All 22 AP Microeconomics Chapters

PPF

Abbreviation for the Production Possibilities Frontier, a economic model that shows the combination of outputs that the economy can possibly produce given available LLC, and Technology. The economy can only produce all the points on or within the line not beyond it. The line is usually bowed outwards.

Competitive Market

A Market in which there are many buyers and many sellers so that each has a small impact on the market price (no market power). Many economic models assume this.

Marginal Revenue

A Monopolist's ___________ ___________ is ALWAYS less than the price of its good, and by extension its Average Revenue.

Monopoly resources

A barrier to entry in a monopolistic market, when a key resource required for production is owned by a single firm, classic example is DeBeers.

Positive externality

A beneficial side effect that affects an uninvolved third party. (Research,restoration) for example. Leads to smaller quantities than are socially desirable.

Silent Spring

A book written to voice the concerns of environmentalists. Launched the environmentalist movement . Had suspicion that the pesticide DDT (Negative externality), by entering the food chain and eventually concentrating in higher animals, caused reproductive dysfunctions. In 1973, DDT was banned in the U.S. except for use in extreme health emergencies.

Inelastic

Describes demand that is not that sensitive to a change in price, unwilling to change. Can also refer to a graph whose quantity demanded slope is less than 1.

Elastic

Describes demand that is very sensitive to a change in price. Willing to change. Also refers to a curve that has a slope greater than 1

John Rawls

Harvard philosopher who argued that justice is fairness and social equality. Wrote" A theory of Justice" which founded liberalism(as it relates to economics).

Consumption

If countries or individuals choose not to trade, then the production possibilities frontier becomes a _____________ possibilities frontier.

Increase

If marginal revenue (MR) is greater than marginal cost (MC), then a firm should ________ its production because it will put more money in there pockets.

decrease

If marginal revenue (MR) is less than marginal cost (MC), then a firm should ________ its production because it will cost more money than they will gain in production.

output effect

If the ________ ____ is larger than the price effect than firms will increase production , if not they will decrease production.

Utilitarianism

The theory, proposed by Jeremy Bentham in the late 1700s, that government actions are useful only if they promote the greatest good (utility) for the greatest number of people.

Total revenue

The total amount of money a firm receives by selling goods or services symbolized by TR.

Social cost

The total cost of a good to society (social cost) includes the costs of production incurred by the industry as well as the external costs (externalities)

average tax rate

The total tax paid divided by total (taxable) income, as a percentage, is more useful than the marginal tax rate to determine the sacrifices made by taxpayers.

Externality

The uncompensated impact of one person's actions on the well-being of a bystander (example pollution), may cause market failure along with market power.

Externality

The uncompensated impact of one person's actions on the well-being of a bystander, can be positive(restoring old buildings) or negative(take pollution for example)

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other or vice versa. Hot dogs+ hamburgers, sweaters and sweatshirts, etc etc

Perfect Substitutes

Two goods with straight line indifference curves. Like Nickels and dimes.

Higher prices

______ _______ raise producer surplus. Also allows new firms to enter the market because they are willing to produce those goods at _______ ______.

Lower prices

______ ________ lower consumer surplus

Complements

______ have a negative cross price elasticity of demand. As the price of the other goods increase the change in the quantity demanded of the other good decreases. (Think of CARS AND Oil or driving and oil)

Long Lines

_______ _______ , along with seller bias, are examples of efficiency that can be created by government policies.

Trade

________ between people and countries make both parties better off. Allows individuals to specialize in the activities he or she does best. Alos it allows for the buying of goods and services at a much lower cost.

1996 Welfare reform bill

Signed by Clinton. Ended AFDC and required Congress to appropriate a total of $16.8 billion to states annually through 2002. Clinton said " Welfare should be a second chance, not a way of life".

Surplus

Situation in which quantity supplied is greater than quantity demanded, Happens if the market price is above the equilibrium price. Will result in firms cutting prices to try and achieve equilibrium.

Asymmetric information

Situations in which buyers and sellers are not equally well informed about the characteristics of goods and services for sale in the marketplace

Human Capital

The accumulation of investments in people, such as education and on-the-job training, just as important if not more important than physical capital.

Tax incidence

The actual division of the burden of a tax between buyers and sellers in a market

Marginal Cost

The additional increase in costs as a result of consuming an additional input.

Consumer surplus

The amount a buyer(or buyers) is willing to pay for a good minus the amount the buyer actually pays for it. Measures the benefit buyers receive from participating in the market. Closely related to the demand curve for a product.

Producer Surplus

The amount a seller( or sellers) is paid for a good minus the seller's cost of providing it.

Quantity Demanded

The amount of a good or service that a consumer is willing and able to purchase at a given price.

Income

The amount of funds collected between any two points in time.

tax liability

The amount of total tax due the IRS after any credits and before taking into account any advance payments (withholding, estimated payments, etc.) made by the taxpayer.

Total Revenue

The amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold, P x Q

consumer surplus

The area below the demand curve and above the price measures the in ______ _______ a market.

Producer surplus

The area below the price and above the supply curve measures the ___________ ______

Bargaining chip argument

The argument that a threat of a trade restriction can help remove a trade restriction already imposed by a foreign government,HOWEVER in the REAL world countries most often retaliate with more trade restrictions

Households

The basic unit of analysis in many microeconomic and government models. The term refers to all individuals who live in the same dwelling, they own all the factors of production (LLC)

Hidden action

Action taken by one party in a relationship that cannot be observed by another party, one of causes of asymmetric information.

Clayton Antitrust Act

1914 Act that corrected the problems of the Sherman Antitrust Act; outlawed certain practices that restricted competition; unions on strike could no longer be considered violating the antitrust acts.

Fair Labor Standards Act

1938 United States federal law that applies to employees engaged in and producing goods for interstate commerce. The FLSA established a national minimum wage, guaranteed time and a half for overtime in certain jobs, and prohibited most employment of minors in "oppressive child labor," a term defined in the statute. The FLSA is administered by the Wage & Hour Division of the United States Department of Labor.

The Affluent Society

1958 book by John Kenneth Galbraith; Covers Consumerism and prosperity in the 1950s; Galbraith criticized society where increasing private affluence(opulence) exists alongside increasing poverty(squalor). He urged greater governmental expenditures on education and health care.

Clean Air Act

1970 reaction to Rachel Carson in her 1962 in Silent Spring, It describes one of a number of pieces of legislation relating to the reduction of smog and air pollution in general. The legislation forced the country to enforce clean air standards to improve health and showed that American was moving towards certain environmentalist measures.

Consumer Optimum

A choice of a set of goods and services that maximizes the level of satisfaction for each consumer, subject to limited income. The point where the budget constraint is tangent to the indifference curve. Is also where the marginal rate of substitution(MRS) = relative price.

Movie Tickets

A classic example of price discrimination involves this product. Usually the price at a movie theater changes if you are older or younger because of a differing willingness to pay.

Unfair competition argument

A common argument that free trade is desirable only if all countries play by same rules otherwise it is unfair 2 expect the firms to compete in the international marketplace. (WRONG), because ultimately it will be that other country that will bear the brunt of the costs for having favorable laws.

DeBeers

A company that has a monopoly in diamonds (70% of the world's diamonds), started by Cecil Rhodes. Is based on having monopoly resources.

Perfectly Competitive

A competitive situation in which : Goods are (almost) exactly the same, Buyers and sellers are so numerous that no one can affect the market price, which results in all individuals being price takers. Example could be the Wheat market, and a lot of agricultural markets.

Marginal-cost curve

A graphical representation showing how the cost of producing one more unit depends on the quantity that has already been produced, always an upward sloping line.

Market

A group of buyers and sellers of a particular good or service

Cartel

A group of firms acting in unison (In collusion), a hallmark of oligopoly.

