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187 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Art of Economics
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The application of the knowledge learned in positive economics to the achievement of goals one has determined in normative economics.
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ch1
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Economic Decision Rule
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If the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don't do it.
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ch1
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Economic Forces
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The necessary reactions to scarcity.
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ch1
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Economic Model
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Framework that places the generalized insights of the theory in a more specific contextual setting.
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ch1
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Economic Policy
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An action (or inaction) taken by government, to influence economic events.
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ch1
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Economic Principle
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Commonly held economic insight stated as a law or general assumption.
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ch1
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Economics
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The study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society.
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ch1
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Efficiency
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Achieving a goal as cheaply as possible (using as few inputs as possible).
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ch1
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Invisible Hand
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The price mechanism; the rise and fall of prices that guides our actions in a market.
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ch1
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Invisible Hand Theory
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A market economy, through the price mechanism, will allocate resources efficiently.
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ch1
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Macroeconomics
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The study of the economy as a whole, which includes inflation, unemployment, business cycles, and growth.
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ch1
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Marginal Benefit
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Additional benefit above what you've already derived.
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ch1
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Marginal Cost (MC)
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Additional cost to you over and above the costs you have already incurred. Also: Increase (decrease) in total cost from increasing (or decreasing) the level of output by one unit. Also: The change in total cost associated with a change in quantity.
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ch1
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Market Force
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Economic force that is given relatively free rein by society to work through the market.
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ch1
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Microeconomics
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The study of individual choice, and how that choice is influenced by economic forces.
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ch1
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Normative Economics
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The study of what the goals of the economy should be.
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ch1
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Opportunity Cost
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The benefit forgone by undertaking a particular activity.
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ch1
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Positive Economics
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The study of what is, and how the economy works.
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ch1
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Scarcity
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The goods available are too few to satisfy individuals' desires.
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ch1
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Sunk Costs
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Costs that have already been incurred and cannot be recovered.
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ch1
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Comparative Advantage
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The ability to be better suited to the production of one good than to the production of another good. As long as the relative opportunity costs of producing goods (what must be given up in one good in order to get another good) differ among countries, then there are potential gains from trade, even if one country has an absolute advantage in everything.
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ch2
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Demerit Goods or Activities
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Goods or activities the government deems bad for people even though they choose to use the goods or engage in the activities.
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ch2
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Efficiency
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Achieving a goal as cheaply as possible (using as few inputs as possible).
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ch2
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Externality
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An effect of a decision on a third party not taken into account by the decision maker.
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ch2
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Free Rider
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Person who participates in something for free because others have paid for it.
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ch2
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Government Failure
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A situation where the government intervention in the market to improve market failure actually makes the situation worse.
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ch2
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Inefficiency
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Getting less output from inputs which, if devoted to some other activity, would produce more output.
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ch2
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Input
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What you put into a production process to achieve an output.
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ch2
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Laissez-Faire
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Economic policy of leaving individuals' wants to be controlled by the market.
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ch2
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Macroeconomic Externality
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Externality that affects the levels of unemployment, inflation, or growth in the economy as a whole.
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ch2
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Market Failure
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A situation where the market does not lead to a desired result. Also: Situation in which the invisible hand pushes in such a way that individual decisions do not lead to socially desirable outcomes.
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ch2
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Merit Good or Activity
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Good or activity that government believes is good for you, even though you may not choose to consume the good or engage in the activity.
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ch2
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Monopoly Power
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The ability of individuals or firms currently in business to prevent other individuals or firms from entering the same kind of business.
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ch2
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Output
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A result of a productive activity.
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ch2
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Principle of Increasing Marginal Opportunity Cost
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In order to get more of something, one must give up everincreasing quantities of something else.
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ch2
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Private Good
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A good that, when consumed by one individual, cannot be consumed by other individuals.
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ch2
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Production Possibility Curve
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A curve measuring the maximum combination of outputs that can be obtained from a given number of inputs.
