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187 Cards in this Set

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