Indifference Curve

A curve that shows consumption bundles that give the consumer the same level of satisfaction (utility). Are ALWAYS downward sloping, NEVER cross other ___________ _________s, and higher __________ _________s are ALWAYS preferred when compared to lower __________ __________s. Also they are always bowed inwards.

Supply Curve

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

401 k

A defined contribution plan that automatically takes out money from an employee's paycheck before income taxes and invests it in mutual funds for purposes of retirement savings.

Great Depression

A depression starting with collapse of the US stock market in 1929, period of worldwide economic stagnation and depression. Heavy borrowing by European nations from USA during WW1 contributed to instability in European economies. Sharp declines in income and production as buying and selling slowed down. Widespread unemployment, countries raised tariffs to protect their industries. America stopped investing in Europe. Lead to loss of confidence that economies were self adjusting, HH was blamed for it, led to more international multilateral trade agreements.

Markup

A difference between perfect competition and monopolistic competition, monopolistic has a _______ because P>MC compared to perfect competition which P=MC in the long run.

Compensating differential

A difference in wages that arises to offset the non-monetary characteristics of different jobs. Why garbage disposers earn more than someone with the same skills.

Patent

A document granting an inventor sole rights to an invention for a given time, a way that the government creates positive externalities.

Monopoly

A firm that is the sole seller of a product without any close substitutes, (For example Standard Oil for much of the 20th century). Makes the firm a price maker. Is created when their are barriers to entry which have 3 main sources: Monopoly resources, Government regulation, and the production process.

Price maker

A firm whose own activity in the market affects price. The firm has the ability to choose among combinations of price and output. Firms operating as monopolists, oligopolists, and monopolistic competitors are _______.

greater

A firm will only enter the shutdown mode if their variable costs is ______ than their total revenue that they are producing

ultimatum game

A game in which a proposer is given a sum of money and makes an offer to a responder as to how this money should be split between them. The responder must choose to accept or reject the offer. This game has been used to study people's decision-making strategies.

Financial aid

A general term that includes all types of money, loans, and work-study programs offered to a student to help pay tuition, fees, and living expenses. Form of price discrimination.

Giffen Good

A good for which an increase in the price raises the quantity demanded, usually 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. Important because it VIOLATES Law of Demand. Potatoes in 19th century.

Normal Good

A good for which, other things equal, an increase in income leads to an increase in demand.

Inferior goods

A good or service whose consumption declines as income rises (and conversely), price remaining constant. They have negative income elasticities because income and these types of goods move in the opposite direction.

Wage subsidies

A government financial incentive to private employers to hire more workers, as through tax deductions for new job creation, probably better than the minimum wage as it will create less unemployment.

Rent Control

A government set price ceiling on rent. Most economists believe that this adversely effects the availability and quantity of housing and is a very costly way to help needy members of society.

Demand Curve

A graph of the relationship between the price of a good and the quantity demanded, is a downward sloping line(indicating an inverse relationship between price and quantity demanded).

Total cost curve

A graph that shows the relationship between total variable cost and the level of a firm's output. Gets steeper as the amount produced increases.

Council of Economic Advisers

A group of three professional economists who give the president expert advice on the economy. Created in 1946, it is responsible for forecasting economic trends, analyzing economic issues, and helping prepare the "Economic report of the President" submits each year to Congress. Abbreviate CEA.

self interest

A key feature of oligopoly is between tension and _____ _________.

Interest

A large amount of money losses implicitly can be the cost of capital (investment), by buying the capital you forgo _______ you could have gained.

Price ceiling

A legally determined maximum price that sellers may charge for a good or service, can have the effect of causing a surplus, or if it is not binding(does not conflict with equilibrium price) nothing

Price floor

A legally determined minimum price that sellers may receive, can have the effect of causing a shortage, or if it is not binding(does not conflict with equilibrium price) nothing

Import Quotas

A limit imposed by a nation on the quantity (or total value) of a good that may be imported during some period of time.

Import Quotas

A limit imposed by a nation on the quantity (or total value) of a good that may be imported during some period of time. Most economists hate this because it restricts free trade between countries.

Exit

A long term decision to leave the market, distinguished from a shutdown which is a short term decision. In this mode the fixed costs are not sunk. In symbollic terms will only happen when TR(Total revenue) is less than TC(Total costs), when symplified if P>ATC.

oligopoly

A market structure in which only a few sellers offer similar or identical products, like Internet search industry dominated by Google, Bing and Yahoo.

Oligopoly

A market structure with only a handful of competitors selling products that are either similar or different. Barriers to entry are typically high. For example the market for Tennis Balls. More interdependence in these markets.

Competitive Market

A market with many buyers and sellers trading identical products so that each buyer and seller is a price taker, sometimes defined as a perfectly competitive market. Also firms must have open access and open exit.

Monopsony

A market with only one buyer or employer of a factor of production. Is similar to a monopoly just in the opposite sense. Causes deadweight losses because the single buyer would limit the factors of employment in order to increase profit, and prevent reasonable transactions from taking place.

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. Conditions ae :No dictators, transitivity, unanimity, independence of irrelevant alternatives.

utility

A measure of happiness or satisfaction

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

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 % 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

Gini coefficient

A measure of income inequality that ranges from 0 (perfect equality) to 1 (perfect inequality). It is calculated by dividing the area between the perfect equality line and the Lorenz curve by the total area on the right of the equality line

Concentration ratio

A measure of market power - the percentage of all sales that is accounted for by the four or eight largest firms in the market

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. Occurs because there are economies of scale over the relevant range of output. For example : Local Cable, Water distribution ,etc,.

Tragedy of the Commons

A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole, Leads to a depletion or degradation of a potentially renewable resource to which people have free and unmanaged access, in other words social and private incentives differ.

Dividends

A part of a company's profit that is divided among the people with shares in the company

Prisoners dilemma

A particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial to do so. Useful when analyzing oligopoly

principal

A person for whom another person, called the agent, is performing some act, otherwise known as a BOSS.

Permanent income

A person normal (average) income. Differs from transitory income which depends on outside conditions.

Free rider

A person who receives the benefit of a good but avoids paying for it, happens when goods are public. Leads to a market failure.

Economies of scale

A phenomenon that describes as a company produces larger numbers of a particular product, the cost of each of these products goes down, can be tied to international trade.

Benefits principle

A principle of taxation, states that people should pay taxes based on the BENEFITS they receive from government services. Tries to make public goods more like private goods.

Independence of irrelevant alternatives

A principle that the ranking between any two outcomes A and B should not depend on whether some third outcome C is also available , one of the conditions of arrow's impossibility theorem.

Education

A prominent example of a positive externality, the consumer of it becomes a more productive worker and reaps the benefit of higher wage. Also leads to more informed voters, which leads to a more efficient government, lower crime rates, and higher levels of technological innovation. Internalizing this externality requires the use of a government subsidy.

Transfer Payment

A public expenditure (as for unemployment compensation or veteran's benefits, or social security(the largest)) that is not for goods and services

Regulation

A rule or order issued by an executive authority or regulatory agency of a government and having the force of law

Shutdown

A short-run decision not to produce anything during a specific period of time because of current market conditions. Firms that do this still have to pay fixed costs(like rent) which turn into sunk costs. A firm that takes this course of action will only do this if their TR(total revenue) is less than variable costs of production. Symbolically a firm will _______ if P< AVC

Nash Equilibrium

A situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen

Market Failure

A situation in which the market left on its own fails to allocate resources efficiently. May be caused by externailities or market power

Equilibrium

A situation in which the market price has reached the level at which the quantity supplied = quantity demanded. (Intersection on the graph)

Shortage

A situation in which the quantity demanded is greater than the quantity supplied, happens when the market price is below the equilibrium price. Sellers would respond by increasing prices.