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ch2
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Production Possibility Table
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Table that lists a choice's opportunity costs by summarizing what alternative outputs you can achieve with your inputs.
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ch2
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Productive Efficiency
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Achieving as much output as possible from a given amount of inputs or resources.
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ch2
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Progressive Tax
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Tax whose rates increase as a person's income increases.
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ch2
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Proportional Tax
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Tax whose rates are constant at all income levels, no matter what a taxpayer's total annual income is.
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ch2
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Public Good
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A good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual.
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ch2
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Regressive Tax
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Tax whose rates decrease as income rises.
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ch2
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Business
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Private producing unit in our society.
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ch3
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Capitalism
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An economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists.
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ch3
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Consumer Sovereignty
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Principle that the consumer's wishes rule what's produced.
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ch3
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Corporation
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Business that is treated as a person, legally owned by its stockholders. Its stockholders are not liable for the actions of the corporate "person.''
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ch3
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E-commerce
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Buying and selling over the Internet.
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ch3
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Entrepreneurship
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The ability to organize and get something done. Also: Labor services that involve high degrees of organizational skills, concern, oversight responsibility, and creativity.
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ch3
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European Union (EU)
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An economic and political union of European countries that is both an economic free trade area and a loose political organization.
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ch3
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Feudalism
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Economic system in which traditions rule.
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ch3
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Global Corporations
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Corporations with substantial operations on both the production and sales sides in more than one country.
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ch3
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Households
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Groups of individuals living together and making joint decisions.
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ch3
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Industrial Revolution
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A time when technology and machines rapidly modernized industrial production and mass-produced goods replaced handmade goods.
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ch3
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Limited Liability
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The liability of a stockholder (owner) in a corporation; it is limited to the amount the stockholder has invested in the company.
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ch3
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Market Economy
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An economic system based on private property and the market in which, in principle, individuals decide how, what, and for whom to produce.
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ch3
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Mercantilism
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Economic system in which government determines the what, how, and for whom decision by doling out the rights to undertake certain economic activities.
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ch3
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Partnership
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Business with two or more owners.
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ch3
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Private Property Rights
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Control a private individual or firm has over an asset or a right.
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ch3
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Profit
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A return on entrepreneurial activity and risk taking. Alternatively, what's left over from total revenues after all the appropriate costs have been subtracted. Also: Total revenue minus total cost.
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ch3
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Socialism
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An economic system based on individuals' goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce.
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ch3
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Sole Proprietorship
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Business that has only one owner.
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ch3
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Soviet-Style Socialist Economy
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Economic system that uses administrative control or central planning to solve the coordination problems: what, how, and for whom.
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ch3
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Stock
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Financial asset that conveys ownership rights in a corporation.
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ch3
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World Trade Organization (WTO)
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An organization whose functions are generally the same as GATT's were -- to promote free and fair trade among countries. Also: Organization committed to getting countries to agree not to impose new tariffs or other trade restrictions except under certain limited conditions.
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ch3
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Demand
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A schedule of quantities of a good that will be bought per unit of time at various prices, other things constant.
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ch4
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Demand Curve
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Graphic representation of the relationship between price and quantity demanded.
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ch4
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Equilibrium
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A concept in which opposing dynamic forces cancel each other out.
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ch4
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Equilibrium Price
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The price toward which the invisible hand drives the market.
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ch4
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Equilibrium Quantity
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The amount bought and sold at the equilibrium price.
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ch4
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Excess Demand
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Quantity demanded is greater than quantity supplied.
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ch4
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Excess Supply
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Quantity supplied is greater than quantity demanded.
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ch4
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Fallacy of Composition
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The false assumption that what is true for a part will also be true for the whole.
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ch4
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Law of Demand
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Quantity demanded rises as price falls, other things constant. Also can be stated as: Quantity demanded falls and price rises, other things constant.
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ch4
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Law of Supply
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Quantity supplied rises as price rises, other things constant. Also can be stated as: Quantity supplied falls as price falls, other things constant.
