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What is 1 + 3?
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?
Why do economists like competition?
-forces firms to become more efficient and innovate
-shifts resources from unproductive areas to productive areas
the branch of social science that deals with the production and distribution and consumption of goods and services and their management
The concept that there is less of a good freely available from nature than people would like
Positive Economic Statements
Normative Economic Statements
Ceteris Paribus Principle
everything else is held constant
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
-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
-better than socialism
-an economic system based on private property and free enterprise
a political theory advocating state ownership of industry
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
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
Changes in quantity are sensitive to changes in price (flatter)
Changes in quantity are not as sensitive to the change in price (steeper)
same as market for goods and services w a different name for price/quantity; Price=Wage, Quantity=Employment
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?
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
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
marginal revenue curve will lie below its demand curve
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
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