160 Cards in this Set
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Scarcity
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The condition that arises because wants exceeds the ability of resources to satisfy them.
Q: To an economist, ___ means that unlimited wants cannot be satisfied by the limited resources.
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Goods
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The object that people value and produce to satisfy the human wants.
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Services
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The actions that people value and produce to satisfy human wants.
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Self-interest
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The choices that are best for the individual who makes them.
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Social interest
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The choices that are best for society as a whole.
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Rational Choice
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A choice that uses the available resources to best achive the objective of the person making the choice.
Q: When people make ___ ___ they, weigh the costs and benefits of their options and act to satisfy their wants.
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Opportunity Cost
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The ___ ___ of something is the best thing you must give up to get it.
Q: The ___ ___ of an activity is the benefit from the highest valued alternative given up. Q: The ___ ___ of economic growth is decreased current consumption and the benefit of economic growth is increased future cons…
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Sunk Cost
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A previously incurred and irreversible cost.
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Benefit
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The ___ of something is the gain or pleasure that it brings.
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Margin
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A choice on the ___ is a choice that is made by comparing all the relevant alternatives systematically and incrementally.
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Marginal Cost
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The opportunity cost that arises from a one-unit increase in an activity. The ___ ___ of something is what you must give up to get one additional unit of it.
Q: A supply curve shows the ___ ___ of producing one more unit of a good or service.
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Marginal Benefit
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The benefit that arises from a one-unit increase in an activity. The ___ ___ of somethings is measured by what you are willing to give up to get one additional unit of it.
Q: The value of one more unit of a good is its ___ ___, and we measure that by the maximum price that is willingly p…
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Incentive
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A reward or penalty that encourages or discourages an action.
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Correlation
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The tendency for the values of two variables to move together in a predictable and related way.
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Production Possibilities Frontier (PPF)
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The boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.
Q: Moving along the ___ itself illustrates the existence of tradeoffs. Q: All production p…
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Production Efficiency
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A situation in which we cannot produce more of one good or service without producing less of something else.
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Economic Growth
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The sustained expansion of production possibilities.
Q: When a country's PPF shifts outward over time, the country is experiencing ___ ___. Q: To increase ___ ___, a nation should encourage education because that increases the quality of labor.
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Comparative Advantage
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The ability of a person to perform an activity or produce a good or service at a lower opportunity cost than anyone else.
Q: Specialization according to ___ ___ and exchange among countries results in mutual gains from exchange for all countries involved. Q: To achieve gains from trade,…
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Absolute Advantage
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When one person is more productive than another person in several or even all activities.
Q: A person has an ___ ___ in an activity if they are more productive than someone else in that activity. Q: Specialization and trade can make both producers better off even if one of them has an __…
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Quantity Demanded
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The amount of any good, service, or resource that people are willing and able to buy during a specified period at a specified price.
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Demand
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The relationship between the quantity demanded and the price of a good when all other influences on buying plans remain the same.
Q: Some individuals enjoy strawberries dipped in chocolate. For these individuals, a decrease in the price of strawberries will, ceteris paribus, increase the…
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Demand Schedule
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A list of the quantities demanded at each different price when all the other influences on buying plans remain the same.
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Demand Curve
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A graph of the relationship between the quantity demanded of a good and its price when all the other influences on buying plans remain the same.
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Market Demand
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The sum of the demands of all the buyers in the market.
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Change in Demand
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A change in the quantity that people plan to buy when any influence on buying plans other than the price of the good changes.
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Normal Good
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A good for which demand increase when income increase and demand decreased when income decreases.
D (up) --> I (up) & D (down) --> I (down)
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Inferior Good
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A good for which demand decreases when income increases and demand increases when income decreases.
D (down) --> I (up) & D (up) --> I (down)
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Change in Quantity Demanded
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A change in the quantity of a good that people plan to buy that results from a change in the price of the good with all other influences on buying plans remaining the same.
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Quantity Supplied
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The amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price.
Q: The ___ ___ of a good, service, or resource is the amount that people are able and willing to sell during a specified period and at a specified price.
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Supply Schedule
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A list of the quantities supplied at each different price when all the other influences on selling plans remain the same.
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Supply Curve
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A graph of the relationship between the quantity supplied of a good and its price when all the other influences on selling plans remain the same.
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Market Supply
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The sum of the supplies of all the sellers in the market.
Q: The ___ ___ curve is the horizontal sum of the individual supply curves.
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Change in Supply
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A change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes.
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Substitutes
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A good that can be consumed in place of another good.
