost (FC) plus variable cost (VC)
total revenue (TR)
Price times quantity
total utility (TU)
The total satisfaction derived from all units consumed. (see marginal utility)
transitive
Mathematically logical
unilateral transfer payment
A payment for which there is no return good or service. (see entitlement, welfare, and subsidy
Util
An introspective unit of satisfaction; i.e., a quantitative measure of utility that considers one’s own feelings
utility
The satisfaction derived from consuming a good or service
utility commission
A government agency, whose members, appointed by a governor, establish prices and service standards for natural monopolies such as water and power.
variable cost (VC)
A cost that is zero at zero production and increases as production increases
Welfare
A unilateral transfer payment made to the household sector. (see unilateral transfer payment, entitlement, and subsidy.)
welfare economics
The study of public policy from the perspective of consumer benefit
welfare effects
The ultimate impact of political, social, or economic behavior on price, quantity, average cost, excess profit, and, ultimately, consumer surplus
welfare effects
The ultimate impact of political, social, or economic behavior on price, quantity, average cost, excess profit, and, ultimately, consumer surplus
welfare triangle
Vilfredo Pareto’s description of consumer surplus. (see consumer surplus)