economics final 2302 baddar

Average Variable Cost (AVC)

VC/Q

minimum wage

a minimum price that an employer can pay a worker for an hour of labor

explicit costs

costs that require a firm to spend money

long run

long run lmao

cartel

when prices collude

Price Elasticity of Demand (PED)

"A measure of the responsiveness of the quantity demanded of a good to a change in its price," ceteris paribus. HOW THE QUANTITY DEMANDED OF A PRODUCT REACTS WHEN THERE IS A CHANGE IN PRICE

Circular Flow Model

A diagram that traces the flow of resources, products, income, and revenue among economic decision makers

Inferior Goods

A good or service that we would buy less as our income rises.

Free Market

A market free from government intervention. Meaning there are no taxes, regulations, minimum wage, environmental standards etc

Monopoly

Ex- BTU. Only one seller. -only one firm (the firm = the market) -sells a good or service that has no close substitutes -no other firm can enter this market -lowest allocative efficiency

Microeconomics

Focus on the choices made by individuals

Macroeconomics

Focus on the choices made by societies at large.

Monopolistic Competition

Hybrid of perfect competition and monopoly. -many firms -sells slightly differentiated products -little barriers for entry -experience DOES matter (older firms have advantages over new ones) -because products are differentiated, there is room for different prices -allocative efficiency is high ex- restaurants

Entrepreneurship

Idea that organizes land, labor, and capital for the production of goods or services

Expectations

If we expect a big sale for electronics two weeks from now, what would happen to the demand for electronics? (It would shift left, decrease) if we expect a gasoline shortage tomorrow, what would happen to the demand of gasoline today? It would shift to the right, increase

Average Fixed Cost (AFC)

FC/Q

Capital

The tools, machines, buildings used for producing goods and services

economic profit

Total revenue - (explicit costs + implicit costs)

Cost

What we lose

Barriers to entry

constraints that protects firms from new competitions

Free trade

international trade free of government interference

implicit costs

kind of like opportunity costs (the money you could have earned from a second best option)

Interest

payment for capital

perfectly inelastic

quantity does not respond at all to changes in price (E=0)/ VERTICAL

Law of diminishing marginal productivity

states as more of a variable input is added to an existing fixed input, after some point the additional output from the additional input will fall

Marginal Social Benefit (MSB)

the additional benefit that society gains from consuming an extra unit of a good

marginal revenue

the additional income from selling one more unit of a good; sometimes equal to price

Consumer Surplus

the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays

game theory

-useful for an oligopoly -used when collusion is not present -the tool that economists use to analyze strategic behavior - analysis that has direct relevance to the study of the conduct and behaviour of firms in oligopolistic markets - for example the decisions that firms must take over pricing and levels of production, and also how much money to invest in research and development spending.

Opportunity Cost

Missed opportunities. The second best option. When we choose one thing, we give up the second best option. If I choose to spend the next two hours reading a book, my opportunity cost is spending two hours to watch a movie.

Non-price determinants of supply

The variables that can influence supply: Costs of factor of production, Price of related goods (Joint Supply and Competitive Supply), Technology, Producer expectations, Taxes, The number of firms, Supply shocks and Subsidies.

Market Failure

When market fails to reach allocative efficiency.

Labor

Work that people put to produce goods or services

Normal Good

a good (or service) that we would buy more of if our income rises. a decrease in demand, shifts it to the left. vice versa

Market

a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade

imperfect competition

a market structure that does not meet the conditions of perfect competition

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 supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good

Free rider

a person who receives the benefit of a good but avoids paying for it

Communism

a political theory derived from Karl Marx, advocating class war and leading to a society in which all property is publicly owned and each person works and is paid according to their abilities and needs. After socialism is established and run by a central government, eventually the governments role would come to an end and dissolve itself. And when that happens... this occurs.

Nonexcludable

a product that is impossible (or too expensive) to exclude people from using/having it.

Differentiated product

a product that is perceived by consumers as different in some way

direct tax

a tax an individual pays directly to the government

indirect tax

a tax levied on goods or services rather than on persons or organizations

invisible hand

a term coined by Adam Smith to describe the self-regulating nature of the marketplace

Ceteris Paribus

all other things held constant

economic loss

an economic profit that is less than zero

positive externality

beneficial side effect that affects an uninvolved third party

price discrimination

different prices of the same product to different customers

perfectly elastic

flat demand curve; consumers are perfectly price sensitive/ HORIZONTAL

Inefficiency

getting less output from inputs that, if devoted to some other activity, would produce more output

Human Capital

knowledge and skills that workers obtain from education, on the job training, or work experience. Used for production purposes.

Factors of productions

land, labor, capital, entrepreneurship

Natural Monopoly

market where its naturally expected to be a monopoly. like BTU

Marginal Benefit

measure of value we put on a product

income

money received, especially on a regular basis, for work or through investments.