Negative externality

A situation where a third party, outside the transaction, suffers from a market transaction by others (pollution, traffic congestion, dogs barking at you when you're walking ,etc,.) Leads to larger quantities than socially desirable.

Correlation

A statistical relation between two or more variables such that systematic changes in the value of one variable are accompanied by systematic changes in the other, does NOT imply causation(As shown in the graph).

tit for tat

A strategy for the repeated prisoner's dilemma in which players cooperate on the first move, then mimic their partner's last move on each successive move. The most successful strategy in game theory.

Dominant Strategy

A strategy that is best for a player in a game regardless of the strategies chosen by the other players

Cost benefit analysis

A study that compares the costs and benefits to society of providing a public good. Helps gov't decide which public goods to provide and in what quantities. When choosing between alternatives, you must make sure that values are in the same units.

Broda count

A system where voters use numbers to mark their preferences for all the nominated candidates. preferences are assigned a value (1, .9 .8 .7 .6). Is supposed to counter and correct Condorcet paradox.

Supply Schedule

A table showing quantities supplied at different possible prices.

Demand Schedule

A table that shows the relationship between the price of a good and the quantity demanded, holding constant everything else(ceteris paribus)

Payroll tax

A tax collected from employees to pay for major social programs that is take from a worker's and employer's pay ; social insurance tax or social security tax

Corrective tax

A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality, also called Pigovian tax

Pigovian tax

A tax designed to induce private decisions makers to take account of the social costs that arise from a negative externality, same as corrective tax.

proportional tax

A tax for which the Percentage of income paid in taxes remains the same for all income levels

Corporate Income tax

A tax levied on a corporation's income BEFORE dividends are distributed to stockholders. 3rd largest source of income to the Federal government. Is actually a bigger burden to consumers and workers than to the owners because their elasticity is greater.

Tariff

A tax on goods produced abroad and sold domestically. Reduces the quantity of imports and create a deadweight loss.

value added tax

A tax on increased value of a product at each stage of production and distribution rather than just at the point of sale

consumption tax

A tax on spending, or on the difference between what people earn and what they save, regardless of how much they earned, also called a national sales tax, is an alternate system that economists believe would work better.

Property taxes

A tax on the value of property (capital, land, stocks and bonds, and other assets) owned by firms and households. This is a state government tax.

Negative income tax

A tax system that collects revenue from high-income households and gives transfers to low-income households

regressive tax

A tax whereby people with lower incomes pay a higher fraction(percentage) of their income than people with higher incomes. (Sales taxis an example).

Midpoint Method

A technique for calculating the percent change. ((Q2-Q1)/Q1+Q2)/(P2-P1)/P1+P2)), or simply change in quanity over change in price.

Invisible hand

A term coined by Adam Smith to describe the self-regulating nature of the marketplace or the market economy.

Superstar Theory

A theory that states that superstars will rise in markets where: 1. Every customer wants to enjoy the good supplied by best producer. 2. The good is supplied with technology that makes it possible for customers to receive it at a low cost.

NAFTA

A trade agreement between Canada, the United States and Mexico that encourages free trade between these North American countries.

flypaper theory of tax incidence

A unbelievably stupid and untrue theory of tax incidence that states wherever the tax lands first pays the brunt of the tax. You would know by now that you must first analyze the elasticity.

Circular Flow Diagram

A visual model of the economy that shows how dollars flow through markets among households and firms. Includes the market for goods and the market for factors of production.

Market Based Policy

A way to counter externalities by providing incentives so that private decision-makers will choose to solve the problem on their own(maybe).

Lorenz curve

A widely used graph of the distribution of income, with cumulative percentage of families plotted along the horizontal axis and cumulative percentage of income plotted along the vertical axis. Used in Gini coefficent calculation.

Anarchy, State, and Utopia

A work of political philosophy written by Robert Nozick in 1974, argues in favor of a minimal state, "limited to the narrow functions of protection against force, theft, fraud, enforcement of contracts, and so on." When a state takes on more responsibilities than these, Nozick argues, rights will be violated. Support libertarianism.

Union

A worker association that bargains with employers over wages, benefits, and working conditions, Usually earn 10 to 20% more than similar unionized workers. Usually successful because of ability to strike.

price effect

After a price increase, each unit sold sells at a higher price, which tends to raise revenue, despite the inclination of people to buy goods at least in the case of a monopoly.

Land

All natural resources that are used to make goods and services, factor of production

Trade-offs

All people face __________. The classic example of this in society is the _________ between "guns and butter" and that between efficiency and equality.

Productivity

Almost all variation in living standards is attributable to _____________ , which is the quantity of goods produced from EACH unit of labor input. The growth rate of this also determines the growth rate of income.

Internalizing the externality

Altering incentives so that people take account of the external effects of their actions, can be done by imposing taxes(negative externality) or subsidies(positive externality)

16th Amendment

Amendment passed in 1913 giving the Federal Govt the power to tax. The more you make, the more you're taxed (Progressive Tax System).

Kenneth Arrow

An American economist and joint winner of the Nobel Memorial Prize in Economics, proved that when there are 3 or more options it is impossible to aggregate individual preferences into a valid set of social preferences.

Poverty line

An absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty, roughly 3 times the cost level of proving an adequate diet.

Social Security

An act passed in 1935 gave government-payed pensions to American citizens over the age 65 as well as provided help for the unemployed, the disabled, and the needy. Largest transfer payment in U.S. SPENDING.

Screening

An action taken by an uninformed party to induce an informed party to reveal information or reduce asymmetric information. For example : Interviews, Credit History, phone records, etc,.

Collusion

An agreement among firms in a market about quantities to produce or prices to charge, happens in an oligopoly, and forms a cartel.

Land Tax

An annual tax imposed on land. The value of the land is calculated and taxed at a specified rate. Very similar to the modern local body rates. First proposed by Henry George.

Normative economics

An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad(makes value judgement), and may prescribe courses of action. Also called policy economics.

Positive economics

An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.

employer discrimination

An arbitrary preference by an employer for one group of workers over another. Usually decreases over time due to competitors advantage of making more profit. Also if and when it occurs it is more often due to policy enacted by local governments.

Supply Side Economics

An economic philosophy that holds the sharply cutting taxes will increase the incentive people have to work, save, and invest. Greater investments will lead to more jobs, a more productive economy, and more tax revenues for the government.

Budget Deficit

An excess of government spending over government receipts(revenue).

Budget Surplus

An excess of tax revenue over government spending

Inflation

An increase in the overall level of prices in the economy. (Haha - Zimbabwe 100 trillion dollars)

EPA

An independent federal agency established to coordinate programs aimed at reducing pollution and protecting the environment

Corporation

An organization that is authorized by law to carry on an activity but treated as though it were a single person(or single legal entity). Usually owned by stockholders who share in its profits but are not personally responsible for its debts

Stockholder

An owner of one or more shares of a corporation

Advertising

Any paid form of communication through mass media directed at identified consumers to provide information and influence their actions, is a hallmark of mainly monopolistic competition and some oligopolistic competition, because firms are selling slightly differentiated products they need to distinguish themselves.

Capital

Assets available for use in the production of further assets, serve as an investment, for example factory equipment

elastic

Because firms can more easily enter and exit in the long run than in the short run the long term supply curve is typically more _______ than the short run supply curve.

Output effect

Because price is above marginal cost, selling one more unit at the going price will raise profit

Trade

Benefits everyone in society because it allows people to specialize in activities in which they have a comparative advantage. However for both parties to benefit, the price at which they trade MUST lie between the two opportunity costs.

Synergies

Benefits that are observed in some mergers resulting from a more efficient joint production model.

Cecil Rhodes

British entrepreneur and politician involved in the expansion of the British Empire from South Africa into Central Africa. The colonies of Southern Rhodesia (now Zimbabwe) and Northern Rhodesia (now Zambia) were named after him. Founded the De Beers Mining Company which has a monopoly on diamonds. The benefactor of the Rhodes Scholarship.

