ECO2013 FSU
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133 terms
Terms | Definitions |
|---|---|
 Choice | The act of selecting among alternatives |
| scarcity | the concept that there is less of a good freely available from nature than people would like |
| scarcity | leads to competitive behavior |
| subjective | opinion, point of view |
| objective | fact |
| resources | an input used to produce an economic good |
| 3 types of resources | Human capital, physical resources, natural resources |
| opportunity cost | the highest valued alternative that must be sacrificed when choosing an option |
| Utility | subjective benefit a person expects from a choice or course of action |
| marginal | describes the effect of a change in the current situation |
| cost-benefit analysis | one will undergo an action when the marginal benefits outweigh the marginal costs |
| secondary effect | the indirect impact of an event or policy that may not be easily and immediately observable |
| positive economics | the scientific study of what is (testable) |
| normative economics | judgments about what ought to be (not testable) |
| fallacy of composition | the belief that what is true for one might be true for all |
| microeconomics | focuses on how human behavior affects the conduct of affairs within individually defined units such as households or firms |
| normative statement | "the national debt is too large. The government must stop spending so much money." |
| The additional benefits of the second car with the additional costs of the second car | when deciding whether to purchase a second car, they would compare what when thinking at the margin? |
| $0.50 | If Susan bought nine gallons of gasoline at $1.5 per gallon, the car wash cost $1, but if she bought 10 gallons of gasoline, the car wash was free. Given that Susan is going to get the car wash, the marginal cost of the tenth gallon of gasoline is ___ |
| Transaction Costs | The time, effort and other resources needed to search out and complete an exchange |
| Middleman | a person who buys and sells goods or services or arranges trades. |
| True | A middleman reduces transaction costs |
| lack of economic progress | The result of lack of property rights |
| Production Possibilities Curve | Outlines all possible combinations of total output that could be produced |
| outwards | investments shift the PPC in what direction? |
| outwards | changes in technology shift the PPC in what direction? |
| true | A change in the rules under which the economy functions shift the PPC either inwards or outwards. |
| false | Changes in work habits have no effect on the PPC. |
| Law of comparative advantage | the total output of a group of individuals, an entire economy, or a group of nations will be greatest when the output of each good is produced by whoever has the lowest opportunity cost. |
| what, how, and for whom will it be produced? | Every economy faces 3 questions: |
| Socialism | a system of economic organization where: the state has ownership and control of production and resource allocation is determined by centralized planning |
| collective decision making | the method of organization that relies on public sector decision making to resolve basic economic questions |
| Capitalism | a system of economic organization where: productive resources are owned privately and goods and resources are allocated through market prices |
| market organization | a method of organization in which private parties make their own plan and decisions with the guidance of market prices |
| law of demand | there is an inverse relationship between the price of a good and the quantity that buyers are willing to purchase |
| downward slope | what type of slope does the demand curve have? |
| Consumer surplus | the difference between the maximum amount consumers would be willing to pay and the amount they actually pay |
| below the demand curve, but above the price | where is the consumer surplus area located? |
| movement along the curve | a change in quantity demanded causes what type of movement? |
| shift of the curve | a change in demand causes what type of movement? |
| curve shifts right | increase in demand |
| curve shifts left | decrease in demand |
| the law of supply | there is a direct relationship between the price of a good or service and the amount that suppliers are willing to produce |
| upward slope | what type of slope does the supply curve have? |
| Producer surplus | the difference between the minimum price suppliers are willing to accept and the price they actually recieve |
| above the supply curve, but below the price | where is the producer surplus area? |
| movement along the curve | change in quantity supplied: |
| shift in the curve | change in supply |
| resource price, technology, nature, politics, taxes | changes in what shift the supply curve: |
| Inelastic demand | quantity demanded is not sensitive to changes in price ( _________ _______ curves are steeper) |
| Elastic demand | quantity demanded is sensitive to changes in price ( _____ _______ curves are flatter) |
| labor demand curve | _______ ________ ________ is downward sloping because as wage decreases, firms will want to employ more people |
| labor supply curve | ______ ________ _______ is upward sloping because as wage increases, people will want to work more |
| price floor | a legally established minimum price buyers must pay for a good or resource |
| surplus | a condition in which the amount offered for sale is greater than the amount that buyers will purchase at existing prices |
| price ceiling | a legally established maximum price sellers can charge for a good or resource |
| shortage | a condition in which the amount offered for sale is less than the amount demanded by buyers at existing prices |
| raise | a tax on a product will _______ the price that buyers pay |
| reduce | a tax on a product will _______ the amount sellers recieve |
| reduce | a tax on a product will _______ quantity sold |
| increase | a tax on a product will ______ government revenue |
| deadweight lost | a tax on a product will create _______ ______ |
| left | a tax on a product will cause the supply curve to shift _____ by the amount of the tax |
| deadweight lost | the loss to society that results from the loss of gains to trades that do not occur because a tax was imposed |
| tax incidence | the way the burden of a tax is distributed among economic units |
| tax liability/taxable income | ATR (average tax rate) |
| Marginal tax rate | the additional tax liability a person faces divided by his or her additional taxable income |
| change in tax liability/change in taxable income | MTR (Marginal tax rate) |
