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157 terms

Economics Terms

ap economics
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ability to pay principle
principle of taxation in which those with higher incomes pay more taxes than those with lower incomes reguardless the service the use.
absolute advantage
the ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources.
accounting profit
total revenue minus explicit costs; not taking into consideration implicit costs
adverse selection
the parttern that occurs when, at any given cost of insurance, peole with a greater expectation of loss buy insurance while people with a lower expected value of claims choose not to buy insurance
agent
a businessman who buys or sells for another in exchange for a commission
arrows impossibility theorem
muffin
average fixed cost
the total fixed costs (TFC) divided by the number of units produced. It is the only cost that decreases with production.
average revenue
Total revenue divided by the quantity of the product sold.
average tax rate
total taxes paid divided by total taxable income
average total cost
It is equal to total cost divided by the number of goods produced. It is also the Average Variable Cost plus Average Fixed Cost. It may be dependent on the time period considered (increasing production may be expensive or impossible in the short term, for example). Its affects the supply curve and are a fundamental component of supply and demand.
average variable cost
variable costs/ quantity of output
behavioral economics
this branch of economics examines consumer behavior in the face of psychological limitations to rational decision making
benefits principle
stating that those who benefit more from a product or service should pay more taxes on the product or service than those who benefit less
budget constraint
The combination of goods that can be purchased with a limited amount of income.
budget deficit
when the government spends more money than it collects in taxes
budget surplus
an excess of tax revenue over government spending
business cycle
Recurrent swings from economic hard times to recovery and growth, then back to hard times and a repetition of the sequence. (p. 615)
capital
wealth in the form of money or property owned by a person or business and human resources of economic value
cartel
a consortium of independent organizations formed to limit competition by controlling the production and distribution of a product or service
circular flow diagram
an illustration showing the flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households and from households to firms.
coase theorem
if at no cost, people can negotiate the purchase and sale of the right to perform activities that cause externalities, they can always arrive at efficient solutions to the problems caused by externalities
collusion
conspiring in a fraudulent scheme to cheat or deceive others; V. collude
common resources
Goods that are rival in consumption but not excludable
comparative advantage
the ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.
compensating differential
a difference in wages that arises to offset the nonmonetary characteristics of different jobs
competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
complements
two goods are complements in consumption if an increase in the price of one causes a leftward shift in the demand curve for the other.
condorcet paradox
The failure of majority rule to produce transitive preferences for society
constant returns to scale
The property whereby long-run average total cost stays the same as the quantity of output changes (middle flat part of the long-run ATC)
consumer surplus
The difference between the maximum amount a person is willing to pay for a good and its current market price.
corrective tax
A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality
cost
value measured by what must be given or done or undergone to obtain something
cost benefit analysis
when you compare the marginal costs and the marginal benefits of a decision
cost price elasticity of demand
muffins
deadweight loss
cause by a policy is the reduction in economic surplus that results from adoption of that policy
demand curve
a graph of the relationship between the price of a good and the quantity demanded
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
diminishing marginal product
The property Whereby the marginal product of an input declines as the quantity of the input increases
discrimination
policy or attitude that denies equal rights to certain groups of people
diseconomies of scale
The property whereby long-run average total cost rises as the quantity of output increases (right-most upward sloping part of the long-run ATC)
dominant strategy
a strategy that is best for a firm, no matter what strategies other firms use
economic profit
Total revenue minus total cost, including both explicit and implicit costs
economics
the branch of social science that deals with the production and distribution and consumption of goods and services and their management
economies of scale
the property whereby long-run average total cost falls as the quantity of output increases
efficiency
using resources in such a way as to maximize the production of goods and services
efficiency wages
Wage rates higher than market equilibrium wage rates - higher wages paid in expectation that such wages reduce employee turnover and increase labor productivity.
efficiency scale
the quantity of output that minimizes average total cost
elasticity
measures how sensitive consumers are to price changes
equality
the state or quality of being equal; correspondence in quantity, degree, value, rank, or ability.