Derived Demand

Business demand that ultimately comes from (derives from) the demand for consumer goods. Describes the demand of all factors of production.

Price takers

Buyers and sellers in a PERFECTLY competitive market(and sometimes competitive market) that must accept the price that the market determines

Price takers

Buyers and sellers in a competitive market that must accept the price that the market determines (Usually small)

Reverse Causality

Coming to an erroneous conclusion about which is the dependent and which is the independent variable by reversing the true direction of causality between the two variables

Market Economy

Describes an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services.

Profit

Can also be calculated symbolically as (P-ATC) x Q

Economy

Comes from the Greek word oikonomos, meaning one who manages a household. Is also a system by which goods and services are produced and distributed to meet people's needs.

CBO

Congressional Budget Office. This assesses the economic implications and likely costs of proposed federal programs, such as the Bush administration rescue packages for the failing financial system in 2008 and Barack Obama's Stimulus package in 2009. The answer is the abbreviation.

CPI

Consumer Price Index (changes in average price of consumption the or cost of living). , (Total Cost this Period/Total Cost Base Period) x 100

Interest Rate

Cost of borrowing money, expressed as a percentage of the amount borrowed per year.

Opportunity Cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another.

sunk costs

Costs that cannot be avoided because they have already been incurred. But don't cry over spilled milk. You must ignore these costs when making rational decisions and remember to think at the margins.

Variable costs

Costs that change directly with the amount of production (e.g. energy supply and labor costs).

Pareto efficiency

Describes an allocation in which the only way to make any individual or group of individuals better off would require making at least one other person WORSE off(not good), also known as Pareto optimality.

satisficers

Decision makers who tend to settle for something that is satisfactory, even if it may not be ideal. Some economist believe that this term should replace the idea of rational customers.

Number of Buyers

Demand for a good in a market is related to the amount of these in an area. A higher amount will lead to more demand at every price.

Perfect price discrimination

Describes a situation in which the monopolist knows exactly the willingness to pay of each customer and can charge each customer a different price (in this case, the monopolist charges each customer exactly his willingness to pay, and the monopolist gets the entire surplus in every transaction)

Laissez faire

Doctrine based on the idea that government should play as small a role as possible in the economy

Monopoly

Domination of an industry by a single company that fixes prices and discourages competition; also, the company that dominates the industry by these means.

Laffer curve

Explains relationship between tax rates and tax revenues (total tax revenues initially rise but then eventually fall as the tax rate continues to increase after reaching some unspecified tax-revenue-maximizing rate at the top of the curve) Can be also explained b6y deadweight losses.

EITC

EARNED INCOME TAX CREDIT: a program that gives tax credits and even cash payment to qualified workers, works like an negative income tax.

the liberty principle

Each person is to have an equal right to the most extensive system of basic liberties that's compatible with everyone Else's right to the same thing. This principle is the more important than the difference principle, as this requirements come first(or at least according to Rawls)

Wage

Earnings paid by the hour or unit of production

Firms

Economic entities which buy or employ factors of production(which they get from households) and organize them to create goods and services for sale

the difference principle

Economic inequalities should be arranged so that they are to the benefit of everyone, including the least well off

Externalities

Economic side effects or by-products that affect an uninvolved third party; can be negative or positive

Neoclassical theory of distribution

Economic theory that states that the amount paid to each factor of production depends on the supply and demand for that factor, with the derived demand. In equilibrium, each factor of production earns the value of its marginal contribution to the production of goods and services.

John Kenneth Galbraith

Economist who published The Affluent Society, in which he claimed that the nations postwar prosperity was a new phenomenon.

Ronald Coase

Economist who won a Nobel prize in economics for arguing that assigning property rights to either party would result in the internalization of externalities, Coase Theorem.

Henry George

Economist who wrote Progress and Poverty in 1879, which made him famous as an opponent of the evils of modern capitalism.

Fixed costs

Expenses that remain the same for a period of time; must be paid regardless of the quantity of a good or service produced/sold. Like rent., salary ,etc,.

David Ricardo

English economist who argued that the laws of supply and demand should operate in a free market (1772-1823), and thoroughly developed comparative advantage in his book "Principles of Political Economy and Taxation".

John Stuart Mill

English philosopher and economist remembered for his interpretations of empiricism and utilitarianism (1806-1873) Benthamite, wrote "On Liberty". Advocated right of workers to organize, equality for women, and universal suffrage

Wage

Equals the value of the marginal product o labor and adjusts to balance the supply and demand of labor.

Lump sum taxes

Everyone owes the same amount(in dollar amount), regardless of earnings; Most efficient tax possible, but the least equitable.

economies of scale

Factors that cause a producer's average cost per unit to fall as output rises, helps explain the natural monopoly.

FTC

Federal Trade Commission. Protects consumers from misleading and fraudulent advertising. Reviews advertising claims. Can order a company to change their ad.

zero

Firms that remain in a market must be making ______ economic profits, which like stated in an earlier quizlet are not the same as accounting profits

Sherman Antitrust Act

First federal action against monopolies, it was signed into law by Harrison in 1890 and was extensively used by Theodore Roosevelt for trust-busting. However, it was initially misused against labor unions. "To reduce the market power of the large and powerful "trusts". Succeeded by the Clayton Antitrust Act.

average fixed cost

Fixed cost divided by the quantity of output. Decreases at a somewhat parabolic shape.

Business Cycle

Fluctuations in economic activity, as measured by employment and production, growth etc.

Average Revenue

For competitive firms as well as monopolies _________ ________ equals the price of a good.

Command and Control Policy

Forms of regulation that depend on government laws and agencies to enforce rules, including such things as regulated limits on pollution or fuel efficiency standards; contrasts with market-based or incentive-based approaches.

child labor

Full-time employment of children for work otherwise done by adults.

GATT

General Agreement on Tariffs and Trade; international trade organization that encourages free trade by lowering tariffs and other trade restrictions

Incentive

General economic term for something that induces a person to act. Can be anything (money, punishments, rewards etc. etc. )

Imports

Goods and services that are produced abroad and sold domestically

Exports

Goods produced domestically and sold abroad

Perfect Complements

Goods that a consumer is interested in consuming but only in fixed proportions; has L shaped(right angled) indifference curves. Like left shoes and right shoes.

Private Goods

Goods that are both excludable and rival in consumption, most Goods in economy are this. For example : Ice Cream, Clothing, Shoes , Congested Toll Roads.

Common Resources

Goods that are rival in consumption but not excludable, One one person uses the good it does diminish the ability of another person to use it, but you can't stop people from taking the good. For example: fish in a pond, enviromental resources, etc,.

Close substitutes

Goods with ________ _________ tend to have more elastic demands because it is easier for customers to switch from that good to others. (Think Butter, and Margarine)

Treasury Department

Government department responsible for management of federal governments finances and currency and designing tax policy.

Industrial Policy

Government intervention in the economy that aims to promote technology enhancing industries.

Social Insurance

Government policy aimed at protecting people against the risk of adverse events

Fiscal Policy

Government policy that attempts to manage the economy by controlling taxing and spending. DIFFERENT from Monetary Policy.

Monetary Policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates. Controlled by a central bank, in the United States, this would be the Federal Reserve.

Welfare

Government programs that supplement the incomes of the needy,

Luxury tax

Governments increase their revenues by charging taxes on non-essential, often very expensive goods and services, such as high-end automobiles, rare collectibles, and jewelry; which is called the ______ _____.

Short run

In the ____ ____ monopolistic competition is similar to a monopoly when it comes to maximizing profit. The quantity is determined from where MC intersects with MR and then demand at that quantity determines the price.