| The Laffer Curve | a curve illustrating the relationship between the tax rate and tax revenue |
| subsidy | a payment the government makes to either the buyer or seller when a good or service is purchased or sold |
| lower; raise | with no competition, a firm can ___ production and ____ price |
| externalities | the effects of an activity that influence the well-being of non-consenting third parties |
| non-rival consumption | making the god available to one consumer does not reduce its availability to others |
| non-excludable | it is impossible (or incredibly costly) to exclude nonpaying customers from receiving the good |
| marginal utility | the benefit derived from consuming an additional unit of the good |
| law of diminishing marginal utility | the consumption of a product increases the marginal utility derived from additional consumption will eventually decline |
| marginal benefit | the maximum price a consumer will be willing to pay for an additional unit of the product (the height of the demand curve) |
| price elasticity of demand | % change in Quantity D/ % change in Price |
| elastic | price elasticity of demand is >1 |
| unitary elastic | price elasticity of demand =1 |
| inelastic | price elasticity of demand <1 |
| higher | good substitutes= ______ elasticity |
| % change in Quantity Demanded/ % change in income | income elasticity measures the responsiveness of the demand for a good to a change in income, what is the formula? |
| residual claimants | individuals who personally receive the excess of revenues over costs |
| proprietorship | a business firm owned by a single individual |
| partnership | a business firm owned by two or more individuals |
| corporation | a business firm owned by shareholders |
| explicit costs | the payments a firm makes to purchase the goods and services of productive resources |
| implicit costs | the opportunity costs associated with the firm's use of resource that it owns |
| Total Costs | the costs (both explicit and implicit) of all of the resources used by the firm |
| economic profit = TR-TC | the difference between the firms total revenue and its total costs (including both explicit and implicit costs) |
| accounting profit TR-Explicit costs | the sales revenue minus the expenses of the firm (does not usually include implicit costs) |
| normal profit rate | zero economic profit, the competitive rate of return on the capital and labor of the owners. Zero economic profit does NOT mean the business is failing |
| Total fixed costs | the sum of the costs that do not vary with output |
| Average Fixed Costs = TFC/Q | total fixed costs divided by the number of units produced; always declines with output |
| Total variable costs | the sum of those costs that change with output |
| Average Variable Costs = TVC/Q | Total variable costs divided by the number of units produced |
| total fixed costs + total variable costs | formula for total costs? |
| Total costs/ quantity | Average Total Costs (ATC) = |
| Marginal costs | the change in total costs required to produce an additional unit of output |
| law of diminishing returns | as more and more units of a variable resource are applied to a fixed amount of other resources, output will eventually increase by smaller and smaller amounts |
| Average Product = Total product / quantity | the total product divided by the number of variable units (labor) used to get that total product |
| economies of scale | occurs when the firms per-unit costs decreases as output increases |
| diseconomies of scale | occurs when the firms per-unit costs increase as output increases |
| sunk costs | costs that have already been incurred as a result of past decisions |
| price takers | the sellers who must take the market price in order to sell their product |
| price searchers | firms that choose the price they charge for their product, but inversely related to the price |
| price taker markets | there are a large number of firms in the market |
| price taker markets | each firm produces identical products |
| price taker markets | their output is small relative to the total market |
| price taker markets | they are able to sell all of their output at the market price |
| price taker markets | there are no barriers to entry or exit of firms in the market |
| barriers to entry | obstacles that limit the freedom of potential rivals to enter and compete in an industry or market |
| marginal revenue = price | the change in total revenue derived from the scale of one additional unit of a product |
| Marginal revenue = marginal cost | maximizing profits |
| profit | if MR=MC occurs above the ATC curve then the firm is making an economic ___________ |
| loss | if MR=MC occurs below the ATC curve then the firm is making an economic loss |
| enter; down | if firms are making an economic profit: new firms will ______ and drive price _______ |
| leave; up | if firms are making an economic loss: firms will ________ the market and drive price ________ |
| zero | long-run equilibrium will occur when all firms in the industry are making _______ economic profit |
| competitive price searcher | a firm that has low barriers to entry and faces a downward sloping demand curve (because they produce differentiated products) |
| demand; elastic | because good substitutes are available, the _________ curve faced by competitive price searches is highly _______ |
| less; searcher | Marginal revenue will always be _______ then price for a price ___________ |
| contestable markets | markets in which firms can enter and exit with minimal risk |
| creative destruction | the replacement of old products and production methods by innovative new ones that consumers judge to be superior |
| bundling | the sale of two or more goods and service together |
| tying | the act of making the purchase of one good conditional on the purchase of a second good |
| economies of sale, government licensing, patents, control of an essential resource | what causes high barriers to entry? (4) |
| monopoly | a _______ is a market characterized by high barriers to entry and a single seller of a well-defined product that has no good substitutes |
| oligopoly | the characteristics of a(n) ____________ are: a small number of rival firms, interdependence among the sellers, and high barriers to entry in the market |
| dominant strategy | a strategy that is best for a player in a game regardless of the strategies chosen by the other players |
| game theory | the analysis of strategic choices made by competitors in a conflict situation |
| collusion | the agreement among firms to avoid competitive practices |
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