Microeconomics Chapter 3-4

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supply curve

a curve illustrating supply

plant

a physical establishment that performs one or more functions in the production, fabrication, and distribution of goods and services

inferior good

a good or service whose consumption declines as income rises, prices held constant

normal good

a good or service whose consumption increases when income increases and falls when income decreases, price remaining constant

industry

a group of (one or more) firms that produce identical or similar products

corporation

a legal entity ("person") chartered by a state or the Federal government that is distinct and separate from the individuals who own it

price floor

a legally determined minimum price above the equilibrium price

price ceiling

a legally established maximum price for a good or service

monopoly

a market structure in which the number of sellers is so small that each seller is able to influence the total supply and the price of the good or service

transfer payments

a payment of money (or goods and services) by a government to a household or firm for which the payer receives no good or service directly in return

demand

a schedule showing the amounts of a good or service that buyers (or a buyer) wish to purchase at various prices during some time period

demand schedule

a schedule showing the amounts of a good or service that buyers (or a buyer) wish to purchase at various prices during some time period

supply

a schedule showing the amounts of a good or service that sellers (or a seller) will offer at various prices during some period

supply schedule

a schedule showing the amounts of a good or service that sellers (or a seller) will offer at various prices during some period

shortage

the amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price

surplus

the amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price

equilibrium quantity

(1) the quantity demanded and supplied at the equilibrium price in a competitive market; (2) the profit maximizing output of a firm

substitution effect

(1) a change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product's price; (2) the effect of a change in the price of a resource on the quantity of the resource employed by a firm, assuming no change in its output

positive externalities

a benefit obtained without compensation by third parties from the production or consumption of sellers or buyers. Example: A beekeeper benefits when a neighboring farmer plants clover. An external benefit of a spillover benefit.

change in quantity demanded

a change in the amount of a product that consumers are willing and able to purchase because of a change in the product's price

change in quantity supplied

a change in the amount of a product that producers offer for sale because of a change in the product's price

change in demand

a change in the quantity demanded of a good or service at every price; a shift of the demand curve to the left or right

income effect

a change in the quantity demanded of a product that results from the change in a real income (purchasing power) caused by a change in the product's price

change in supply

a change in the quantity supplied of a good or service at every price; a shift of the supply curve to the left or right

principal-agent problem

a conflict of interest that occurs when agents (workers or managers) pursue their own objectives to the detriment of the principals' (stockholders') goals

nondurable good

a consumer good with an expect life (use) of less than 3 years

durable good

a consumer good with an expected life (use) of 3 or more years

negative externality

a cost imposed without compensation on third parties by the production or consumption of sellers or buyers. Example: A manufacturer dumps toxic chemicals into a river, killing the fish sought by sports fishers; an external cost or a spillover cost

externality

a cost or benefit from the production or consumption, accruing without compensation to someone other than the buyers and sellers of the product

demand curve

a curve illustrating demand

bond

a financial device through which a borrower (a firm or government) is obligated to pay the principal and interest on a loan at a specific date in the future

public goods

a good or service that is characterized by nonrivalry and nonexcludibility; a good or service with these characteristics provided by government

quasi-public goods

a good or service to which excludability could apply but that has such a large positive externality that government sponsors its production to prevent an underallocation of resources

payroll taxes

a tax levied on employers of labor equal to a percentage of all or part of the wages and salaries paid by them and on employees equal to a percentage of all or part of the wages and salaries received by them

sales and excise taxes

a tax levied on the cost (at retail) of a broad group of products; a tax levied on the production of a specific product or on the quantity of the product purchased

corporate income tax

a tax levied on the net income (accounting profit) of corporations

personal income tax

a tax levied on the taxable income of individuals, households, and unincorporated firms

property taxes

a tax on the value of property (capital, land, stocks, and bonds, and other assets) owned by firms and households

services

an (intangible) act or use for which a consumer, firm, or government is willing to pay

firm

an organization that employs resources to produce a good or service for profit and owns and operates one or more plants

stock

an ownership share in a corporation

sole proprietorship

an unincorporated firm owned and operated by one person

partnership

an unincorporated firm owned and operated by two or more persons

government purchases

expenditures by government for goods and services that government consumes in providing public goods and for public capital that has a long lifetime; the expenditures of all governments in the economy for those final goods and services

determinants of demand

factors other than price that determine the quantities demanded of a good or service

determinants of supply

factors other than price that determine the quantities supplied of a good or service

complementary good

products and services that are used together. When the price of one falls, the demand for the other increases

substitute goods

products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises

limited liability

restriction of the maximum loss to a predetermined amount for the owners (stockholders) of a corporation. The maximum loss is the amount they paid for their shares of stock.

allocative efficiency

the apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which its marginal cost and price or marginal benefit are equal, and at which the sum of consumer surplus and producer surplus is maximized

free-rider problem

the inability of potential providers of an economically desirable good or service to obtain payment from those who benefit, because of nonexcludability

functional distribution of income

the manner in which national income is divided among the functions performed to earn it (or the kinds of resources provided to earn it); the division of national income into wages and salaries, proprietors' income, corporate profits, interest, and rent

personal distribution of income

the manner in which the economy's personal or disposable income is divided among different income classes or different households or families

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

diminishing marginal utility

the principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases

law of demand

the principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in the price

law of supply

the principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease

productive efficiency

the production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs

marginal tax rate

the tax rate paid on an additional dollar of income

average tax rate

total tax paid divided by total (taxable) income, as a percentage


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