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econ

Terms in this set (89)

national income accounting
a term that describes a set of principles used by countries to measure their production and income.
GDP
the value of all final goods and services produced in a country within a given time period
GNP
the market value of all the products and services produced in a time period by the labor and capital supplied by the residents of a country
NNP
the market value of production supplied by labor and capital supplied by the residents of a country, minus the depreciated value of capital goods
nominal GDP
the value, in current prices, of all final goods and services produced in a country within a given time period
real GDP
the value, in constant prices, of all final goods and services produced in a country within a given time period, usually measured against prices of predetermined base year
per capita GDP
an average based on the national income of the country divided by the country's population
purchasing power parity
the theory that in the long run, identical products and services that are sold in different countries should cost the same
business cycle
a term used to describe the fluctuations of national income from expansion to contraction to recovery
game theory
a branch of mathematics and social sciences that tries to capture behavior in strategic situations (games)
collusion
an agreement between competitive parties to limit competition and raise prices
cartel
a group of competitors that successfully limit competition and keep prices above a competitive norm.
natural monopoly
occurs in a market where the lowest costs can be achieved when only 1 firms sells to the market
price discrimination
occurs when different prices are charged to different consumers for the same good by the same provider.
barriers to entry
the technical, competitive or cost-related impediments to joining a market and competing against the existing firms.
market failure
where the allocation of resources by a free market is not efficient
Externality
a transaction where a 3rd party experiences a consequence as a result of the transaction
marginal social benefit
the additional gain to society as a whole from an additional unit
marginal private benefit
The benefit from an additional unit of a good or service that the consumer of that good or service receives.
marginal social cost
The extra cost to society of producing an additional unit of output, including both the private cost and the external costs.
marginal private cost
the cost of producing an additional unit of a good or service that is borne by the producer of that good or service
Merit goods
MSB is greater that MSC when sold
public good
a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers
Demerit goods
MSC is greater than MSB when sold
monopoly power
The ability of a monopoly to dictate what takes place in a given market.
short run
the period of time during which at least one of a firm's inputs is fixed
long run
the time period in which all inputs can be varied
implicit costs
opportunity costs
explicit costs
The actual payments a firm makes to its factors of production and other suppliers.
law of diminishing returns
the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline
increasing returns to scale
when long-run average total cost declines as output increases
constant returns to scale
when long-run average total cost is constant as output increases
decreasing returns to scale
when long-run average total cost increases as output increases
economic profit
when total revenue exceeds both implicit and explicit costs
Equilibrium
when quantity demanded equals quantity supplied
XED
a measure of the responsiveness of consumers of 1 good to a change in the price of a related good
YED
a measure of the responsiveness of consumers demand for a particular good to a change in their income
PES
a measure of the responsiveness of a producer of a particular good to a change in the price of that good
specific tax
a set amount charged per unit of the product sold
ad valorem tax
a percentage tax on a good
deadweight loss
the loss of benefit to market participants
price ceiling
a maximum legally allowable price for a good, set by the government
price floor
a minimum legally allowable price for a good, set by the government
Law of Demand
when price goes up, quantity demanded goes down and that when prices goes down, quantity demanded goes down
normal goods
goods that you buy when income is steady
inferior goods
goods that you buy when income is low
compliments
goods that go together
substitutes
goods used in place of one another
law of diminishing marginal utility
the principle that consumers experience diminishing additional satisfaction as they consume more of a good during a given period of time
firm
1 store/brand
industry
A collection of businesses with a common line of products or services
perfect competition
many buyers and sellers
Oligopoly
a few firms, lots of buyers
monopolistic competition
a market structure in which many companies sell products that are similar but not identical
Monopoly
A market in which there are many buyers but only one seller
Law of Supply
the quantity supplied of a good rises when the price of the good rises
Subsidies
government grants of money
Taxes
Required payments to a government
supply shock
a sudden shortage of a good
Demand Equation
Qd=a-bP
supply equation
Qs=c+dP
elastic
responsive to price changes
Inelastic
not responsive to price changes
total revenue test
a quick way to figure out PED
scarcity
unlimited wants and limited resources
positive economics
focuses on facts and cause-and-effect relationships
normative economics
focuses on what-should-be or what-ought-to-be questions
Tradeoffs
what you give up
opportunity cost
what you would have gained from what you gave up
Central planned economy
the government answers the 3 basic questions
free market economy
the people answer the 3 basic questions
mixed economy
A combination of a command and market economy
PPC curve
illustrates opportunity costs
productive efficiency
using all of the resources
allocative efficiency
society is getting what they want
PPC shifters
better technology or more resources
economics
the study of how society manages its scarce resources
factors of production
land, labor, capital
resource market
a market in which households sell and firms buy resources or the services of resources
product market
the market in which households purchase the goods and services that firms produce
household
owners of productive resources
straight PPC
constant opportunity cost
bowed PPC
increasing opportunity costs
economic growth
an increase in the total output of an economy
3 economic questions
What to produce? How to produce? For whom to produce?
Adam Smith
wrote the wealth of nations
Laissez-faire
No government interference
invisible hand
self-regulating nature of the marketplace
circular flow model
A diagram that traces the flow of resources, products, income, and revenue
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