equilibrium
the point at which quantity demanded and quantity supplied are equal
equilibrium price
the price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy
equilibrium quantity
quantity at which there is no shortage or surplus. graphically, the intersection of supply and demand curves
excludability
the situation in which anyone who does not pay for a good cannot consume it.
explicit costs
Payments by a firm to purchase the services of productive resources.
exports
Goods and Services sold to other countries
externality
an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
factors of production
land, labor, capital, entrepreneurship
fixed costs
expenses that are the same no matter how many units of a good are produced
free rider
An individual who does not join a group representing his or her interests yet receives the benefit of the group's influence.
game theory
(economics) a theory of competition stated in terms of gains and losses among opposing players
giffen good
an inferior good accounting for a large share of a consumers budget that has a positively sloped demand curve because the income effect of a price change out weighs the substitution effect
horizontal equity
The idea that taxpayers with similar abilities to pay taxes should pay the same amount
human capital
The knowledge, skills, and abilities of employees that have economic value.
implicit costs
all the firm's opportunity costs of the resources supplied by the firm's owners for which the owners do not make an explicit charge
imports
goods brought into a country
incentive
spur; motive; something which encourages one to greater activity
income effect
a change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price.
income elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income
indifference curve
a curve showing all combinations of two goods that the consumer is indifferent among
inferior good
a good that consumers demand less of when their incomes increase
inflation
a general and progressive increase in prices
in kind transfers
muffins
internalizing the externality
Altering incentives so that people take account of the external effects of their actions
law of demand
consumers buy more of a good when its price decreases and less when its price increases
law of supply
Tendency of suppliers to offer more of a good at a higher price
law of supply and demand
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
liberalism
an economic theory advocating free competition and a self-regulating market and the gold standard
libertarianism
an ideology that cherishes individual liberties, insists on minimal government, promoting a free market economy, noniterventionist in foreign policy and an absence in moral, economic, and social life
life cycle
succession of statuses and roles that people in a particular society experience in a fairly predictable pattern as they grow older
lump sum tax
a tax that is the same amount for every person
macroeconomics
the branch of economics that studies the overall working of a national economy
marginal changes
small incremental adjustments to a plan of action
marginal cost
the increase or decrease in costs as a result of one more or one less unit of output
marginal product
the additional output that can be produced by adding one more unit of a specific input, ceteris paribus.
marginal product of labor
the change in output from hiring one additional unit of labor
marginal rate of substitution
The rate in which a consumer is willing to trade one good for another and stay on the same indifference curve
marginal revenue
the additional income from selling one more unit of a good; sometimes equal to price
marginal tax rate
tax rate that applies to the next dollar of taxable income, that increases as the amount of taxable income increases
market
the world of commercial activity where goods and services are bought and sold
market economy
an economy that relies chiefly on market forces to allocate goods and resources and to determine prices
market failure
a situation in which a market left on its own fails to allocate resources efficiently
market power
the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
maximum criterion
the government whould maximize the well being of the worst-off person in society
median voter theorem
a theorem stating that the median or middle of political preferences will be reflected in the government decisions. (15)
microeconomics
the branch of economics that studies the economy of consumers or households or individual firms
monopolistic competition
a market structure in which many companies sell products that are similar but not identical
monopoly
(economics) a market in which there are many buyers but only one seller
moral hazard
the condition that exists when agents have superior information to principals and are able to make decisions that favor their own interests over those of the principals
nash equilibrium
(game theory) a stable state of a system that involves several interacting participants in which no participant can gain by a change of strategy as long as all the other participants remain unchanged
natural monopoly
a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
negative income tax
proposed type of tax that would make cash payments to certain groups below the poverty line
normal good
a good that consumers demand more of when their incomes increase
normative statements
claims that attempt to prescribe how the world should be
oligopoly
(economics) a market in which control over the supply of a commodity is in the hands of a small number of producers and each one can influence prices and affect competitors
opportunity cost
the most desirable alternative given up as the result of a decision
perfect complements
goods that a consumer is interested in consuming but only in fixed proportions; has L shaped indifference curves
perfect substitutes
STILL USING THE ONLINE ECONOMIC DICTIONARY, it is a kind of substitute goods. it is a perfect substitute if it can be used in exactly the same way, at exactly the same cost, and with exactly the same quality of outcome; that is, when there is no particular incentive for a customer to prefer one over the other. Needless to say, there are relatively few perfect substitutes except between two goods of the same kind.
