Micro Economics Chapter 10-12, 15,18-21

Front 1

Perfect competition

Back 1

occurs in an industry when the following four conditions are satisfied: Numerous small firms and customers, Homogeneity of a product, Freedom of entry and exit, Perfect information

Front 2

Price taker

Back 2

when a firm has no choice but to accept the price that has been determined in the market

Front 3

Short-Run equilibrium for Perfectly Competitive Firm

Back 3

MC = MR = P

Front 4

Short-Run profit for Perfectly Competitive Firm

Back 4

P>AC the firm will earn a profit; P

Front 5

Variable cost

Back 5

a cost whose total amount changes when the quantity of output of the supplier changes

Front 6

Supply curve of the perfectly competitive firm

Back 6

shows the different quantities of output that the firm would be willing to supply at different possible prices during some given period of time

Front 7

Supply curve of the perfectly competitive industry

Back 7

shows the different quantities of output that the industry would supply at different possible prices during some given period of time

Front 8

Economic profit

Back 8

equals net earnings, in the accountant's sense, minus the opportunity costs of capital and of any other inputs supplied by the firm's owner

Front 9

Long Run Equilibrium for Industry

Back 9

P = MC = AC --> zero economic profit in long run

Front 10

Long-run supply curve for perfectly competitive industry

Back 10

Equal to its long-run average cost curve

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Market

Back 11

A set of sellers and buyers whose activities affect the price of at which a particular commodity is sold

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Industry

Back 12

Group of firms that supply a market for a particular commodity

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Market Structure

Back 13

How the industry in a market is organized
that Affects the kind of competition a firm faces in the industry

- There are 4 kinds: Perfect competition, Monopoly, Monopolistic competition, Oligopoly

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Different Kinds of Market Structure are Based on

Back 14

-The number of firms in the industry
-Whether the products of the different firms are identical or different
-Ease of entry of new firms into the market

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The Perfectly Competitive Industry
-short run and long run for the industry

Back 15

SHORT RUN
-period of time too brief for new firms to enter the industry and for old firms to leave (the number of firms is fixed)
LONG RUN
-period of time long enough for firms to enter or leave

Front 16

Pure monopoly

Back 16

an industry in which there is only one supplier of a product for which there are no close substitutes and in which it is very difficult or impossible for another firm to coexist

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Barriers to entry

Back 17

attributes of a market that make it more difficult or expensive for a new firm to open for business than it was for the firms already present in the market. 7 Examples: 1. Legal restrictions; 2. Patents; 3. Control of a Scarce Resource or Input; 4. Deliberately Erected Entry Barriers; 5. Large Sunk Costs (most important type of "naturally imposed" barrier to entry); 6. Technical Superiority; 7. Economies of Scale

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Patents

Back 18

a privilege granted to an inventor, whether an individual or a firm, that for a specified period of time prohibits anyone else from producing or using that invention without the permission of the holder of the patent

Front 19

Natural monopoly

Back 19

an industry in which advantages of large-scale production make it possible for a single firm to produce the entire output of the market at a lower average cost than a number of firms each producing a smaller quantity

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Profit maximizing monopolist

Back 20

1. Find the output at which MR equals MC to select the profit-maximizing output level.
2. Find the height of the demand curve at that level of output to determine the corresponding price.
3. Compare the height of the demand curve with the height of the AC curve at that output to see whether the net result is an economic profit or a loss

Front 21

Monopoly profits

Back 21

any excess of the profits earned persistently by a monopoly firm over and above those that would be earned if the industry were perfectly competitive

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Price discrimination

Back 22

the sale of a given product at different prices to different customers of the firm when there are no differences in the costs of supplying these customers. Prices are also discriminatory if it costs more to supply one customer than another but they are charged the same price

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Cartel

Back 23

a group of sellers of a product who have joined together to control its production, sales, and price in the hope of obtaining the advantages of monopoly

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Credible threat

Back 24

a threat that does not harm the threatener if it is carried out. If a firm takes action to implement the threat, it becomes credible

Front 25

Dominant strategy

Back 25

for one of the competitors in a game the strategy that will yield a higher payoff than any of the other strategies that are possible, no matter what choice of strategy is made by competitors

Front 26

Excess capacity theorem of monopolistic competition

Back 26

Under monopolistic competition in the long run, the firm will tend to produce an output lower than that which minimizes its unit costs, and hence unit costs of the monopolistic competitor will be higher than necessary. Resulting Because the level of output that corresponds to minimum average cost is naturally considered to be the firm's optimal capacity. Thus, monopolistic competition tends to lead firms to have unused or wasted capacity

