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99 Cards in this Set
- Front
- Back
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World Price
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The price that prevails in world markets
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Tariff
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A tax on imports
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Externality
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The uncompensated impact of one person's actions on the well-being of a bystander
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Internalizing the externality
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Altering the incentives so that people take account of the external effects of their actions
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Corrective Tax
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A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality; Piguvian taxes
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Coase Theorem
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"If private parties can costlessly bargain over the allocation of resources, they can solve the externalities problem on their own"
Ex. Dick has the right to keep Spot. Benefit to keep = $500, Cost of Jane of Spot's Barking = $800: social efficient outcome = Spot goes bye-bye" |
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Transaction Costs
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The costs parties incur in the process of agreeing to and following through on a bargain. These costs may make it impossible to reach a mutually beneficial agreement
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Excludability
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The property of a good whereby a person can be prevented from using it
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Rivalry in Consumption
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The property of a good whereby one person's use diminishes other people's use
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Private Goods
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Goods: BOTH excludable and rival in consumption
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Public Goods
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Goods: NEITHER excludable nor rival in consumption
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Common Resources
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Goods: Rival in consumption but NOT excludable
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Club Goods
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Goods: Excludable but NOT rival in consumption
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Free Rider
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A person who receives the benefit of a good but avoids paying for it
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Cost-benefit Analysis
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A study that compares the costs and benefits to society of providing a public good
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Tragedy of the Commons
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A parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole
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Budget Deficit
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An excess of government spending over government receipts
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Budget Surplus
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An excess of government receipts over government spending
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Average Tax Rate
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Total taxes paid divided by total income
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Marginal Tax Rate
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The amount that taxes increase from an additional dollar of income
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Lump-sum Tax
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A tax that is the same amount for every person
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Benefits Principle
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The idea that people should pay taxes based on the benefits they receive from government services
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Ability-to-Pay Principle
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The idea that taxes should be levied on a person according to how well that person can shoulder the burden
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Vertical Equity
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The idea that taxpayers with a greater ability to pay taxes should pay larger amounts
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Horizontal Equity
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The idea that taxpayers with similar abilities to pay taxes should pay the same amount
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Proportional Tax
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A tax for which high-income and low-income taxpayers pay the same fraction of income
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Regressive Tax
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A tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers
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Progressive Tax
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A tax for which high-income taxpayers pay a larger fraction of their income that do low-income taxpayers
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Total Revenue
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The amount a firm receives for the sale of its output
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Total Cost
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The market value of the inputs of a firm uses in production
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Profit
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Total revenue minus total cost
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Explicit Costs
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Input costs that require an outlay of money by the firm
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Implicit Costs
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Input costs that do not require an outlay of money by the firm
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Economic Profit
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Total revenue minus total cost, including both explicit and implicit costs
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Accounting Profit
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Total revenue minus total explicit cost
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Production Function
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The relationship between quantity of inputs used to make a good and the quantity of output of that good
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Marginal Product
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The increase in output that arises from an additional unit of input
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Diminishing Marginal Product
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The property whereby the marginal product of an input declines as the quantity of the input increases
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Fixed Cost
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Costs that do not vary with the quantity of output produced
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Variable Costs
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Costs that vary with the quantity of output produced
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Average Total Cost
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Total costs divided by the quantity of output
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Average Fixed Cost
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Fixed cost divided by the quantity of output
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Average Variable Cost
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Variable cost divided by the quantity of output
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Marginal Cost*
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The increase in total cost that arises from an extra unit of production
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Efficient Scale
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The quantity of output that minimizes average total cost
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Economies of Scale
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The property whereby long-run average total cost falls as the quantity of output increases
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Diseconomies of Scale
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The property whereby long-run average total cost rises as the quantity of output increases
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Constant Returns to Scale
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The property whereby long-run average total cost stays the same as the quantity of output changes
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Competitive Market
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A market with many buyers and sellers trading identical products so that each buyer and seller is a price taker
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Average Revenue
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Total revenue divided by the quantity sold
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Marginal Revenue
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The change in total revenue from an additional unit sold
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Sunk Cost
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A cost that has already been committed and cannot be recovered
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Monopoly
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A firm that is the sole seller of a product without close substitutes
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Natural Monopoly
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A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
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Monopoly's Profit
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Profit = (P - ATC) x Q
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Price Discrimination
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The business practice of selling the same good at different prices to different customers
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Oligopoly
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A market structure in which only a few sellers offer similar or identical products
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Monopolistic Competition
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A market structure in which many firms sell products that are similar but not identical
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Game Theory
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The study of how people begave in strategic situations
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Collusion
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An agreement among firms in a market about quantities to produce or prices to charge
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Cartel
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A group of firms acting in unison
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Nash Equilibrium
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A situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors of chosen
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Prisoners' Dilemma
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A particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
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Dominant Strategy
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A strategy that is best for a player in a game regardless of the strategies chosen by the other players
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Factors of Production
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The inputs used to produce goods and services
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Production Function
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The relationship between the quantity of inputs used to make a good and the quantity of output of that good
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Marginal Product of Labor
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The increase in the amount of output from an additional unit of labor
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Diminishing Marginal Product
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The property whereby the marginal product of an input declines as the quantity of the input increases
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Value of the Marginal Product
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The marginal product of the input times the price of the output
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Capital
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The equipment and structures used to produce goods and services
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Compensating Differential
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A difference in wages that arises to offset the nonmonetar characteristics of different jobs
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Human Capital
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The accumulation of investments in people, such as education and on-the-job training
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Union
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A worker association that bargains with employers over wages and working conditions
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Strike
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The organized withdrawal of labor from a firm by a union
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Efficiency Wages
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Above-equilibrium wages paid by firms to increase worker productivity
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Discrimination
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The offering of different opporutnities to similar inidividuals who differ only by race, ethnic group, sex, age, or other personal characteristics
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Poverty Rate
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The percentage of the population whose family income falls below an abdolute level called the poverty line
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Poverty Line
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An absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty
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In-Kind Transfers
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Transfers to the poor given in the form of goods and services rather than cash
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Life Cycle
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The regular pattern of income variation over a person's life
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Permanent Income
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A person's normal income
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Utilitarianism
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The political philosophy according to which the government should choose policies to maximize the total utility of everyone in society
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Utility
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A measure of happiness or satisfaction
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Liberalism
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The political philosophy according to which the government should choose policies deemed just, as evaluated by an impartial observer behind a "veil of ignorance"
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Maximum Criterion
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The claim that the government should aim to maximize the well-being of the worst-off person in society
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Social Insurance
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Government policy aimed at protecting people against the risk of adverse events
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Libertarianism
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The political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income
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Welfare
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Government programs that supplement the incomes of the needy
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Negative Income Tax
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A tax system that collects revenue from high-income households and gives subsidies to low-income households
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Budget Constraint
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The limit on the consumption bundles that a consumer can afford
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Indifference Curve
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A curve that shows consumption bundles that give the consumer the same level of satisfaction
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Mariginal Rate of Substitution
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The rate at which a consumer is willing to trade one good for another
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Perfect Substitutes
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Two goods with straight-line indifference curves
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Perfect Complements
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Two goods with right-angle indifference curves
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Normal Good
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A good for which an increase in income raises the quantity demanded
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Inferior Good
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A good for which an increase in income reduces the quantity demanded
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Income Effect
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The change in consumption that results when a price change moves the consumer to a higher or lower indifference curve
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Substitution Effect
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The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
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Giffen Good
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A good for which an increase in the prices raises the quantity demanded
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