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ch4
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Market Demand Curve
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The horizontal sum of all individual demand curves.
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ch4
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Market Supply Curve
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Horizontal sum of all individual supply curves. Also: Horizontal sum of all the firms' marginal cost curves, taking account of any changes in input prices that might occur.
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ch4
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Movement along a Demand Curve
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The graphic representation of the effect of a change in price on the quantity demanded.
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ch4
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Movement along a Supply Curve
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The graphic representation of the effect of a change in price on the quantity supplied.
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ch4
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Quantity Demanded
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A specific amount that will be demanded per unit of time at a specific price, other things constant.
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ch4
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Quantity Supplied
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A specific amount that will be supplied at a specific price.
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ch4
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Shift in Demand
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The effect of anything other than price on demand.
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ch4
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Shift in Supply
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The graphic representation of the effect of a change in other than price on supply.
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ch4
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Supply
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A schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant. Put another way, a schedule of quantities of goods that will be offered to the market at various prices, other things constant.
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ch4
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Supply Curve
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Graphical representation of the relationship between price and quantity supplied.
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ch4
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Euro
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The currency used by 12 members of the European Union.
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ch5
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Exchange Rate
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The rate at which one country's currency can be traded for another country's currency.
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ch5
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Excise Tax
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A tax that is levied on a specific good.
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ch5
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Minimum Wage Law
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Law specifying the lowest wage a firm can legally pay an employee.
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ch5
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Price Ceiling
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A government-imposed limit on how high a price can be charged. In other words, a government-set price below the market equilibrium price.
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ch5
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Price Floor
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A government-imposed limit on how low a price can be charged. In other words, a government-set price above equilibrium price.
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ch5
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Rent Control
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A price ceiling on rents, set by government.
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ch5
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Tariff
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An excise tax on an imported (internationally traded) good.
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ch5
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Third-Party-Payer Market
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A market in which the person who receives the good differs from the person paying for the good.
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ch5
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Complements
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Goods that are used in conjunction with other goods.
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ch6
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Cross-Price Elasticity of Demand
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The percentage change in demand divided by the percentage change in the price of a related good.
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ch6
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Elastic
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The percentage change in quantity is greater than the percentage change in price (E >1).
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ch6
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Income Elasticity of Demand
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The percentage change in demand divided by the percentage change in income.
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ch6
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Inelastic
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The percentage change in quantity is less than the percentage change in price (E <1).
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ch6
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Inferior Goods
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Goods whose consumption decreases when income increases.
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ch6
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Luxuries
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Goods that have an income elasticity greater than 1.
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ch6
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Necessity
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A good that has an income elasticity less than 1.
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ch6
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Normal Goods
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Goods whose consumption increases with an increase in income.
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ch6
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Perfectly Elastic
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Quantity responds enormously to changes in price (E=∞).
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ch6
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Perfectly Inelastic
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Quantity does not respond at all to changes in price (E =0).
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ch6
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Price Elasticity of Demand
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The percentage change in quantity demanded divided by the percentage change in price.
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ch6
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Price Elasticity of Supply
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The percentage change in quantity divided by the percentage change in price.
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ch6
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Substitutes
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Goods that can be used in place of one another.
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ch6
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Unit Elastic
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The percentage change in quantity is equal to the percentage change in price (E =1).
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ch6
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Ability-to-Pay Principle
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The individuals who are most able to bear the burden of the tax should pay the tax.
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ch7
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Benefit Principle
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The individuals who receive the benefit of a good or service should pay the tax necessary to supply that good.
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ch7
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Consumer Surplus
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The value the consumer gets from buying a product less its price. Also: The difference between what consumers would have been willing to pay and what they actually pay.
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ch7
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Deadweight Loss
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The loss of consumer and producer surplus from a tax.
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ch7
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Excise Tax
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A tax that is levied on a specific good.
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ch7
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Price Ceiling
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A government-imposed limit on how high a price can be charged. In other words, a government-set price below the market equilibrium price.