Q: A rise in the price of a ___ in production for a good leads to a decrease in the supply of that good. Q: Pizza and tacos are ___ in consumption. If the price of pizzas increases... The quantity demanded of pizza decreases and the d…
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Market Equilibrium
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When the quantity demanded equals the quantity supplied-buyers' and sellers' plans are in balance.
Q: Suppose that the price of lettuce used to produce tacos increases. As a result, the equilibrium price of a taco rises and the equilibrium quantity decreases.
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Equilibrium Price
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The price at which the quantity demanded equals the quantity supplied.
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Equilibrium Quantity
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The quantity bought and sold at the equilibrium price.
Q: During the last decade, governments have raised excise taxes on sellers of cigarettes and at the same time funded anti-smoking advertising campaigns aimed at consumers. The predicted effect of these two events taken together on th…
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Shortage (excess demand)
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A situation in which the quantity demanded exceeds the quantity supplied.
Q: A decrease in the supply of ski trips brings a ___ of ski trips at the original price, and the price of a ski trip will rise. Q: Puts upward pressure on the price of a good. Q: If the price of asparagus is below…
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Surplus (excess supply)
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A situation in which the quantity supplied exceeds the quantity demanded.
Q: Puts downward pressure on the price of a good.
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Tradeoff
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An exchange-giving up one thing to get something else.
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Complement
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A good that is consumed with another good.
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Supply
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The relationship between the quantity supplied and the price of a good when all other influences on selling plans remain the same.
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Substitute in Production
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A good that can be produced in place of another good.
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Complement in Production
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A good that is produced along with another good.
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Change in Quantity Supplied
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A change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good.
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Comparative Advantage
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Q: Suppose the US and Cuba decide to open up a trade. If each country specializes in the good in which it has a ___ ___, both countries will gain from trade because consumption possibilities in both Cuba and the US will be outside their PPF's.
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Price Elasticity
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A measure of the responsiveness of the quantity demanded/supplied of a good to a change in its price when all other influences on buyers' plans remain the same.
Demand: % change in Quantity Demanded/ % change in Price Supply: % change in Quantity Supplied/ % change in Price
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Elastic
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When the percentage change in the quantity demanded/supplied exceeds the percentage change in price.
- Percentage change in Quantity > Percentage change in Price - Price and Total Revenue change in OPPOSITE directions. Q: If the demand is ___, an increase in price decreases total revenue…
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Unit Elastic
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When the percentage change in the quantity demanded/supplied equals the percentage change in price.
- Percentage change in Quantity = Percentage change in Price - Price changes leaves Total Revenue unchanged.
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Inelastic
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When the percentage change in the quantity demanded/supplied is less than the percentage change in price.
- Percentage change in Quantity < Percentage change in Price - Price and Total Revenue change in the SAME direction. Q: Education is a normal good and its demand is ___ with respect …
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Perfectly Elastic
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When the quantity demanded/supplied changes by a very large percentage in response to an almost zero percentage in price.
Almost 0% change in Price but very large percent change in Quantity Q: The ___ ___ of demand is a measure of the extent to which the quantity demanded of a good chang…
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Perfectly Inelastic
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When the quantity demanded/supplied remains constant as the price changes.
0% change in Quantity at any percent change in Price
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Total Revenue
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The amount spent on a good and received by its seller and equals the price of the good multiplied by the quantity sold.
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Total Revenue Test
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A method of estimating the price elasticity of demand by observing the change in total revenue that results from a price change (with all other influences on the quantity sold remaining unchanged).
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Ceteris Paribus
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Other things remaining the same.
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Cross Elasticity of Demand
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A measure of responsiveness of the demand for a good to change in the price of a substitute(+) or complement(-) when other things remain the same.
% change in Quantity Demanded of a good/ % change in Price of one of its substitutes of complements Q: The measure used to determine whether …
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Income Elasticity of Demand
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A measure of the responsiveness of the demand for a good to a change in income when other things remain the same.
% change in Quantity Demanded/ % change in Income
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Command System
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A system that allocates resources by the order of someone in authority.
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Allocating Efficiency
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A situation in which the quantities of goods and services produced are those that people value most highly-it is not possible to produce more of a good or service without giving up some of another good that people value more highly.
Q: San Diego adopted a market and pricing system to rat…
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Consumer Surplus
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The marginal benefit from a good or service minus the price paid for it, summed over the quantity consumed.
Q: ___ ___ is the value (or marginal benefit) of a good minus the price paid for it, summed over the quantity bought. Q: Concept- "Even though I was willing to pay up to $35 for a…
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Producer Surplus
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The price of a good minus the marginal cost of producing it, summed over the quantity produced.