Long run

In the ____ ____ monopolistic competition makes economic profits = 0, as the demand curve shifts ad has a point of tangency with the ATC curve. This makes the area between the curves at the quantity sold zero.

Long Run

In the ______ ______, increasing the amount of money in the economy(money supply) will lead to widespread inflation.

Short run

In the _______ _____ , increasing the amount of money in the economy stimulates the overall spending and the demands for goods and services. In other words "There is a _____ ______ trade off between inflation and unemployment.

capital income

Income earned on savings that have been put to use through financial capital markets.

Public Goods

Individually and socially desirable goods that are non-excludable and non-rival in consumption, such as national defense, tornado sirens,etc,.

Implicit costs

Input costs that do not require an outlay of money by the firm (e.g. interest forgone on money used). The opportunity costs associated with a firm's use of resources that it owns.

Explicit costs

Input costs that require an outlay of money by the firm (e.g. rent). Money that actually leaves a firm in the productive process. Distinguish from implicit costs.

Increase

International trade can lead to an _________ in the variety of goods. German Beer is not the same as American Beer.

Rental Price

Is the price a person pays to use that factor for a limited period of time. Distinguished from purchase price.

Inverse

It is impossible for a person or country to have a comparative advantage in two goods when compared on the PPF, because the opportunity cost of one good will be the ______ of the other goods opportunity cost.

Vilfredo Pareto

Italian engineer, sociologist, economist, political scientists, and philosopher. He introduced a concept of efficiency(Pareto efficiency) that is named for him. He also has a principle named after him that is built on observations about the ownership of land in Italy.

Factors of Production

Land, labor, and capital (LLC) ; the three groups of resources that are used to make all goods and services, are created by HOUSEHOLDS and used by FIRMS

Factors of production

Land, labor, and capital(LLC), sometimes entrepreneurial ability ; the three groups of resources that are used to make all goods and services

Antitrust laws

Laws to minimize unfair competition. Illegal to conspire to fix prices, allocate customers or markets, limits market power and the deadweight losses created by monopolies.

Contracts

Legal agreements for the exchange of resources and services, another private response to externalities.

Product differentiation

Manufacturers' use of minor differences in quality and features to try to differentiate between similar goods and services, found in monopolistic competition.

Monopolistic competition

Market or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors(similar but not identical), like the book and music industry.

Imperfect competition

Market structure where all conditions of pure competition are not met; monopolistic competition, oligopoly, and monopoly

Median voter theorem

Mathematical result that shows if voters are choosing a point along a line and each voter wants the point closest to his preferred point, then majority rule will pick the most preferred point of the median voter. Condorcet paradox actually does not arise in this situation.

Taxes

Money collected by federal, local or state government from individuals or businesses for use in public spending. In general it discourages market activity by depressing the goods supplied in the new equilibrium.

supply curve

Monopolies do not have a ________ _______. This is because they are price makers.

Deadweight losses

Monopolistic competition also creates ___________ _______. In that respect it is similar to monopolies.

Normal goods

Most goods are _______ _____ . They have positive income elasticities because they move in the same direction as income. (Think what kind of good is cereal).

Charities

Not-for-profit organizations that are established to support good causes, from society's point of view. A private response to negative externalities.

Welfare System

Once called "Aid to Families With Dependent Children" now called "Temporary Assistance for Needy Families" . Is a classic example of a public good. One person's enjoyment of other people living in a society without poverty would not reduce anyones enjoyment of it(non-rival in consumption), also once poverty would be eliminated, no one can be prevented from taking pleasure in this fact. (Reason why it is IMPOSSIBLE for the private markets to resolve this, and Gov't is needed.

delayed payment

One of the ways the principal (boss) attempts to reduce the chance of moral hazard of his agent (employee), it works because the agent perceives that their will be a greater loss if he engages in undesirable behavior. Example : End of year bonus.

competition

Opening up international trade can reduce market power(a type of market failure), by increasing _________. The firm will no longer be shielded.

OPEC

Organization of Petroleum Exporting Countries; international cartel that inflates price of oil by limiting supply; Venezuela, Saudi Arabia and UAE are prominent members

Corn Laws

Passed in 1815 in England by gentry/squires who controlled parliament. Raised the tariffs on imported grain (which flooded market after Napoleonic Wars) in order to protect their own interests. Provoked demonstrations, riots and even an attack on the Prince Regent. The government responded by suspending habeas corpus, dealing harshly with suspects and employing spies to infiltrate mob. Repealed in 1846,Economist David Ricardo voted against this in principle.

Rational People

People who systematically and purposefully do the best they can do to achieve their objectives. (May or may not exist in real life). Only take action if marginal benefit(MB) exceeds (MC)

Poverty Rate

Percentage of people whose income falls below the poverty line, measures distribution of income. All time low achieved in 1973, however has increased or remained near the same level since then which is related to income inequality.

Tying

Practice of requiring a customer to purchase on good in order to purchase another, a controversial business practice.

Profit maximization

Primary goal of any firm - to earn the most profit possible from the sale of its goods or services. In order to do this most competitive firms do this by making sure MC=MR

Rent subsidies

Program that helps pay rent for low-income families, provided that they select designated housing, probably better than rent control because they do not reduce the quantity of housing supplied and create shortages.

Workfare

Programs that require welfare recipients to exchange some of their labor in return for benefits.

John Nash

Prominent theoretical mathematician who suffered from schizophrenia; awarded Nobel Prize for his game theory that is used by economists today. Life was portrayed in the book and movie "A Beautiful Mind"

Infant industry argument

Proposed by Alexander Hamilton in 1792, this oldest economic argument for government intervention states that developing countries have a comparative advantage in manufacturing, proposes that new industries should be protected from foreign competition until they are large enough to compete in international markets

Copyright

Protection giving the owner the exclusive right to reproduce or distribute copies of his or her own work for a given period of time.

Price effect

Raising production increases market quantity, which reduces market price and reduces profit on all units sold.

Unsafe at Any Speed

Ralph Nader's book on the auto industries bad safety regulations. Catalyzed the "Consumer Movement". Led directly to the passage of the 1966 National Traffic and Motor Vehicle Safety Act. These laws lead to less automobile deaths, but more accidents and injuries, as people responded to the incentive of feeling safer while wearing seat-belts.

tax evasion

Willful failure to pay taxes.

Adam Smith

Scottish political economist and philosopher. His Wealth of Nations (1776) laid the foundations of classical free-market economic theory, government should not interfere with economics. Advocates Laissez Faire and founder of "invisible hand"

Predatory Pricing

Selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business.

Income Tax

Shares of individual wages and corporate revenues collected by the government. The Sixteenth Amendment explicitly authorized Congress to levy a tax on income.

FICA

Short for Federal Insurance Contributions Act, the name given on the paycheck stub for Social Security and Medicare taxes. The employee pays some of the payroll tax , and and the employer pays some of this tax for each employee. Social Security pays benefits for older people, people with disabilities, and minor children and surviving spouses of deceased workers. Medicare pays for hospital insurance for those over 65.

Welfare economics

Study of how the allocation of resources affects economic well-being. (We are now entering the realm of normative economics) Sorry Cody.

Department of Labor

TR est. this dept armed with the Bureau of Corporations meant to probe businesses engaged in interstate commerce and clearing the road for trust-busting era

Marginal tax rate

Tax rate that applies to the next dollar of taxable income, increases as the amount of taxable income increases, around 40% for middle class.

Marginal tax rate

Tax rate that applies to the next dollar of taxable income, that increases as the amount of taxable income increases, DO NOT BE confused by this. For the first amount of money every pays the same at each level. (Just ask me if you don't get it). Is more useful than the average tax rate at showing how the current tax system distorts incentives.

