Adverse Selection valuing same product w same price when one is actually worse Average Fixed Cost AFC the total fixed cost divided by total output Average Physical Product APP the output per unit of resource Average total cost ATC per unit cost derived by dividing total cost by the quantity of output Average Variable Cost AVC total variable cost divided by total output Backward bending labor supply curve results because a person is willing and able to work more hours as the wage rate increases until at some sufficiently high wage the person chooses to work fewer hours Bartering Trade without money Brand names may signal information regarding the product reducing consumer risks is valuable to a firm it makes the demand less elastic and can enable the firm to earn higher profits Break even price A price that is equal to the minimum point of the ATC curve economic profit is zero Bounded Rationality people compare costs and benefits to make a decision Cartel is an organization of independent firms whose purpose is to control and limit production and maintain or increase prices and profits cartels are illegal in US Civil Rights Act of 1964 unlawful for any employer to discriminate on the basis of race color religion sex or national origin Club good a good that is excludable but non rivalrous Collusion leads to secret cooperative agreements illegal in the U S although it is legal and acceptable in many other countries Commons good a good that is rivalrous but non excludable Comparative Advantage the ability to produce a good or service at a lower opportunity cost than someone else Comparable Worth the pay ought to be determined by the job characteristics rather than by supply and demand Compensating wage differentials wage differences that make up for the higher risk or poorer working conditions of one job over another Consumer Sovereignty is the assertion that consumer preferences determine the production of goods and services Cost of Equity the alternative returns that the shareholders could have gotten had they chosen to invest elsewhere the investor s opportunity cost Cost plus or mark up pricing a pricing policy where a firm computes its average costs of producing a product and sets the price at some percentage above this cost Deadweight Loss the reduction of consumer surplus without a corresponding increase in profit when a perfectly competitive firm is monopolized Demand is the amount of a product that people are willing and able to purchase at each possible price during a given period of time everything else but price held constant relationship between prices and quantities Differentiation means that in the consumer s mind the product is not the same Marketing is often the key to successful differentiation Discrimination When factors unrelated to marginal revenue product affect the wages or jobs that are obtained It is another reason for wage differentials Diseconomies of Scale when producing each unit of output becomes more costly as output rises Disparate treatment treating individuals differently because of their race sex color religion or national origin Disparate impact it is the result of different treatment not the motivation that matters Dominant strategy strategy that produces better results no matter what strategy other firms follow oligopoly firms try to achieve this Economics is the study of how scarce resources are allocated among unlimited wants is a social science a form of applied logic reasoning study of unintended consequences the study of how people choose to use their resources in attempts to satisfy their unlimited wants Economic Bad anything you want to rid of Economic freedom the degree to which private individuals are able to carry out voluntary exchange without government involvement linked to standards of living Economic Good anything with a price on it includes goods and services Economic Rent when a resource has a perfectly inelastic supply its pay or earnings earnings in excess of transfer earnings Economies of Scale when producing each unit of output becomes less costly as the amount of output increases diminishes deadweight loss Elasticity the responsiveness of quantity demanded or quantity supplied to a change in one of the determinants of demand and or supply Equilibrium is the price and quantity at which quantity demanded and quantity supplied are equal Equity Capital cost of ownership Externality a cost or benefit of a transaction that is borne by someone who is not directly involved in the transaction Fallacy of Composition The mistaken assumption that what is true of a part is also true of the whole Free Good good for which there is no scarcity Free rider a consumer or producer who enjoys the benefits of a good or service without paying for that good or service Game theory provides a description of oligopolistic behavior as a series of strategic moves and countermoves Government intervention Government scrutiny lessens deadweight loss Labor market supply curve slopes up because the number of people willing and able to work rises as the wage rate rises and because the number of hours that each person is willing and able to work rises as the wage rate rises at least up to some high wage rate Law of comparative advantage proposition that the joint output of trading partners will be greatest when each good is produced by the low opportunity cost producer Law of Demand Price Rises Demand Falls Law of Supply Price Falls Demand Rises Long Run Average Total Cost LRATC lowest cost combinations of resources with which each level of output is produced when all resources are variable Long Run everything is variable Marginal Cost additional cost of producing one more unit of output Marginal factor cost MFC the additional cost of an additional unit of a resource Marginal Physical Product MPP amount of additional output that is produced when one additional unit of a resource is used in combination with the same amount of other resources Marginal Revenue additional revenue from selling one more unit of output Marginal revenue product MRP additional revenue that an additional resource can create for a firm Market failure occurs when the market outcome is not the socially or economically efficient outcome some action by the government is sometimes necessary to ensure that the market work well Monopolistic competition market structure where there are a large number of firms products produced by the different firms are differentiated and entry and exit occur