Front 27

Kinked demand curve

Back 27

a demand curve that changes its slope abruptly at some level of output

Front 28

Maximin criterion

Back 28

requires a player to select the strategy that yields the maximum payoff on the assumption that the opponent will do as much damage as it can

Front 29

Monopolistic competition

Back 29

refers to a market in which products are heterogeneous but which is otherwise the same as a market that is perfectly competitive

Front 30

Nash equilibrium

Back 30

results when each player adopts the strategy that gives the highest possible payoff if the rival sticks to the strategy it has chosen

Front 31

Oligopoly

Back 31

a market dominated by a few sellers, at least several of which are large enough relative to the total market to be able to influence the market price. example: Apple, HTC and Galaxy; ATT, Sprint and Verizon

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Payoff matrix

Back 32

shows how much each of two competitors (players) can expect to earn, depending on the strategic choices each of them makes

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Perfectly contestable market

Back 33

when entry and exit are costless and unimpeded (not hindered)

with Perfect Information present

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Price leadership

Back 34

an arrangement in which one firm in the industry, in effect, makes pricing decisions for the entire group

Front 35

Price war

Back 35

each competing firm is determined to sell at a price that is lower than the prices of its rivals, often regardless of whether that price covers the appropriate cost. Typically, in such a price war, Firm A cuts its price below Firm B's price; B retaliates by undercutting A; and so on until some of the competitor firms surrender and let themselves be undersold

Front 36

Repeated game

Back 36

a game that is played a number of times

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Sales maximization

Back 37

when a firm's objective seeks to adopt prices and output quantities that make its total revenue (the money value of its sales), rather than its profits, as large as possible. Set MR = 0 and find price on demand curve.

Front 38

Stick price

Back 38

if the price does not change often, even when there is a moderate change in cost

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Zero-sum game

Back 39

a game in which exactly the amount one competitor gains must be lost by other competitors

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agents

Back 40

people hired to run a complex enterprise on behalf of the principals, those whose benefit the enterprise is supposed to serve.

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excludable (excludability)

Back 41

A commodity is _______ if someone who does not pay for it can be kept from enjoying it.

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beneficial externality

Back 42

occurs when the consumption or production of a good causes a benefit to a third party. For example:When you consume education you get a private benefit. But there are also benefits to the rest of society. E.g you are able to educate other people and therefore they benefit as a result of your education.

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marginal private benefit (MPB)

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Additional benefit enjoyed by a household (or business) in actually consuming (or producing) a good.

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marginal private cost (MPC)

Back 44

Additional cost incurred by a household (or business) in actually consuming (or producing) a good.

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marginal social benefit (MSB)

Back 45

the total benefit to society, from one extra unit of a good.

The MSB = Marginal private benefit (MPB) + marginal external benefit (MXB)

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marginal social cost (MSC)

Back 46

the total cost to society as a whole for producing one further unit, or taking one further action, in an economy.

Front 47

moral hazard

Back 47

a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost

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PPF (Production Possibility Frontier)

Back 48

a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. It assumes that all inputs are used efficiently.

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private good

Back 49

a commodity that is purchased and used by one party and is not available to others

(characterized by both "depletable" (significant decrease in abundance) and excludable.)

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public good

Back 50

commodity or service whose benefits are not depleted by an additional user, even if people are unwilling to pay for the benefits. Examples: Beach or air

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rent seeking

Back 51

the use of a company, organization or individual's resources to obtain economic gain; firms hope to obtain earnings without contributing to production

Front 52

stock option

Back 52

contract that permits its owner to buy or sell a specified quantity of stocks of a corporation at a future date

Front 53

Ability-to-pay principle

Back 53

economic progressive tax idea that people with greater ability to pay taxes should pay higher taxes

Front 54

Average Tax rate

Back 54

- the ratio of taxes to income

- The total amount of taxes paid by an individual or business divided by taxable income. This rate will vary based on the amount of income received during the taxable period

- Paid taxes/taxable income = average tax rate.

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Benefits Principle

Back 55

Taxation concept that those who benefit more from government expenditure should pay more taxes to support such expenditure.