Q: In a figure that shows a supply curve and a demand curve, ___ ___ is the area above the supply curve and below the market price.
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Total Surplus
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The sum of producer surplus and consumer surplus.
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Deadweight Loss
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The decrease in total surplus that results from an inefficient underproduction or overproduction.
Q: The excess burden of tax is the ___ ___ from the tax and is larger the more elastic the demand for the good is being taxed.
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Transaction Costs
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The opportunity costs of making trades in a market.
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Price Ceiling
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A government regulation that places an upper limit on the price at which a particular good, service, or factor of production may be traded.
Q: When a ___ ___ is set above equilibrium price, the quantity supplied is less than the quantity demanded and a shortage exists. Q: The government …
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Rent Ceiling
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A regulation that makes it illegal to charge more than a specified rent for housing.
Q: In a housing market with an effective ___ ___, consumers who do find housing at the controlled rent gain. Q: ___ ___ benefit renters living in rent-controlled apartments. Q: In a housing market with a…
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Black Market
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An illegal market that operates alongside a government-regulated market.
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Search Activity
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The time spent looking for someone with whom to do business.
Q: The opportunity cost of a dorm room is equal to its rent plus the value of the ___ time spent finding the room. Q: A rent ceiling can create a housing shortage which leads to increased ___ ___.
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Price Floor
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A government regulation that places a lower limit on the price at which a particular good, service, or factor of production may be traded.
Q: A ___ ___ is the lowest price at which it is legal to trade a particular good, service, or factor of production.
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Minimum Wage Law
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A government regulation that makes hiring labor services for less than a specified wage illegal.
Q: When a ___ ___ is set above the equilibrium wage rate, unemployment increases. Q: A ___ ___ is a price floor below the labor market. A ___ ___ set below the equilibrium wage has no effect.…
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Price Support
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A price floor in an agricultural market maintained by a government guarantee to buy any surplus output at that price.
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Subsidy
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A payment by the government to a producer to cover part of the cost of production.
Q: A ___ internalizes a positive externality if it is equal to marginal external benefit.
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Tax Incidence
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The division of the burden of a tax between the buyer and the seller.
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Excess Burden
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The amount by which the burden of a tax exceeds the tax revenue received by the government-the deadweight loss from a tax.
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Taxable Income
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Total income minus a personal exemption and a standard deduction (or other allowable deductions).
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Marginal Tax Rate
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The percentage of an additional dollar of income tax that is paid in tax.
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Average Tax Rate
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The percentage of income that is paid in tax.
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Progressive Tax
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A tax whose average rate increase as income increase.
Q: If the average tax rate increases an income increases, the tax is a ___ ___.
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Proportional Tax
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A tax whose average rate is constant at all income levels.
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Regressive Tax
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A tax whose average rate decreases as income increases.
Q: If the average tax rate decreases when income increase, the tax is ___.
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Marginal Private Cost
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The cost of producing an additional unit of a good or service that is borne by the producer of that good or service.
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Marginal External Cost
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The cost of producing an additonal unit of a good or service that falls on people other than the producer.
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Marginal Social Cost
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The marginal cost incurred by the entire society-by the producer and by everyone else on whom the cost falls. It is the sum of marginal private cost and marginal external cost.
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Property Rights
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Legally established titles to the ownership use, and disposal of factors of production and goods and services that are enforceable in the courts.
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Coase Thereom
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The proposition that if property rights exists, only a small number of parties are involved, and transactions costs are low, then private transactions are efficient and the outcome is not affected by who is assigned the property right.
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Transactions Costs
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The opportunity costs of conducting a transaction.
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Marginal Private Benefit
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The benefit from an additional unit of a good or service that the consumer of that good or service receives.
Q: The benefit the consumer of a good or service receives.
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Marginal External Benefit
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The benefit from an additional unit of a good or service that people other than the consumer of the good or service enjoy.
Q: A public community college is an example of public provision of a good that has an ___ ___. Q: An unregulated market underproduces products with ___ ___, such as …
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Marginal Social Benefit
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The marginal benefit enjoyed by society-by the consumer of a good or service and by everyone else who benefits from it. It is the sum of marginal private benefit and marginal external benefit.
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Public Provision
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The production of a good or service by a public authority that receives most of its revenue from the government.
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Voucher
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A token that the government provides to households that can be used to buy specified goods or services.
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Intellectual Property Rights
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The property rights of the creators of knowledge and other discoveries.