Common Resources

non excludable and rival. it is not infinite, but its really expensive to stop it from happening. ex-123movies. how do you stop these illegal movie streaming sights?

negative externality

the harm, cost, or inconvenience suffered by a third party because of actions by others

Law of Diminishing Marginal Utility

the marginal utility will start decreasing as the consumption increases.

allocative efficiency

the particular mix of goods and services most highly valued by society

cross-price elasticity of demand

the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good

equilibrium price

the price at which the quantity demanded equals the quantity supplied

EXCLUDABLE

the property of a good whereby a person can be prevented from using it

equilibrium quantity

the quantity bought and sold at the equilibrium price

concentration ratio

the ratio of the combined market shares of a given number of firms to the whole market size. It is commonest to consider the 3-firm, 4-firm or 5-firm concentration ratio. Concentration ratios are used to assess the extent to which a given market is oligopolistic.

Demand is...

the relationship between the quantity demanded of a good and the price of the go when all other influences on buying plans remain the same

constant returns to scale

the situation in which a firm's long-run average costs remain unchanged as it increases output

diseconomies of scale

the situation in which a firm's long-run average costs rise as the firm increases output

marginal analysis

the study of the costs and benefits of doing a little bit more of an activity versus a little bit less

Fixed Costs

things that remain the same in the short run (land, building, machinery) It doesnt matter if Adelyn sells 1 or 100 pizzas, the rent she pays, oven she uses arent going to change.

Accounting profit

total revenue (sales) - explicit costs (all money spent on a business)

Efficiency

using resources in such a way as to maximize the production of goods and services

PREFERENCES

what a person likes and dislikes and the intensity of those feelings

marginal social cost

The extra cost to society of producing an additional unit of output, including both the private cost and the external costs.

Absolute Advantage

The more productive a person (someone who needs fewer inputs or less time to produce something or do a task) is said to have an...

Externality

"cost or benefit that arises from production or consumption and that falls on someone other than the producer/consumer"

Marginal Utility

"the change in total utility that results from a one-unit increase in the quantity consumed of a good or service."

Law of Supply

All other things held constant, when the price of a product goes up, the quantity supplied for that product goes up as well, and vice-versa.

Law of Demand

All other things remaining constant, when the price of a product goes up, the quantity demanded of that product goes down, and vice versa.

Land

All the gifts of nature/natural resources ex- Water Minerals Plants

Black Market

Alternative market for a good or service that runs illegally (outside of government controls).

Dead Weight Loss

Amount of total surplus that could have been gain if no intervention was put into effect.

Capitalism

An economic system where every free man can prosper and become an owner through work. To become the owner of a resource, you must mix it with your labor.

Goods

Anything Tangible you can touch it with your hand. Otherwise, its a service. ex- Chemicals Computers Food and Drink

Oligopaly

Car manufacturers and other electronics. few sellers -there are very few firms -products can be differentiated OR identical -very difficult to enter the market -low allocative efficiency

Marginal Product

Change in total product that results in adding one more worker.

Marginal Cost (MC)

Cost added to the total cost when producing one more unit

economies of scale

It makes sense to produce more when the average total costs are dropping. Which is the represented by the ATC line going down. Then once the line flattens out and you hit the middle, you reach the ideal stopping point aka Constant Economies of Scale, where youre getting back the same value - doesnt matter. When the ATC curve starts to rise again, youre in trouble. You start getting negative returns know as the diseconomies of scale. The cost per unit is rising and you also start having issues with the capacity within the business.

Price Ceiling

Limit established by the government to prevent the price of certain good

Cost/Benefit Analysis

Needed to make rational choices. If benefits are better than the cost, you should do it. vice versa

Normative VS Positive statement

Normative VS Positive statement

Non-price determinants of demand

Preferences, Income, Substitutes, Complements, Population (number of buyers), and expectations.

Complements

Products that are usually bought together. ex-peanut butter and jelly hot dogs and hot dog buns If hotdogs and hotdog buns are complements, and the price of the buns increases, what happens to the demand for hotdogs? It will decrease (shift left). Can you see why?

Elasticity

Refers to how flexible the quantity demanded or supplied in response to a change in an influencing factor (for example: price).

Budget Line

Shows the consumption POSSIBILITIES that are limited by the income and prices

Economics

Social science/tools to make choices or decisions. The tool we use to study the choices human beings make.

Average Total Cost (ATC)

TC/Q

average revenue

TR/Q

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than anyone else.

Perfect Competition

The ideal market structure. Anyone can join this market as a seller. Product they are selling is identical to the other ones in the market. -many firms -many buyers -no barriers to entry -older firms have no advantage over new firms (experience is not necessary) -buyers cant be cheated into a higher price, no influence on market price -has the highest allocative efficiency