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35 Cards in this Set
- Front
- Back
Deadweight loss
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caused by a policy is the reduction in economic surplus that results from adoption of that policy.
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Pareto Efficient
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A situation is effecient if no change is possilbe that will help some people without harming others
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Accounting profit
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The difference between a firms total revenue and its explicit costs
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Economic Profit
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The difference between a firms total revenue and the sum of its explicit and implicit costs, also called excess profit
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Allocative function of price
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Changes in prices direct resources away from overcrowded markets and toward markets that are underserved.
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Rational function of price
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Changes in prices distribute scarce goods to those consumers who value them most highly.
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Barrier to entry
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Any force that prevents firms from entering a new market
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economic rent
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The part of the payment for a factor of production that exceeds the owners reservation price, the price below which the owner would not supply the factor.
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Explicit costs
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The actual payments a firm amkes to its factors of production and other suppliers
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Implicit costs
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The opportunity costs of the resources supplied by the firms owners
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Normal profit
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The opportunity cost of the resources supplied by the firms owners; Normal profit= Accounting Profit- Economic profit
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Present value
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For an annual interest rate r, the present value (PV) of a perpetual annual payment (M) is the amount that would have to be deposited today at that interest rate to generate annual interest earnings of M: PV=M/r
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time value of money
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The fact that a given dollar amount today is equivalent to a larger dollar amount in the future because the money can be invested in an interest bearing account in the meantime.
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Economies of scale
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a
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Hurdle method of price discrimination
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THe practice by which a seller offers a discount to all buyers who overcome some obstacle
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Imperfectly competitve firm
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A firm that has at least some control over the market price of its product
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Marginal revenue
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The change in a firms total revenue that results from a one unit change in output
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Market power
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A firms ability to raise the price of a good without losing all its sales
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Monopolistic competition
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Industry struture in which a large number of firms produce slightly differentiated products that are reasonably close substitutes for one another
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Natural monopoly
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A monopoly that results from economies of scale
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Oligopoly
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An industry structure in which a small number of large firms produce products that are either close or perfect substitutes
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Perfectly discriminating monopoly
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A firm that charges each buyer exactly his or her reservation price
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Price discrimination
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The practice of charging different buyers different prices for essentially the same good or service.
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Price setter
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A firm with atleast some latitude to set its own price
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Cartel
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A coalition of firms that agree to restrict output for the purpose of earning an economic profit
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Commitment device
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A way of changing incentives so as to make otherwise empty threats or promises
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Credible promise
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A promise to take an action that is in the promisers interest to keep
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Credible threat
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A threat to take an action that is in the threateners interst to carry out
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Decision tree
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A diagram that describes the posible moves in a game in sequence and lists the payoffs that correspond to each possible comibation of moves
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Dominant strategy
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One that yields a higher payoff no matter what the other players in the game choose
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Dominated strategy
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Any other strategy available to a player who has a dominate strategy
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Nash equilibrium
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Any combination of strategy choices in which each player's choice is his or her best choice, given the other player's choices
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payoff matrix
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A table that describes the payoffs in a game for each possible combination of strategies.
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Prisoners Dilemma
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A game in which each player has a dominant strategy and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategy
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Tit for Tat
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A strategy for the repeated prisoners dilemma in which players cooperate on the first move then mimic their partners last move on each successive move.
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