Sales Taxes

Taxes assessed on the prices paid on most goods and services. Is a State and local government tax NOT Federal Government. Are usually 6 or 7 percent in states. Make up the vast majority of taxes in states and counties.

Social insurance taxes

Taxes collected from employees and employers to pay for major social programs; also known as PAYROLL TAXES, and unemployment compensation programs; regressive taxes

Tariffs

Taxes on imports or exports, most economists hate this because it along with import quotas limits free trade between countries.

Marginal Benefit

The ADDITIONAL satisfaction or benefit received when one more unit is produced

Ceteris paribus

The Latin expression meaning that other variables are held fixed

Federal Government

The U.S. __________ ___________ collects about 2/3 3 of the total taxes in our economy, around $2,568 billion in 2007, an average of about $8, 503 per person. Most of it is from the income tax, uses it to correct externalities that cannot be made efficient by private markets.

WTO

The World Trade Organization - an international body that enforces agreements that reduce barriers to international trade; successor to the GATT, FOUNDED 1995.

WTO

The World Trade Organization - an international body that enforces agreements that reduce barriers to international trade; successor to the GATT, now has 151 member states. Headquarters in Geneva, Switzerland of course.

Total Surplus

The _____ _______ in a market is the sum of all the individual economic surpluses gained by buyers and sellers who participate in the market, otherwise calculated as Value to Buyers - Cost to Sellers

Deadweight loss

The ______________ _____ of a tax rises even faster then the tax itself, because it equals the square of a certain size. So doubling a tax quadruples the deadweight loss.

Market Power

The ability of a company to change prices and output like a monopolist, can cause markets to become inefficient because it keeps price and quantity away from the equilibrium supply and demand.

Market Power

The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices. This along with externalities may cause market failure..

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower OPPORTUNITY COST(not inputs like absolute advantage) than other producers. Is way there is gains from trade. Reflects the relative opportunity cost.

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(inputs).

transitivity

The ability to recognize relations among elements in a serial order (for example, if A > B and B > C, then A > C).

Education

The biggest expenditure for state and local governments is _________. Is followed by public welfare, then highways, and other miscellaneous stuff you could probably just guess.

Marginal buyer

The buyer who would leave the market first if the price were any higher. Represented at every quantity.

Perfectly inelastic demand

The case where the quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero. Straight vertical line

Federal Reserve

The central bank of the U.S. Incorporates 12 Federal Reserve branch banks and all national banks and stated charted commercial banks as well as some trust companies. Sets the countries "Monetary Policy" (Controlling Money Supply, and interest rates)

substitution effect

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.

income effect

The change in consumption that results when a price change moves the consumer to a higher or lower indifference curve.

maximum criterion

The claim that gov't should aim to maximize the well-being of the worst-off person in society. Also known as Rawls rule, is a fundamental part of his economic theory of liberalism.

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

Law of Supply

The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.

National Defense

The classic example of a public good. It is non-excludable( no one is prevented from enjoying it in the nation state). It is also non-rival in consumption (the benefit of increased protection does not diminish someone else's benefit).

above

The competitive firm's short run supply curve is the portion of its marginal cost curve that lies ______ average variable cost(AVC)

Poverty

The condition of lacking an adequate amount of money, belongings, and/or means of financial support. Is correlated with race. age, and family composition.

Private cost

The cost borne by the producer of a good or service

Transaction costs

The costs that parties incur in the process of agreeing to and following through on a bargain, will be the reason that private parties do not internalize externalities according to the Coase Theorem.

Jeremy Bentham

The creator of Utilitarianism. Believed that public problems should dealt with on a rational scientific basis. Believed in the idea of the greatest good for the greatest number. Wrote, Principles of Morals and Legislation.

economic mobility

The degree of upward mobility in a society; refers to the economic fortunes of different groups often measured by the percent of income each group makes. Is really apparent in the U.S as only 1/5 millionaires actually inherited their income.

Perfect elastic demand

The demand for the product is perfectly responsive to a price change and suggests that the producer can sell whatever amount they wish at that price, at this point elasticty = infinity, horizontal line

Net Interest

The difference between interest paid and interest received by firms

Excess Capacity

The difference between the long-run output in monopolistic competition and the output at minimum average total cost, one of the two distinguishing features, monopolistic competition does NOT produce at efficient scale like competitive markets and therefore has _______ ________.

Law of Demand

The economic law that states, all other things being equal(ceteris paribus), the quantity demanded of a good falls when the price of the good rises and the quantity demanded increases when the price of a good goes down.

Marginal changes

The economic term for small incremental changes to a plan of action that rational people utilize.

Shift in Demand

The effect of a change in a nonprice factor on the demand curve, usually these factors include consumer expectations, income, and prices of related goods.

Labor

The effort that people devote to a task for which they are paid, is a factor of production. The most important factor of production because it creates the most income.

maximizes

The equilibrium of supply and demand in a market _______ the total benefits received by buyers and sellers.

marginal product

The equilibrium rental income at ant point in time equals the value of that factors _________ ______.

Income inequality

The existence of disproportionate distribution of total national income among households whereby the share going to rich persons in a country is far greater than that going to poorer persons. From 1930 to 1970 the gap between the rich and poor closed, but from the 1980's to 2000's this trend has reversed itself in the U.S.

Product variety externality

The externality where consumers get consumer surplus from the intro of new product, so the entry of new firm conveys positive externality on customers. Associated with monopolistic competition

Business-stealing externality

The externality where new businesses (associated with monopolistic competition) take customers from old businesses because they are new, people like trying out new places, which hurts established businesses

Marginal Revenue

The extra revenue associated with the production and sale of one additional unit of output. For all competitive markets equals the price of the good, which also means that it equals average revenue.

Condorcet paradox

The failure of majority rule to produce transitive preferences for society. Shows that the order that things are voted on effects the overall results.

Deadweight loss

The fall in total surplus that results from a market distortion, such as a tax, in other words the loss to buyers and sellers exceeds the revenue gained by the government. This is because they prevent the gains from trade.

Department of Labor

The federal department responsible for promoting the working conditions of wage earners in the United States

marginal firm

The firm that would exit the market if the price were any lower, is reflected as being used to calculate the ATC

Scarcity

The general lack of something. In economic terms the LIMITED nature of societies resources, which requires that the society allocate resources efficiently.

richer

The general trend when comparing GDP and taxes over time shows the ______ a country gets the more taxes that it has.

Opportunity Cost

The highest-valued alternative that must be given up to engage in an activity. (What you give up in order to gain something.)

vertical equity

The idea that taxpayers with a greater ability to pay taxes should pay larger amounts, is a corollary of the ability to pay principle. It's sister corollary is horizontal equity.

horizontal equity

The idea that taxpayers with similar abilities to pay taxes should pay the same amount , is a corollary of the ability to pay principle, It's sister corollary is vertical equity.

Technology spillover

The impact of ones firms research &production efforts on other firms access to tech. advance. positive externality.

Marginal Product

The increase in output that arises from an additional unit of input( usually a worker acts as the unit of input).

deadweight loss

The inefficiency of a monopoly causes a __________ ______. Similar to that created by Tariffs and taxes. This is because the monopoly charges higher than the marginal cost, which prevents mutually beneficial trade from taking place. In many ways a monopoly is like a private tax collector.

Labor market

The input/factors of production market in which households supply work for wages to firms that demand labor.

World Price

The international market price of a good or service, determined by world demand and supply. If higher than domestic price country will export if not it will import.

Macroeconomics

The part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy line employment, inflation ,etc.,.

Premium

The periodic amount of money the insured pays to a health plan for insurance coverage, insurance companies use this as away to screen between risky and safe people.

Budget Constraint

The limit on the consumption bundles that a consumer can afford., the set of all bundles a consumer can purchase for given values of income and price (first point is buying all one product and the end point is all of the other product)

Tax incidence

The manner in which the burden of a tax is shared among participants in a market. In general both buyers and sellers will share the burden of the tax.

