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Terms in this set (95)
Refers to money, capital or labor that is being wasted. Ex: if someone is unemployed, that person's talent is being wasted.
The ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group.
The ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity.
A situation in which two suppliers dominate the market for a commodity or service.
A market structure characterized by a single seller, selling a unique product in the market. The seller faces no competition, as he is the sole seller of goods with no close substitute.
Ex: Providers of water, gas, TV, power
Occurs when a firm has market power in employing factors of production. One buyer and many sellers.
Ex: government in employing nurses, police, etc
Takes place within an industry when rival companies cooperate for their mutual benefit.
A strategy that is best for a player in a game regardless of the strategies chosen by the other players.
A situation in which a particular market is controlled by a small group of firms. Much like a monopoly, in which only one company exerts control over most of a market. There are at least two firms controlling the market.
Ex: auto industry, Ford, GMC, Chrysler
The equipment and structures used to produce goods and services.
The increase in total cost that arises from an extra unit of production.
A graph of the relationship between the PRICE of a good and the QUANTITY demanded.
Labor Supply Curve
Labor Demand Curve
How changes in income affect the amount of goods or services consumers will demand or purchase.
Marginal Product of Labor
The increase in the amount of output from an additional unit of labor.
The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution.
Based on the idea that as prices rise, consumers will replace more expensive items with cheaper substitutes or alternatives, assuming income remains the same.
Ex: price of pizza rises so you buy more Pepsi
A difference in wages that arises to offset the monetary characteristics of different jobs.
Ex: Garbage man Vs Floor Sweeper. Garbage man gets paid more because its stinky and gross.
The difference between the incomes of the richer and poorer parts of society.
Describes an undesired result due to the situation where one party of a deal has more accurate and different information than the other party.
Ex: Buying a used car
Occurs when a party provides misleading information and changes his behavior when he does not have to face consequences of the risk he takes.
Ex: fire insurance
A situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen.
A good for which, other things equal, an increase in income leads to an increase in demand.
The change in total revenue from an additional unit of labor.
Upward sloping labor supply curve means:
If the substitution effect is stronger than the income effect.
An increase in wages provides an incentive to supply additional hours of labor.
That a higher opportunity cost of leisure induces people to take less leisure and work more.
Downward sloping labor supply curve
Because of the law of diminishing returns... As a firm hires more and more workers, each additional worker contributes less and less additional output—and revenue—to the firm.
Left shift in labor supply curve means:
Workers are less willing to work a certain number of hours at a given rate.
Right shift in labor supply curve means:
Workers are more willing to work a certain number of hours at a given rate than they were before.
Ex: Suppose immigration increases the number of workers willing to pick apples.
The collective skills, knowledge, or other intangible assets of individuals that can be used to create economic value for the individuals, their employers, or their community.
The offering of different opportunities to similar individuals who differ only by race, sex, age, etc.
If an economy is producing a level of output that is on its production possibility frontier, the economy has:
no idle resources and is using resources efficiently.
The opportunity cost of production:
is what you give up to produce the good.
An economy is said to have a comparative advantage in the production of a good if it can produce that good:
at a lower opportunity cost than another economy.
An industry that consists of two firms is:
If the only two firms in an industry agree to fix the price at a given level, this is an example of:
Which of the following would make it difficult for oligopolists to collude?
There are few buyers in the market.
In terms of contribution to total income, the single most important factor of production is:
To maximize profits a firm will employ workers up to the point at which for the last worker employed:
the value of the marginal product is equal to the wage rate.
The government decides to increase the sales tax on all goods. The government does not change the tax on income earned for labor. What happens in the market for labor?
The demand for labor decreases.
An increase in the demand for labor may come about because of:
an increase in the price of the good labor produces.
A decrease in the quantity demanded of labor will occur if:
the price of labor rises.
A firm's demand curve for labor will shift because of:
a change in the product's price.
Eric is a professor who is paid an annual salary to teach at a local college. Suppose Eric receives a promotion and an increase in his annual salary. Eric's labor supply curve will be:
upward-sloping if the substitution effect is greater than the income effect.
Consider the labor market for accountants. As more people earn accounting degrees, we should expect to see:
the labor supply curve increase.
Lisa works 46 hours a week at a wage of $10 an hour. If her wage increases to $16.50, then:
if leisure is a normal good, the income effect will imply that she works less.
A leftward shift in the labor supply curve would result if:
people begin to value leisure more highly.
