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SRES Final review
Terms in this set (65)
the ability to produce a good at a lower opportunity cost than another producer
the most desirable alternative given up as the result of a decision
production possibilities curve
A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.
supply and demand curve
Graph that includes both a supply curve and a demand curve. It shows the relationship between prices and the quantities of a product or service that is supplied and demanded.
the price that balances quantity supplied and quantity demanded
the quantity supplied and the quantity demanded at the equilibrium price
shift of a supply curve
movement of a supply curve left or right resulting from a change in one of the determinants of supply other than the price of the good
shift of a demand curve
movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good
Demand Shift Factors
1. Society's income
2. The prices of other goods
5. Taxes and subsidies
Supply Shift Factors
1. Price of inputs
4. Taxes and subsidies
no cash on the table principle
Economic metaphor for unexploited gains from exchange. When people have failed to take advantage of all mutually beneficial exchanges, we often say that there is cash on the table.
What would happen if price ceiling (Maximum price) was set below the equilibrium price?
quantity demanded will exceed quantity supplied, and excess demand or shortages will result.
what would happen if a price floor (minimum price) was set above the Equilibrium Price
quantity supplied will exceed quantity demanded, and excess supply or surpluses will result.
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
the amount a seller is paid for a good minus the seller's cost of providing it
two goods that are bought and used together
Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.
goods that consumers demand more of when their incomes rise
a good that consumers demand less of when their incomes increase
price elasticity of demand
a measure of the sensitivity of demand to changes in price
A situation in which consumer demand is sensitive to changes in price
A situation in which an increase or a decrease in price will not significantly affect demand for the product
Determinants of Elasticity of Demand
substitutability, proportion of income, luxuries vs necessities, time
income elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in consumers' income
cross-price elasticity of demand
a measure of how much the quantity demanded of one good responds to a change in the price of another good
Ability or capacity of a good or service to be useful and give satisfaction to someone.
satisfaction or usefulness obtained from acquiring one more unit of a product
diminishing marginal utility
Decreasing satisfaction or usefulness as additional units of a product are acquired
Rational Spending Rule
spending should be allocated across goods so that the marginal utility per dollar is the same for each good
perfectly competitive market
A market that meets the conditions: many buyers and sellers, all firms selling identical products, resources are local, and buyers and sellers are well informed.
a buyer or seller that is unable to affect the market price
Costs that do not vary with the quantity of output produced
costs that vary with the quantity of output produced
total revenue minus total explicit cost
total revenue minus total cost and opportunity cost
the accounting profit earned when all resources earn their opportunity cost
allocative function of price
changes in prices direct resources away from overcrowded markets and toward markets that are underserved
rationing function of prices
the ability of the competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent
term economists use to describe the self-regulating nature of the marketplace
How Economic Profits Affect the Supply Curve, Equilibrium Price, and Equilibrium Quantity
When something becomes profitable, supply shifts out and price decreases.
How Economics Loses Affect the Supply Curve. Equilibrium Price, and Equilibrium Quantity
When something losses profit, supply shifts in and price increases.
a situation is efficient if no change is possible that will help some people without harming others
that part of the payment for a factor of production that exceeds the owner's reservation price, the price below which the owner would not supply the factor
How price ceilings and subsidies affect economic surplus
Consumer surplus would increase and producer surplus would decrease which would lead to a shortage.
a market structure that does not meet the conditions of perfect competition
A market in which there are many buyers but only one seller.
a market structure in which many companies sell products that are similar but not identical
A market structure in which a few large firms dominate a market
a company that has control over the prices of its products and services because its products and services are unique and there is little competition
Explain how profit maximizing decision for a monopolist differs from that of a perfectly competitive (price taking) firm
perfect competition: marginal revenue is equal to price. Monopolist: marginal revenue is not equal to the price, because changes in quantity of output affect the price.
the business practice of selling the same good at different prices to different customers
benefits of price discrimination
a market that runs most efficiently when one large firm supplies all of the output.
Public Policy Toward Natural Monopoly
1.State Ownership- government can take control of company.
2.State Regulation- stops company from raising prices.
3.Exclusive Contracting- private companies
4.Enforcement of Anti-Trust Laws-prevent companies from using their power to their advantage. allow to sue
a strategy that is best for a player in a game regardless of the strategies chosen by the other players
any other strategy available to a player who has a dominant strategy
No player can be made better off by changing unilaterally
a game in which participants choose their actions simultaneously without knowing their opponents' strategies
Game in which players move in turn, responding to each other's actions and reactions
a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial
A side effect of an action that affects a third party other than the buyer or seller.
occur when an increase in one person's performance reduces the expected reward of another
The Coase Theorem
If the right to perform externalities can be negotiated at no cost, we always arrive at the most efficient outcome.
rule or standard of behaviour shared by members of a social group
Tragedy of the Commons
common resources are used more than what is more desirable from the standpoint of society as a whole
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