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ch7
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Price Floor
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A government-imposed limit on how low a price can be charged. In other words, a government-set price above equilibrium price.
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ch7
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Producer Surplus
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Price the producer sells a product for less the cost of producing it.
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ch7
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Public Choice Economists
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Economists who integrate an economic analysis of politics with their analysis of the economy.
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ch7
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Rent-Seeking Activities
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Activities designed to transfer surplus from one group to another.
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ch7
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Welfare Loss Triangle
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A geometric representation of the welfare cost in terms of misallocated resources that are caused by a deviation from a supply/demand equilibrium.
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ch7
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Conspicuous Consumption
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The consumption of goods not for one's direct pleasure, but simply to show off to others.
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ch8
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Marginal Utility
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The satisfaction one gets from consuming one additional unit of a product above and beyond what one has consumed up to that point.
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ch8
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Principle of Diminishing Marginal Utility
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As you consume more of a good, after some point the marginal utility received from each additional unit of a good decreases with each additional unit consumed, other things equal.
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ch8
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Principle of Rational Choice
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Spend your money on those goods that give you the most marginal utility (MU) per dollar.
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ch8
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Total Utility
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The total satisfaction one gets from consuming a product.
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ch8
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Utility
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The pleasure or satisfaction that one expects to get from consuming a good or service.
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ch8
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Utility-Maximizing Rule
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Utility is maximized when the ratios of the marginal utility to price of two goods are equal.
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ch8
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Average Fixed Cost
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Fixed cost divided by quantity produced.
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ch9
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Average Product
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Output per worker.
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ch9
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Average Total Cost
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Total cost divided by the quantity produced.
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ch9
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Average Variable Cost
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Variable cost divided by quantity produced.
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ch9
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Economic Profit
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Explicit and implicit revenue minus explicit and implicit cost.
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ch9
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Firm
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An economic institution that transforms factors of production into goods and services.
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ch9
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Fixed Costs
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Costs that are spent and cannot be changed in the period of time under consideration.
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ch9
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Law of Diminishing Marginal Productivity
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As more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall.
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ch9
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Long-Run Decision
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Decision in which a firm chooses among all possible production techniques.
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ch9
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Marginal Cost (MC)
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Additional cost to you over and above the costs you have already incurred. Also: Increase (decrease) in total cost from increasing (or decreasing) the level of output by one unit. Also: The change in total cost associated with a change in quantity.
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ch9
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Marginal Product
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The additional output that will be forthcoming from an additional worker, other inputs constant.
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ch9
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Production
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The transformation of factors into goods and services.
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ch9
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Production Function
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The relationship between the inputs (factors of production) and outputs.
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ch9
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Production Table
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A table showing the output resulting from various combinations of factors of production or inputs.
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ch9
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Profit
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A return on entrepreneurial activity and risk taking. Alternatively, what's left over from total revenues after all the appropriate costs have been subtracted. Also: Total revenue minus total cost.
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ch9
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Short-Run Decision
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Decision in which the firm is constrained in regard to what production decisions it can make.
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ch9
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Total Cost
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Explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm.
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ch9
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Total Revenue
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The amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm.
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ch9
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Variable Costs
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Costs that change as output changes.
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ch9
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Constant Returns to Scale
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Situation in which long-run average total costs do not change with an increase in output. Also: Output will rise by the same proportionate increase as all inputs.
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ch10
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Diseconomies of Scale
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Situation when the long-run average total cost increases as output increases.
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ch10
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Economically Efficient
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Describes a method of production that produces a given level of output at the lowest possible cost.
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ch10
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Economies of Scale
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Situation when long-run average total costs decrease as output increases. Also: Situation in which costs per unit of output fall as output increases.
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ch10
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Economies of Scope
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Situation when the costs of producing products are interdependent so that it's less costly for a firm to produce one good when it's already producing another.
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ch10
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Entrepreneur
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An individual who sees an opportunity to sell an item at a price higher than the average cost of producing it.
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ch10
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Indivisible Setup Cost
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The cost of an indivisible input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use.