A wage _____ reduces the quantity of labor supplied through the _____ effect.
Beyond some point, a higher wage may induce an individual to work _____ and the labor supply curve may then _____.
less; bend backward
Leisure is considered a normal good since people:
consume more of it when their incomes rise.
A labor market in which there is only one firm hiring labor is called a:
Across different types of jobs, wages are often higher or lower depending on how attractive or unattractive the job is. These wage differences are known as:
Which of the following instances of wage disparity is an example of the existence of compensating differentials?
A window washer working in a suburban subdivision gets paid less than one who is washing windows on the outside of a skyscraper.
Many people don't reveal their smoking and eating habits on their applications for health insurance. This is an example of:
occurs when incentives are distorted, because an individual knows more about his or her actions that other people do.
Ex: the employer and employee relationship
You insure your car against theft. Consequently, you rarely lock the car. This describes the problem of:
For any amount of a good or service, more is preferred to less.
Any activity at which its maximum benefit has already been derived and, therefore, the marginal benefit equals zero.
Consumer will buy a good regardless of the movement of price. No substitutes.
Price elasticity of supply
A measure of how much the quantity supplied of a good responds to a change in the price of that good.
%change in Q / %change in $
A good for which an increase in income leads to a decrease in demand.
Ex: Getting a raise and not buying Kroger brand anymore.
Used to determine how changes in product demand and supply relate to changes in consumer income or the producer's price.
Negative cross price elasticity of demand
Two products that are complements.
Ex: hot dogs & mustard
Quantity supplied > Quantity demanded
Price on a specific good.
Ex: gas, alcohol
The Coase theorem states that in the presence of externalities, a market economy will:
reach an efficient solution if transaction costs are sufficiently low.
Someone imposes on another without their consent.
Ex: oil power plant nasty air
Benefit someone gains from someone else's actions.
Ex: flu shot
EXCLUDABLE & RIVAL IN CONSUMPTION.
Ex: ice-cream cone. You can prevent someone from eating it and no one can eat it after you.
EXCLUDABLE, but not rival.
Ex: WiFi. You can put a password on it and you using it doesn't effect anyone else from using it.
RIVAL IN CONSUMPTION but not excludable.
Ex: fish. When one person catches a fish no one can catch that same fish. But no one man can catch all the fish.
NEITHER rival or excludable.
Ex: tornado siren. You can't prevent someone from hearing it and if one person gets the warning it doesn't limit anyone else.
Rival in consumption
One person using a good prevents someone else from using it.
Whether someone can be prevented from using a good.
If total surplus falls, which of the following must have occurred?
There was a decrease in demand or a decrease in supply.
1. The goods offered for sale are all exactly the same.
2. The buyers and sellers are so numerous that no single buyer and seller has any influence over the market price.
Firms in the model of perfect competition will:
Increase output up to the point that the marginal benefit of an additional unit of output is greater that the marginal cost.
Monopolistic competitive firms
Market which many firms sell products that are similar but not identical.
Ex: grocery stores
Direct payment made to others.
A perfectly competitive firm will continue producing in the short run as long as it can cover its:
Costs that vary with the quantity of output produced.
Ex: raw materials, packaging, and labor directly involved in a company's manufacturing process
Costs that do not vary with the quantity of output produced.
Goods produced abroad and sold domestically.
Goods produced domestically and sold abroad.
A tax on goods produced abroad and sold domestically.
The relationship between the quantity of inputs used to make a good and the quantity of output of that good.
Diminishing marginal product of labor
As the number of workers increases, the marginal product of labor declines.
Ex: At first you only need a few workers to pick the low apples. But you hire more workers to pick the high apples. So more additional workers, each additional worker contributes less.
An action taken by an informed party to reveal private information to an uninformed party.
Ex: firm spending money on a commercial to signal to costumers about their product
An action taken by an uninformed party to induce an informed party to reveal information.
Ex: a person buying a new car asking for a check by a mechanic.
The failure of majority rule to produce transitive preferences for society.
Arrow's impossibility theorem
A mathematical result showing that, under certain assumed conditions, there is no scheme for aggregating individual preferences into a valid set of social preferences.
relationship between price & quantity demanded
Negative cross price elasticity
two products that are compliments
Ex: hot dogs & mustard
Price discrimination will ____ firms profits.
Input costs that do not require an outlay of money by the firm. Ex: the other job you could be getting paid for
Backward bending labor supply curve
Results when an even higher wage actually entices people to work less and to "consume" more leisure or non-paid time.
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