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51 Cards in this Set
- Front
- Back
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Technological advance
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economists view technological advance as a response to a
profit opportunity. Technological advance enhances both production and allocative efficiency. |
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Patents
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are a form of government sanctioned monopolies
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Long term (run) costs:
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In the long run, all costs are variable costs. In the long run
there is time to restructure fixed costs. |
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Short-run breakeven
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at the short-run breakeven the firm is making zero economic
profits and makes accounting or normal profits only. |
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Profits
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profits are a signal to entrepreneurs that they are satisfying customers’ needs
and wants, and it’s a signal to invest. |
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Capital goods
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machinery that makes other machinery such as the machines that
make cars and planes and computers. Stocks and bonds are not capital goods. |
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Monopsony
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is a firm that operates in a regulated environment. It is the only employer
of labor in the area such as the Hanna Coal Company in West Virginia. If you don’t work for them, you don’t work. A monopsony develops when the government erects barriers to market entry. |
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A monopsonist
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hires fewer workers than would be hired in a competitive market. A
moposonist is a wage-setter. |
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Bi-lateral monopoly
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is a combination of a strong trade union and a monopsony. It’s
designed to create a closed union shop. |
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Wage rates
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are determined by skill level and the intensity of demand for that skill.
True wage increase can only come from increased productivity. The wage rate is the price paid for a unit of time for labor. |
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Cost of Labor
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cost of labor is not the wage rate paid. The cost of labor is the wage
rate plus benefits. |
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Pure rent
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is the price paid for a resource with a limited supply.
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Supply of Land
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resources)—is perfectly inelastic. You can’t create any new ones.
What’s there is there. |
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Interest
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is the price paid for the use of money. Generally, the larger the amount of
money borrowed, the higher the interest rate. In economic terms, interest is the payment for capital. There are 2 different ways of looking at interest, as income and as an expense item. |
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Economic profits
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in most industries, economic profits are not possible in the long
run. They are possible in the short run. |
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Money
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is not an economic resource. It is used to buy economic resources.
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Principal-agent problem
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in labor it arises when workers provide less than expected
effort. You paid them for a specific effort and they didn’t produce. A plan to overcome the principal agent problem is called an incentive pay plan. |
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Pay for performance plans
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is an incentive pay plan. It includes bonuses, profit
sharing and commissions and is designed to retain good workers. Pay for performance is an attempt to overcome the principal agent problem. |
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Land rent
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differences in land rent are due to the differences in the potential use of the
land. For example, ten acres of the desert may be worth near nothing, but ten acres of prime farm land could be worth a fortune. |
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Henry George
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was the originator or chief architect of the single tax movement.
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Single-tax movement
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rent was considered to be imputed value and should be taxed
away. They wanted to eliminate all other taxes except the imputed value tax. Rent is viewed as unearned income. It’s also a criticism of rental payments. |
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Labor
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labor’s share of national income has not changed since 1900, it is 17%.
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Cost-Benefit analysis
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describes the optimal amount of public goods to decide
whether to provide a public good. It is mainly used by government. |
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The Taft-Hartley Act
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section 14b allowed states to determine whether they would
allow open or closed union shops. The act discouraged union shops. It created the Right to Work Act established by some states. Florida is one of them. In other words, it outlawed unfair labor practices such as forcing workers to join a union in order to get or keep their jobs. |
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Closed shop (union)
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is one in which belonging to a specific union is a condition of
employment. |
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Marginal revenue product
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represents the workers’ contribution to the firm’s total
revenues. MRP = MRC at profit maximization. |
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Derived demand
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the demand for labor is a derived demand. There is only a demand
for labor because there is a demand for the products labor can produce. |
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Minimum wage
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an increase in minimum wage will help some and hurt others.
Generally it will increase the quantity of labor supplied but it will also cause higher unemployment. The minimum wage was established by the Fair Labor Standards Act. |
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Efficiency wage theory
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predicts that wages paid above market wage will lead to
higher productivity. The idea is that if you pay an above-market wage you’ll get a greater effort from the worker. An efficiency wage is an above market wage. |
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Wage differentials
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are primarily due to differences in education and skills.
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Wage rates for workers
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as wage rates rise firms will employ fewer workers. Wage
rates are hourly rates paid to workers. |
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High wages–high productivity
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run growth of hourly wages is tied directly to
productivity. |
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Marginal physical product
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this is the additional product produced by employing one
more worker. The marginal physical product curve is also the labor demand curve. |
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Marginal revenue
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is the extra revenue generated by producing one more unit. To
maximize revenues a firm will produce up to the point where marginal revenues are slightly greater than marginal costs. So long as the revenue generated is greater than the costs of production a company will continue to produce. |
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Labor Productivity
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changes in labor productivity will shift the labor demand curve in
the same direction. Increase in productivity will increase the demand for labor. A decrease in productivity will decrease in demand for labor. |
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Function of resource price
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the function of resource price is to ration scarce
resources. |
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Accounting profits
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are also called normal business rates of return. It’s where total
revenue equals total cost at the first breakeven. |
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Game theory
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is a way of describing the possible outcomes in any business situation
involving two or more businesses who are aware of their situation and plan accordingly. For example, two rivals who don’t know what the rival is going to do and make plans based upon, “if they’re going to do this, we’ll do that.” |
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Sherman Anti-Trust Act
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was the first national anti-trust law.
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The Clayton Act
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this is the act that Bill Gates was accused of violating. He was said
to have violated Section 3, not the Sherman Anti-Trust Act. |
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The Robinson-Patman Act
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was called the Chain Store Act. It was to protect
independent retailers or wholesalers from unfair discrimination by chain stores. |
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High inflation
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periods of high inflation are also periods of high interest rates.
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Karl Marx
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said that income should be distributed according to need.
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Ronald Coase
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said that spillovers could be corrected by individual bargaining.
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Joseph Schumpeter
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originator of the concept of creative destruction.
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Free Rider Problem
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The free rider problem is associated with providing public goods.
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Resource prices
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are costs that must be recovered through increased productivity.
The more productive a resource, the higher the demand. |
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Borrowing
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The larger the amount borrowed, the higher the interest rate
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UAW
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United Auto Workers Union—An example of an inclusive union.
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Law of Conservation of Matter and Energy—
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The main cause of pollution. It
describes ecological systems as self-generating systems that recycle waste by changing the form of the wastes. |
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Productivity Cost
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Low savings rates reduce investment and productivity.
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