Front 56

Burden of Tax

Back 56

-The amount one would have to be given to be just as well off with the tax as without it. --The amount of income, property, or sales tax levied on an individual or business that varies depending on income level, jurisdiction, and current tax rates. Income tax burdens are typically satisfied by deductions from an individual's paycheck each time he or she is paid. Depending on the amount of allowances claimed by the individual, it may exceed the total amount of money deducted during the taxable period.

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Direct Taxes

Back 57

taxes, such as income tax, that are levied on the income or profits of the person who pays it, rather than on goods or services.

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Excess Burden

Back 58

- A tax to an individual which is the amount by which the burden of the tax exceeds the tax that is paid

-one of the economic losses that society suffers as the result of taxes or subsidies

Front 59

Fiscal Federalism

Back 59

-deals with the division of governmental functions and financial relations among levels of government.

- The system of grants from one level of government to the next

Front 60

Horizontal Equity

Back 60

-The notion that equally situated individuals should be taxed equally

- Economic theory that states that individuals with similar income and assets should pay the same amount in taxes.

Front 61

Incidence of Tax

Back 61

- The analysis of the effect of a particular tax on the distribution of economic welfare.

- An allocation of the burden of the tax to specific individuals or groups

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Indirect Taxes

Back 62

(such as sales tax, per unit tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer)

-Taxes levied on specific economic activities

Front 63

Marginal Tax Rate

Back 63

- percentage of tax applied to your income for each additional dollar earned.

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Progressive Tax

Back 64

One in which the average tax rate paid by an individual rises as the income rises

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Proportional Tax

Back 65

One in which the average tax rate is the same at all income levels

Front 66

Regressive Tax

Back 66

One in which the average tax rate falls as income rises

Front 67

Tax Deduction

Back 67

- reduction of income that is able to be taxed, and is commonly a result of expenses, particularly those incurred to produce additional income

- A sum of money that may be subtracted before the taxpayer computes his or her taxable income

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Tax Exempt

Back 68

A particular source of income is____ if income from that source is not taxable

Front 69

Tax Loophole

Back 69

A special provision in the tax code that reduces taxation below normal rates if certain conditions are met

Front 70

Tax Shifting

Back 70

- a change in taxation that eliminates or reduces one or several taxes and establishes or increases others while keeping the overall revenue the same

- When the economic Reactions to a tax cause prices and outputs in the economy to change, thereby shifting party of the burden of the tax onto others

Front 71

Vertical Equity

Back 71

The notion that differently situated individuals should be taxed differently in a way that society deems to be fair

Front 72

capital

Back 72

=Land + labor

an inventory of plant and other productive resources hold by a business firm or some organization

Front 73

derived demand

Back 73

a demand for a commodity, service, etc., that is a consequence of the demand for something else.

Front 74

economic profit

Back 74

total revenue of a firm minus all of its costs

Front 75

economic rent

Back 75

portion of the earnings of a factor of production that exceeds the minimum amount necessary to induce that factor to be supplied

- any payment to a factor of production in excess of the cost needed to bring that factor into production

Front 76

entrepreneurship

Back 76

act of starting new firms or introducing new products which involve risks that are necessary to seek out business opportunities

managing/using land, labor and time to produce capital

Front 77

innovation

Back 77

the act of putting the invention into practical use

Front 78

interest

Back 78

- money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

- payment for the use of funds employed in the production of capital

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invention

Back 79

act of generating an idea for a new product or a new method for making an old product

Front 80

investment

Back 80

flow of resources into the production of new capital

Front 81

marginal land

Back 81

Any land that is exactly on the borderline between being used and not being used,

and has little or no potential for profit, and often has poor soil or other undesirable characteristics

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marginal physical product (MPP)

Back 82

the increase in output that results from a one-unit increase in the use of the input

Front 83

marginal revenue product (MRP)

Back 83

additional sales value that a firm obtains by selling 1 additional good

Front 84

bilateral monopoly

Back 84

market structure consisting of both a monopoly (a single seller) and a monopsony (a single buyer). Examples: 1. Governments and certain classes of defense contractors, and 2. marriage

Front 85

collective bargaining

Back 85

process of negotiation of wages and working conditions between a union and the firms

Front 86

human capital theory

Back 86

theory that focuses on the expenditures (costs) made to increase productive capacity of workers, such as education

- The accumulated knowledge and skills that make a workforce productive

Front 87

income effect

Back 87

resulting rise of workers' purchasing power that enables them to afford more leisure

Front 88

innovative entrepreneur

Back 88

someone who introduces a new product or a new process into the economy

Front 89

investment in human capital

Back 89

any expenditure (cost) on an individual that increases their future earning power or productivity

Front 90

labor union

Back 90

organization made up of a group of workers usually with the same specialization

an organization intended to represent the collective interests of workers in negotiations with employers over wages, hours and working conditions.