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Patent or Copyright
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A government-sanctioned exclusive right granted to the inventor of a good, service, or productive process to produce, use, and sell the invention for a given number of years.
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Explicit Cost
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A cost paid in money.
Q: A cost paid in money is an ___ ___.
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Implicit Cost
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An opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment.
Q: Example- The cost of using capital an owner donates to the business. Q: A cost incurred when a firm uses a factor or production for which is does not make a di…
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Economic Depreciation
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An opportunity cost of a firm using capital that it owns-measured as the change in the market value of capital over a given period.
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Normal Profit
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The return to entrepreneurship. Part of a firm's opportunity cost because it is the cost of not running another firm.
Q: If a firm earns an economic profit, the return to the entrepreneur exceeds ___ ___.
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Economic Profit
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A firm's total revenue minus total cost.
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Total Cost
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The cost of all the factors of production used by a firm.
Q: ___ ___ is equal to the sum of total variable cost and total fixed cost.
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Total Fixed Cost
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The cost of the firm's fixed factors of production-the cost of land, capital, and entrepreneurship.
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Total Variable Cost
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The cost of the firm's variable factor of production-the cost of labor.
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Marginal Cost
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The change in total cost that results from a one-unit increase in output.
Q: ___ ___ is equal to the change in total cost that results from a one-unit increase in output.
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Average Fixed Cost
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Total fixed cost per unit of output.
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Average Variable Cost
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Total variable cost per unit of output.
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Average Total Cost
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Total cost per unit of output, which equals average fixed cost plus average variable cost.
Q: ___ ___ equals average fixed cost plus average variable cost.
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Perfect Competition
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A market in which there are many firms, each selling an identical product; many buyers; no barriers to the entry of new firms into the industry; no advantage to established firms; and buyers and sellers are well informed about prices.
Q: A firm in ___ ___ is a price taker. Q: A ___ ___ f…
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Monopoly
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A market for a good or service that has no close substitutes and in which there is one supplier that is protected from competition by a barrier preventing the entry of new firms.
Q: Most true ___ are created or sanctioned by government. Q: One a ___ has determined how much it produces, i…
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Monopolistic Competition
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A market in which a large number of firms compete by making a similar but slightly different products.
Q: A firm in ___ ___ maximizes profit by equating marginal revenue and marginal cost. Q: In ___ ___ there are a large number of firms. Q: A firm in ___ ___ are free to enter or exit the…
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Oligopoly
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A market in which a small number of interdependent firms compete.
Q: The fact that firms in ___ are interdependent means that one firm's profits are affected by other firms' actions. Q: Firms in ___ can achieve an economic profit if they cooperate.
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Price Taker
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A firm that cannot influence the price of the good or service that t produces.
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Shutdown Point
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The point at which price equals minimum average cost and the quantity produced is that at which average variable cost is at its minimum.
Q: Suppose the equilibrium price in a perfectly competitive market is less than average variable cost. What should the typical supplier do in the short…
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Barrier to Entry
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Any constraint that protects a firm from competitors.
Q: A legal ___ __ ___ is created when a firm is granted public franchise, government license, patent, or copyright. Q: The absence of ___ __ ___ in monopolistic competition means that in the long run firms earn zero economic profit.
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Natural Monopoly
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A monopoly that arises because one firm can meet the entire market demand at a lower average total cost than two or more firms could.
Q: A ___ ___ is one that arises from economies of scale.
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Legal Monopoly
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A market in which competition and entry are restricted by the granting of a public franchise, government license, patent, or copyright.
Q: The only shoe shine stand is licensed to operate at an airport is a ___ ___.
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Single-price Monopoly
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A monopoly that must sell each unit of its output for the same price to all its customers.
Q: For a ___-___ ___, price is greater than marginal revenue. Q: A ___-___ ___ maximizes profit by producing the quantity at which marginal revenue equals to marginal cost.
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Price-discriminating Monopoly
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A monopoly that sells different units of a good or service for different prices not related to cost differences.
Q: To be successful, a firm must- Divide buyers into different groups according to their willingness to pay. Prevent resale of the good or service. Identify into which group (…
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Rent Seeking
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The act of obtaining special treatment by the government to create economic profit or to divert consumer surplus or producer surplus away from others.
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Perfect Price Discrimination
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Price discrimination that extracts the entire consumer surplus by charging the highest price that consumers are willing to pay for each unit.
Q: If Qatar cell phone providers practice ___ ___, the firms will earn a larger economic profit compared to profit when they charge a single-price…
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Regulation
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Rules administered by a government agency to influence prices, quantities, entry, and other aspects of economic activity in a firm or industry.