permanent income
Income that individuals expect to receive annually.
political economy
the branch of social science that deals with the production and distribution and consumption of goods and services and their management
positive statements
claims that attempt to describe the world as it is
poverty line
a level of personal income defining the state of poverty
poverty rate
percentage of people whose income falls below the poverty line
price ceiling
a maximum price that can be legally charged for a good or service
price discrimination
Division of customers into groups based on how much they will pay for a good
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
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, computed as the percentage change in quantity supplied divided by the percentage change in price
price floor
floor below which prices are not allowed to fall
principal
the original amount of a debt on which interest is calculated
prisoners dilemma
a game in which pursuing dominate strategies results in noncooperation that leaves everybody worse off
private goods
Goods that are both excludable and rival in consumption
producer surplus
the difference between the lowest price a firm would be willing to accept and the price it actually receives
production function
A concept that describes the relationship between changes in output to different amounts of a single input while other inputs are held constant.
production possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
productivity
(economics) the ratio of the quantity and quality of units produced to the labor per unit of time
profit
the excess of revenues over outlays in a given period of time (including depreciation and other non-cash expenses)
progressive tax
any tax in which the rate increases as the amount subject to taxation increases
property rights
the ability of an individual to own and exercise control over scarce resources
proportional tax
A tax in which the average tax rate is the same at all income levels.
public goods
Goods, such as clean air and clean water, that everyone must share
quantity demanded
the amount of a good that buyers are willing and able to purchase
quantity supplied
the amount of a good that sellers are willing and able to sell
rational people
people who systematically and purposefully do the best they can to achieve their objectives
regressive tax
a tax for which the percentage of income paid in taxes decreases as income increases
rivalry in consumption
The property of a good whereby one person's use diminishes other people's use
scarcity
limited quantities of resources to meet unlimited wants
screening
testing objects or persons in order to identify those with particular characteristics
shortage
a situation in which quantity demanded is greater than quantity supplied
signaling
Idea that dividend announcements tell of management's expectations about future earnings and CFs
social insurance
Social welfare programs based on the "insurance" concept, so that individuals must pay into the program to be eligible to receive funds from it
strike
stop work in order to press demands
substitutes
goods that can serve as replacements for one another, when the price of one increases, demand for the other goes up
substitution effect
when consumers react to an increase in a goods price by consuming less of that good and more of other goods
sunk cost
A cost that is beyond recovery at the moment a decision must be made.
total revenue (for firm)
muffins
total revenue (for market)
muffins
tragedy of the commons
Title of an Article written Garrett Harden, 1968, said there will always be a struggle because individuals will use up resources that are common even though that's not what they intend.
transaction costs
the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services
union
an organization of employees formed to bargain with the employer
utilitarianism
The theory, proposed by Jeremy Bentham in the late 1700s, that government actions are useful only if they promote the greatest good for the greatest number of people.
utility
(economics) a measure that is to be maximized in any situation involving choice
value of the marginal product
the marginal product of an input times the price of the output.
variable costs
costs that vary with the quantity of output produced
vertical equity
The idea that people with more income or wealth should pay higher taxes.
welfare
governmental provision of economic assistance to persons in need
welfare economics
The theory that optimum resource allocation occurs when the satisfaction gained by market participants is maximised
willingness to pay
A buyer's maximum; measures how much the buyer values a good.
world price
the int'l market price of a good determined by world supply and demand