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ch10
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Learning by Doing
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As we do something, we learn what works and what doesn't, and over time we become more proficient at it. Also: To improve the methods of production through experience.
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ch10
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Minimum Efficient Level of Production
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The amount of production that spreads setup costs out sufficiently for a firm to undertake production profitably.
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ch10
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Monitoring Costs
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Costs incurred by the organizer of production in seeing to it that the employees do what they're supposed to do.
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ch10
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Team Spirit
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The feelings of friendship and being part of a team that bring out people's best efforts.
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ch10
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Technical Efficiency
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Describes a situation in which as few inputs as possible are used to produce a given output.
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ch10
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Technological Change
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An increase in the range of production techniques that leads to more efficient ways of producing goods as well as the production of new and better goods.
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ch10
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Barriers to Entry
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Social, political, or economic impediments that prevent firms from entering a market.
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ch11
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Marginal Cost (MC)
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Additional cost to you over and above the costs you have already incurred. Also: Increase (decrease) in total cost from increasing (or decreasing) the level of output by one unit. Also: The change in total cost associated with a change in quantity.
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ch11
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Marginal Revenue (MR)
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The change in total revenue associated with a change in quantity.
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ch11
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Market Supply Curve
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Horizontal sum of all individual supply curves. Also: Horizontal sum of all the firms' marginal cost curves, taking account of any changes in input prices that might occur.
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ch11
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Normal Profit
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The amount the owners of business would have received in the next-best alternative.
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ch11
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Perfectly Competitive Market
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A market in which economic forces operate unimpeded.
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ch11
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Price Taker
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Firm or individual who takes the market price determined by market supply and demand as given.
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ch11
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Profit-Maximizing Condition
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MR _ MC _ P.
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ch11
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Shutdown Point
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Point at which the firm will be better off if it temporarily shuts down than it will if it stays in business.
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ch11
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Monopoly
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A market structure in which one firm makes up the entire market.
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ch12
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Natural Monopoly
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An industry in which a single firm can produce at a lower cost than can two or more firms. Also: An industry in which significant economies of scale make the existence of more than one firm inefficient.
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ch12
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Patent
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Legal protection of a technical innovation that gives the person holding it sole right to use that innovation. (Note: A patent is good for only a limited time.)
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ch12
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Price-Discriminate
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To charge different prices to different individuals or groups of individuals.
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ch12
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Cartel
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A combination of firms that acts as if it were a single firm.
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ch13
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Cartel Model of Oligopoly
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A model that assumes that oligopolies act as if they were monopolists that have assigned output quotas to individual member firms of the oligopoly so that total output is consistent with joint profit maximization.
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ch13
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Concentration Ratio
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The percentage of the total industry that the top firms of the industry have.
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ch13
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Contestable Market Model
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A model of oligopoly in which barriers to entry and barriers to exit, not the structure of the market, determine a firm's price and output decisions.
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Duopoly
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An oligopoly with only two firms.
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Game Theory
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An application of economic principles in which players make interdependent choices.
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Herfindahl Index
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An index of market concentration calculated by adding the squared value of the individual market shares of all firms in the industry.
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Implicit Collusion
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A type of collusion in which multiple firms make the same pricing decisions even though they have not explicitly consulted with one another.
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Market Structure
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The physical characteristics of the market within which firms interact.
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Monopolistic Competition
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A market structure in which there are many firms selling differentiated products; there are few barriers to entry.
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North American Industry Classification System (NAICS)
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An industry classification that categorizes firms by type of economic activity and groups firms with like production processes.
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Oligopoly
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A market structure in which there are only a few firms; there are often significant barriers to entry.
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Prisoner's Dilemma
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Well-known game that demonstrates the difficulty of cooperative behavior in certain circumstances.
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Strategic Decision Making
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Taking explicit account of a rival's expected response to a decision you are making.
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Strategic Pricing
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A characteristic of oligopoly in which firms set their price based on the expected reactions of other firms.
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