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Deregulation
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The process of removing regulation of prices, quantities, entry, and other aspects of economic activity in a firm or industry.
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Social Interest Theory
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The theory that regulation achieves an efficient allocation of resources.
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Capture Theory
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The theory that the regulation serves the self-interest of the producer and results in maximum profit, underproduction, and deadweight loss.
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Product Differentiation
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Making a product that is slightly different from the products of competing firms.
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Four-firm Concentration Ratio
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The percentage os the total revenue in an industry accounted for by the four largest firms in the industry.
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Excess Capacity
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When the quantity that a firm produces is less than the quantity at which average total cost is a minimum.
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Efficient Scale
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The quantity at which average total cost is a minimum.
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Markup
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The amount by which price exceeds marginal cost.
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Cartel
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A group of firms acting together to limit output, raise price, and increase economic profit.
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Duopoly
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A market with only two firms.
Q: When ___ games are repeated and a "tit for tat" strategy is used, the monopoly outcome is more likely to be reached than when the game is played once. Q: ___ is generally not efficient.
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Game Theory
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The tool that economists use to analyze strategic behavior-behavior that recoginzes mutual interdependence and takes account of the expected behavior of others.
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Prisoners' Dilemma
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A game between two prisoners that shows why it is hard to cooperate even when it would be beneficial to both players to do so.
Q: The ___ ___ game shows that prisoners are better off if they cooperate.
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Strategies
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All the possible actions of each player in game.
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Payoff Matrix
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A table that shows the payoffs for every possible combination of actions by the players.
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Nash Equilibrium
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An equilibrium in which each player takes the best possible action given the action of the other player.
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Antitrust Law
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A law that regulates oligopolies and prohibits them from becoming monopolies or behaving like monopolies.
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Resale Price Maintenance
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An agreement between a manufacturing and a distributor on the price at which a product will be resold.
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Predatory Pricing
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Setting a low price to drive competitors out of business with the intention of setting a monopoly price when the competition has gone.
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Tying Agreement
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An agreement to sell one product only if the buyer agrees to buy another, different product.
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Perfectly Competitive
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Q: A ___ ___ sellers' marginal revenue is constant and equal to the market price.
Q: In the short run, a ___ ___ firm might make an economic profit, incur an economic loss, or make a normal profit. Q: A ___ ___ earns an economic profit in the short run if price is greater than average to…
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Expected Wealth
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The money value of what a person expects to own at a given point in time.
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Risk Aversion
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The dislike of risk.
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Expected Utility
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The utility value of what a person expects to own at a given point in time.
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Private Information
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Information possessed by either buyers or sellers about the value of the item being traded that is not available to the persons on the other side of a transaction.
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Asymmetric Information
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A situation in a market in which either the buyers or sellers have private information.
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Adverse Selection
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The tendency for people to enter into agreements in which they can use their private information to their own advantage and to the disadvantage of the less-informed party.
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Moral Hazard
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The tendency for a person with private information, after entering into an agreement, to act in ways that impose costs on the less-informed party to the agreement.
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Lemon Problem
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The problem that in a market in which it is not possible to distinguish reliable products from lemons, too many lemons and too few reliable products traded.
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Signaling
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When an informed person takes actions that send information to less-informed persons.
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Pooling Equilibrium
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The outcome when only one message is available and a less-informed person cannot determine quality.
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Separating Equilibrium
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The outcome when signaling provides full information to a previously less-informed person.
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Credit Risk (default risk)
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The risk that a borrower (or creditor) will not repay a loan.
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Screening
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When a less-informed party takes actions to induce an informed party to reveal private information.
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Market Income
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A household's wages, interest, rent, and profit earned from the markets for factors of production before paying income taxes.
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Money Income
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Market income plus cash benefits paid by the government.
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Lorenz Curve
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A curve that graphs the cumulative percentage of income (or wealth) against the cumulative percentage of households.
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Poverty
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A state in which a household's income is too low to be able to buy the quantities of food, shelter, and clothing that are deemed necessary.
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Disposable Income
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Market income plus cash benefits paid by the government minus taxes.
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Median Voter Theory
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The theory that governments pursue policies that make the median voter as well off as possible.
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Negative Income Tax
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A tax redistribution scheme that provides every household with a guaranteed minimum annual income and taxes all earned income at a fixed rate.
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Income Maintenance Programs
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Social Security programs, unemployment compensations, and welfare programs.
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ECO 2023: EXAM 3