Total Cost

The market value of ALL the inputs a firm uses in production, symbolized by TC, is calculated by adding fixed costs and variable costs. Also depends on accounting perspective and economic perspective.

Willingness to pay

The maximum amount that buyer will pay for a good

Cross-price elasticity of demand

The measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good (Sign depends on whether goods are complements or substitutes.

Elasticity

The measure of the responsiveness of quantity demanded OR quantity supplied to one of its determinants.

Minimum Wage

The minimum price that an employer can pay a worker for an hour of labor, the most prominent example of a price floor. Can result in unemployment. Its impact of course depends on skill and experience of the workers. Has the greatest impact for teenage labor.

profit maximizing

The monopolist _____ __________ quantity of output is determined by the intersection of the marginal revenue curve and the marginal cost curve. The price at that quantity is determined by a demand curve.

Elastic

The more _____ demand or supply is the larger the deadweight loss. This is because people find it easier to leave the marketplace and don't realize the gains from trade.

Rent Control

The most prominent example of a gov't price ceiling. Is a limit on the price that landlords can charge their tenants with a goal on helping the poor. A large majority of economists believe it should be done away with. Various seller biases dictate who they will allow to rent, and rented houses are more likely to fall into disrepair.

Interdependence

The mutual dependence of countries on goods, resources, and knowledge from other parts of the world, the current trend is points to an increasing amount of this through trade.

Peltzman effect

The name of the effect that arises when people adjust their behavior to a regulation in ways that counteract the intended effect of the regulation. So, for example, when the government passes a seatbelt law, some drivers may respond by driving less safely. Redistributes the risk to innocent bystanders

Discrimination

The offering of different opportunities to similar individuals who differ only by race, ethnic group,sex, age or other personal characteristics.

liberalism

The political philosophy according to which the government should choose policies deemed just, as evaluated by an impartial observer behind "a veil of ignorance" Started by Philosopher John Rawls. Based on idea that we should maximize the minimum.

libertarianism

The political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income. Belief in the equality of opportunities.

Flexibility

The price elasticity of supply depends on the ability and _________ of sellers to change the products or services they are providing.

Equilibrium price

The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.

Horizontal

The price line in competitive markets will always be ___________ (think graphically) because everybody is a price taker.

diminishing marginal utility

The principle that our additional satisfaction, or our marginal utility, tends to go down as more and more units are consumed.

Ability to pay principle

The principle that taxes should be levied on a person according to how well that person can shoulder the burden. Sometimes is stated that "Individuals must make an equal sacrifice" Leads to two corollary notions of equity :vertical and horizontal.

Free rider problem

The problem faced by unions and other special interest groups when people do not join because they can benefit from the group's activities without officially joining(The groups activity is a pubic good). The bigger the group, the more serious the problem. Can lead to a severe market failure. Gov't can remedy this problem

arbitrage

The process of buying a good in one market at a low price and selling it in another market at a higher price. My brother does this all the time.

Enclosure movement

The process of consolidating small landholdings into a smaller number of larger farms in England during the eighteenth century. Reduced the tragedy of the Commons by turning the grounds from common resources into private goods.

equality

The process of long run entry and exit ends only when ATC and Price are driven to _______. This happens because ATC curve is a measure of efficient scale, and that is where it is realized.

Outsourcing

The procuring of services or products, such as the parts used in manufacturing a motor vehicle, from an outside supplier or manufacturer in order to cut costs, actually economically efficient and mutually beneficial.

Excludability

The property of a good whereby a person can be prevented from using it. (For example clothing is , while National Defense is not).

Rival in Consumption

The property of a good whereby one person's use diminishes other people's use. (For example congested roads are, while uncongested toll roads are not).

Efficiency

The property of a resource allocation of maximizing the total surplus received by all members of society, takes into account producer surplus and consumer surplus.

Efficiency

The property of a society getting the most that it can from its scarce resources. A trade off exists between this and equality.

Equality

The property of distributing economic prosperity uniformly among the members of society. A trade off exists between this and efficiency.

constant returns to scale

The property whereby long run average total cost stays the same as the quantity of output changes

economies of scale

The property whereby long-run average total cost falls as the quantity of output increases (left-most downward sloping part of the long-run ATC). Arises because higher production levels allow specialization among workers, allowing each of them to get better at a specific task.

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). Usually arise because of coordination problems.

Diminishing Marginal Product

The property whereby the marginal product of an input declines as the quantity of the input increases. Makes the production function level off after a while. Makes sense because the firm may become more crowded which reduces overall efficiency.

Coase Theorem

The proposition that if private parties can bargain WITHOUT cost (or very little cost) over the allocation of resources, they can solve the problem of externalities on their own, proposed by Ronald Coase, other words this sould work if there are no transaction costs.

Equilibrium quantity

The quantity demanded and supplied at the equilibrium price in a competitive market; or the profit-maximizing output of a firm.

efficient scale

The quantity of output that minimizes average total cost

Efficient scale

The quantity of output that minimizes average total cost, is at the bottom of the ATC curve which happens to be an intersection with the MC curve.

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. (MRS)

Deadweight losses

The reduction in economic surplus resulting from a market not being in competitive equilibrium, usually caused by a tax.

Life Cycle

The regular pattern of income variation over a person's life. A persons income generally is low when young, then increases until about 50 and drops off after retirement at age 65. Another problem when measuring poverty and income inequality especially when compared to true living standards.

Production function

The relationship BETWEEN quantity of inputs (usually worker) used to make a good and the quantity of output(product or services) of that good. Gets flatter as input inceases.

Production Function

The relationship between quantity of inputs used to make a good and the quantity of output of that good

Property Rights

The rights of an individual to own and exercise control over scarce resources, including the rights of an individual to own, use, rent, invest in, buy, and sell property. What the gov't must insure to all citizens.

National Defense

The second largest transfer payment of the federal government after social security.

Marginal seller

The seller who would leave the market first if the price were any lower. Represented at every quantity.

output effect

The situation in which an increase in the price of one input will increase a firm's production costs and reduce its level of output, thus reducing the demand for other inputs; conversely for a decrease in the price of the input.

Industrial Organization

The study of how firms' decisions about prices and quantities depend on the market conditions they face. An example of questions that this can answer is : "How does the number of firms in a industry affect the prices in a market and the efficiency of the outcome.

Game Theory

The study of how people behave in strategic situations(involving the anticipation of actions taken by others and yourself).

Economics

The study of how society manages its scarce resources, and by consequence how people make decisions and interact with each other.

Microeconomics

The study of the economic behavior and decision making of small units, such as individuals, families, and businesses

behavioral economics

The sub-field of economics that integrates the insights of psychology

Market Demand

The sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service.

labor income

The sum of wages, salaries, and fringe benefits paid to workers

Elastic

The tax burden falls on the side of the market that is less __________. It all depends on the ability to use the alternatives for the buyers and sellers.

Payroll Tax

The tax on wages and salaries to finance Social Security and Medicare costs. 2nd largest source of revenue for the Federal Goverment.

selection bias

The tendency for a sample to differ from the population because of systematic exclusion of some part of the population

adverse selection

The tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party. (In other words the seller knows more about a product, then the buyer does, which causes "adverse" problems.)

moral hazard

The tendency of a person(the agent) who is imperfectly monitored by the principal(boss) to engage in dishonest or otherwise undesirable behavior. Can be reduced by delayed payment, high wages, or better monitoring.

Brand names

The use of party names to evoke certain positions or issues. For instance, "Adidas" might immediately call to mind athletics in the same way that "Democrat" might remind you of environmental policies or universal health care.

Cost

The value of EVERYTHING a seller must give up to produce a good. Represents opportunity cost.