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marginal revenue product of labor

Back 91

increase in total revenue that results for each additional unit of labor

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monopsony

Back 92

a market situation in which there is only one buyer

Example: the purchase of workers' time in the labor market, such as in professional baseball

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substitution effect

Back 93

-consumer choice theory that shows the effect of a change in the price of a good based upon the amount of that good demanded by a consumer

- resulting incentive to work more because of higher wage

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Combat Discrimination

Back 94

EEOC (Equal employment opportunity commission) - outlawed many forms of discrimination

Affirmative action - active efforts to locate and hire members of underrepresented groups

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Combat Inequality

Back 95

Personal Tax income Tax - takes larger share of income from rich
Death duties and other taxes - taxes on inheritences and estates

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Combatting Poverty

Back 96

by Education, Welfare, Negative Income Tax

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Food Stamps

Back 97

families are provided stamps with which to buy food. Size of benefit depends on income.

Front 98

Negative income tax

Back 98

People below certain income level would be given payment from government. Guarantee = tax rate * break-level
dissentive to work

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Poverty (2 ways)

Back 99

Relative Poverty/Optimistic: falling below certain income makes you poor. once you pas the line you are not poor

Absolute Poverty/Pessimistic: Income below a certain level necessary to maintain a minimum standard of living e.g. enough money to buy the basic necessities of food, shelter and heat

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Poverty line

Back 100

amount of income below which a family is considered "poor" set by society

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TANF

Back 101

Temporary Assistance for Needy Families
Gives welfare checks. Provides incentive to work

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Discrimination

Back 102

Behaving differently, usually unfairly, toward the members of a group

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Discrimination Coefficient

Back 103

a measure of the cost or disutility of prejudice; the monetary amount an employer is willing to pay to hire a preferred worker rather than a nonpreferred worker.

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earned-income tax credit (EITC)

Back 104

a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends on a recipient's income and number of children.

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entitlement programs

Back 105

Government benefits that certain qualified individuals are entitled to by law, regardless of need.

Front 106

equality-efficiency trade-off

Back 106

The decrease in economic efficiency that may come with a decrease in income inequality; the view that some income inequality is required to achieve economic efficiency.

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Income Inequality

Back 107

imbalances in levels of income among individuals in the economy

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income mobility

Back 108

Refers to the ease with which members of the workforce can move between levels of economic prosperity.

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Lorenzo curve

Back 109

Graph showing how much the actual distribution of income differs from an equal distribution

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Medcaid

Back 110

a federally funded and state-regulated plan designed to help people with low incomes to pay for health care

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Medicare

Back 111

A program added to the Social Security system in 1965 that provides hospitalization insurance for the elderly and permits older Americans to purchase inexpensive coverage for doctor fees and other health expenses.

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noncash transfers

Back 112

a government transfer payment in the form of goods and services rather than money, for example, food stamps, housing assistance, and job training; also called in-kind transfers

Front 113

Occupational Segregation

Back 113

a pattern in which different groups of workers are separated into different occupations

Front 114

poverty rate

Back 114

percentage of people whose income falls below the poverty line

Front 115

public assistance programs

Back 115

Distributes public money to poor people: food stamps, medicaid, (Aid to Families with Dependent Children), Supplemental Security Income, and Job Opportunities & Basic Skills programs

Front 116

social insurance programs

Back 116

government programs that pay benefits to retired and disabled workers, their families, and the unemployed, Mandatory; taxpayers pay into these programs; include social security, medicare, medicaid, unemployment, pay as you go system.

Front 117

social security

Back 117

created old age pension for workers, joint federal state system of compensation for unemployed, and payment to widows, blind, deaf, and disabled

Front 118

Statistical Discrimination

Back 118

the practice of making judgments about the quality of people, goods, or services based on the characteristics of the groups to which they belong

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Supplemental Nutrition Assistance Program (SNAP)

Back 119

Previously known as the Food Stamp program, the new name for the USDA program that is the primary food assistance program for low-income households

Front 120

Taste for Discrimination Model

Back 120

A theory that views discrimination as a preference for which an employer is willing to pay.

Front 121

unemployment compensation

Back 121

A system of government payments to people who are out of work and looking for a job