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Joab

Price Taker

will expand as long as marginal cost is less than the market price
-small relative to the market
-sell an identical product
-in a market w many buyers and no barriers to exit or entry

How many things would a price taker sell above the market price?

0

Why do economists like competition?

-reduces costs
-reduces prices
-forces firms to become more efficient and innovate
-shifts resources from unproductive areas to productive areas

Economics

the branch of social science that deals with the production and distribution and consumption of goods and services and their management

Scarcity

The concept that there is less of a good freely available from nature than people would like

Positive Economic Statements

testable

Normative Economic Statements

not testable

Ceteris Paribus Principle

everything else is held constant

Nirvana Fallacy

The logical error of comparing actual things with unrealistic, idealized alternatives. Tendency to assume that there is a perfect solution to a particular problem.

Fallacy of Composition

The belief that what is true for one is true for all

Middle Men

-reduces transaction costs
-a person who buys or sells goods or arranges trade

Production Possibilities Curve (PPC)

bowed-out production possibilities curves illustrate increasing opportunity cost, whereas straight-line production possibilities curves illustrate constant opportunity cost

Efficient Points (PPC)

points on the curve, maximum productivity

Inefficient Points (PPC)

points within the curve, not producing at maximum productivity

Unattainable Points (PPC)

points outside the curve, not possible with current resources

Law of Comparative Advantage

The worker, firm, region, or country with the lowest opportunity cost of producing an output should specialize in that output

Capitalism

-better than socialism
-market organization
-an economic system based on private property and free enterprise

Socialism

a political theory advocating state ownership of industry

Consumer Surplus

1/2bXh, area below the demand curve but above the price, the difference between the maximum consumers are willing to pay and what they will actually pay

Quantity Demanded or Supplied

Movement along the curve caused by change in the price of the good in question

Change in Demand or Supply

A change in anything that affects demand aside from the price of the good

Producer Surplus

1/2bXh, area above the supply curve but below the price, the difference between the minimum producers are willing to acccept and what they actually accept

Average Total Cost (ATC)

TFC+TVC=TC / Q =ATC

Elastic

Changes in quantity are sensitive to changes in price (flatter)

Inelastic

Changes in quantity are not as sensitive to the change in price (steeper)

Labor Market

same as market for goods and services w a different name for price/quantity; Price=Wage, Quantity=Employment

Subsidies

Money the government pays to the buyer or seller when a good is purchased or sold

principal agent problem

a problem caused by an agent pursuing his own interests rather than the interests of the principal who hired him

Average Fixed Cost (AFC)

will always decrease as output expands

Economies of Scale

falling average total costs as you produce more output

What's the equation for a business to stay open?

MR=MC

Price elasticity (demand) is larger when...?

people spend a large share of their income on the product

Diseconomies of Scale

long run average total costs rise as you produce more output

Proprietorship

Business owned by a single individual who is fully liable for all debts

What distinguishes a competitive price searcher from a price taker market?

Firms in price-searcher produce differentiated prices

Price Searcher

marginal revenue curve will lie below its demand curve

Contestable Market

costs of exit and entry are low

Why do economists generally criticize high barriers to market entry?

the ability of consumers to discipline producers is weakened

What would reduce the likelihood of effective collusion among oligopolistic producers?

low entry barriers into the market

Physical Resource

resources made by man through his abilities and skill, would help man's daily activities become easy Ex:buildings, technology

What is the market demand of an item?

the sum of individual demands

All things equal, the price elasticity of supply

will be greater in the long run than short run

Why does the government sometimes provide public goods?

free-riders make it difficult for private markets to supply the efficient quantity

Law of Diminishing Returns

a firm will experience rising per unit costs in the short run

External Costs

overproduced

External Benefits

underproduced

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