Real Wage

The wage paid to workers measured in terms of purchasing power; the real wage for any given period is calculated by dividing the nominal (dollar) wage by the CPI for that period, is usually linked directly with productivity.

customer discrimination

The willingness of consumers to pay more for a product produced by members of a favored group, even if the quality of the product is unaffected.

Signaling Theory

Theory that employers are willing to pay more for people with certificates, diplomas, degrees, and other indicators of superior ability. More of a correlation to natural ability.

Duopoly

Two firms compete vigorously with the other for customers using non-price competition. There are very strong barriers to entry

Complements

Two goods for which an increase in the price of one leads to a decrease in the demand for the other, gas and cars, computer and software.

Discount Coupons

They may seem like a deal but _______ ________ allow companies to price discriminate. Also explains why Financial aid is a form of price discrimination.

Hidden characteristics

Things one party of a transaction knows about itself but which are unknown to the other party, one of the causes of asymmetric information.

Wealth of Nations

This is the1776 book written by Scottish economist Adam Smith in which he spells out the first modern account of free market economies.Criticized mercantilism by saying that it meant a combination of stifling government regulations and unfair privileges for state-approved monopolies and government favorites

Smoot-Hawley Tariff

This tariff was one of Herbert Hoover's early efforts to protect the nation's farmers at the onset of the Great Depression. Raised price of foreign imports so they couldn't compete with American goods. It didn't work and hurt international trade further deepening the Great Depression.

Profit

Total Revenue - Total Cost or in symbolic terms P = TR - TC.

average total cost

Total cost divided by the quantity of output produced. Decreases in a somewhat parabolic rate.

Average Revenue

Total revenue divided by the quantity sold, or in symbolic terms TR/ Q, on average the revenue added by selling one unit, also equals the price of the good.

Economic profit

Total revenue minus total cost, including both explicit and implicit costs, in this view profits are usually not as large as accounting profit.

Accounting profit

Total revenue minus total explicit cost, Profit will equal more than 0 in this calculation.

in kind transfers

Transfers to the poor given in the form of goods and services rather than cash, one of the problems that result when measuring inequality or poverty.

Ronald Reagan

U.S. President during the conservative ascendancy of the 1980's. Argued that high tax rates distorted economic incentives to work and save. While in office he signed huge cuts in the tax rate.

Rachel Carson

United States biologist remembered for her opposition to the use of pesticides that were hazardous to wildlife (1907-1964)

Absolute value

Usually ____ is used to calculate the price elasticity of demand.

average variable cost

Variable cost divided by the quantity of output. Always rises at a constant rate.

Gas Tax

What is the name of the tax imposed upon vehicles which do not meet specified fuel economy targets? Actually makes the economy work better and does not cause a deadweight loss.

Antitrust laws

What limits oligopoly's in the U.S from explicitly colluding and forming a cartel.

Number of sellers

What shift in supply curve is this?number of people selling the object( more sellers shifts right, less shifts left)

Economic Report of the President

What work does the Council of Economic Advisers (CEA) send to Congress, stating the president's take on the economy?

Exporter

When a country allows trade and becomes an _______ of a good, domestic producers of the good are better off, but domestic consumers of the good are worse of, however trade still raises economic well being in the way that winners exceed losers.

Importer

When a country allows trade and becomes an _______ of a good, domestic producers of the good are worse off, but domestic consumers of the good are better off, however trade still raises economic well being in the way that winners exceed losers.

lemons problem

When buyer's can't tell if if the good they are buying is high-quality or low-quality. ex. Used Cars (people assume that since they are used, there is something wrong with them). Extreme Case- People with HQ goods don't want to sell for the low prices offered and so drop out, leaving only lemons (low quality goods).

oligopoly

When firms in an ________ choose production to maximize profit, they produce a quantity of output greater than the level produced by monopoly and less than the quantity produced by competition.

Specialization

When people, businesses, regions, and/or nations concentrate on goods and services that they can produce better than anyone else

Discrimination

When the government imposes a price ceiling on a competitive market, a shortage of the good arises,and sellers ration scarce goods among a large number of buyers, in a way buyer _________ occurs.

falling

Whenever marginal cost is less than average total cost, average total cost is ________

rising

Whenever marginal cost is more than average total cost, average total cost is ________

Preference

Whether or not a good is a necessity or luxury actually depends on the consumers _______ , not the intrinsic value of a good.

Teenagers

Who are most binded(constrained and affected) by minimum wage laws and leads them to be unemployed in a significant amount.

Progress and Poverty

Written by Henry George, critical of entrepreneurs, after studying poverty in America, determined that rich didn't pay fair share of taxes and proposed "Single Tax" on incremental value of land

Beauty

________ pays big money. That is why most movie stars are this. Is an average increase in wages of 5 to 10% on average when compared to normal population. A type of discrimination.

Purchase Price

_________ _______ of land and capital is the price a person pays to own the factor of production indefinitely. Distinguished from the rental price.

Marginal Revenue

_________ _________ in the case of monopolies is always less than the price, and because of that can even become negative as the Demand(average revenue) decreases.

Collusion

_________ among members of an oligopoly generally decrease when more members are added..

Supply

_________ is usually more elastic in the long run than in the short run, as firms can adjust and change their factories or close old ones.

Luxuries

_________ will have a very elastic demand, as peoples perceive them as not being worth it if the price of it goes up. Contrasts perfectly with Necessities. (Think Versailles, Yachts, Diamonds)

Substitutes

__________ have a positive cross price elasticity of demand. As the price of the other goods increase the change in the quantity demanded of the other good also increases. (Think of Pencils and Pens)

Technological progress

___________ __________ is a key to why living standards rise over time.

Necessities

___________ will have almost perfectly inelastic demand. As long as you want to live, you have no choice but to buy these goods. (Think Food, Water, Shelter, Salt, Health)

International Trade

________________ __________ WILL make a country as a whole better off, but it can make some people or groups(special interests) worse off, which is why some people do not support it.

inferior good

a good for which, other things equal, an increase in income leads to a decrease in demand

Normal Good

a good for which, other things equal, an increase in income leads to an increase in demand. (Ice Cream, etc)

Inferior Goods

a good or service whose consumption declines as income rises (and conversely), price remaining constant. Like Bus Rides

agent

a person who is performing an act for another person(the principal)

progressive tax

a tax for which high-income taxpayers pay a larger fraction(percentage) of their income than do low-income taxpayers

Efficiency wages

above equilibrium wages paid by firms to increase worker productivity

Import

commodities (goods or services) bought from a foreign country

Unit elastic

elasticity where a change in the independent variable (usually the price) generates a proportional change of the dependent variable (quantity demanded or supplied) =1

value of marginal product

marginal product times market price; demand curve for labor augmenting

unanimity

state of total agreement or unity, one of the conditions of arrow's impossibility theorem.

marginal cost

the increase in total cost that arises from an extra unit of production, Always rises at a pretty constant rate.

Quantity Supplied

the amount of a good or service that a firm is willing and able to supply at a given price

Expectations

the anticipations of consumers, firms and others about future economic conditions, effects your demand of goods or services at every price(Demand Shift). If you expect an increase in income you will be more willing to spend than save, or vice versa. Also effects Supply of firms.

Price discrimination

the business practice of selling the same good at different prices to different customers, not possible when a good is sold in a competitive market, but does occur in monopolies.

Marginal product of labor

the change in output from hiring one additional unit of labor

Strike

the organized withdrawal of labor from a firm by a union

Equality

the property of distributing economic prosperity uniformly among the members of society

diminishing marginal product

the property whereby the marginal product of an input declines as the quantity of the input increases.

Political Economy

the study of government using the analytic methods of economics.

Transitory income

the unexpected gain or loss of income that a person experiences. It is the difference between a person's regular(permanent) and actual income in any year.

Export

to sell goods to another country