Micro Econ Review

Spillover benefits

Additional benefits to society not captured by the market demand curve from the production of a good, result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good. This typically results in government subsidies that raises demand.

Spillover costs

Additional costs to society not captured by the market supply curve from the production of a good, result in a price that is too low and a market quantity that is too high. Resources are overallocated to the production of this good. This typically results in government taxation that lowers supply.

Kyoto Protocol

An international agreement to reduce global emissions of greenhouse gases from all industrialized countries in order to protect the environment. It has achieved limited success.

Transition Economies

China, India, and Brazil are some examples. They often feature large amounts of conflicts and opportunities in the form of a volatile mixed economy. Generally, they feature rising average incomes and economic growth.

Microeconomics

The economics of individual participants or products.

Macroeconomics

The economics of whole economic sectors or countries.

Marginal cost

The extra cost of producing another unit of output. It is equal to the change in total cost divided by the change in total output. The graph of this is shaped like a J because of the law of diminishing marginal returns.

Marginal Benefit

The extra satisfaction from consuming a unit of a product, measured in dollars.

Marginal product

The extra total output associated with another worker.

Productivity, Education, Experience, Job conditions, Regional disparities, Market power, discrimination.

What are the wage determinants

1. A resource's marginal cost. 2. A resource's marginal product. 3. The marginal revenue of new units of output.

What determinants are used to determine the demand for a resource?

The demand for the products that these resources are used to produce.

What determines the demand for resources in the resources market?

1. Product prices. 2. resource prices. 3. Technological change.

What factors affect resource demand?

Merchandise, services, investment income, transfers.

What four types of transactions are held in the Current Account?

Its marginal cost over the shutdown point.

What is a perfect competitor's supply curve?

MC, AC, AFC, AVC.

What is included in the family of short run cost curves?

Wealth

What is more unequally distributed, wealth or income?

(Delta Q / Avg Q) / (Delta P / Avg P)

What is the formula for Supply elasticity?

(Delta Qx / Avg Qx) / (Delta Py / Avg Py)

What is the formula for cross price elasticity?

(Delta Q / Avg Q) / (Delta I / Avg I)

What is the formula for income elasticity?

(Delta Q / AvgQ) / ( Delta P / Avg P)

What is the formula for price elasticity of demand.

Tariff

an excise tax on imported goods

They simplify economic reality, show how dependent variables are affected by independent variables, include inverse and/or direct relationships, include a variety of assumptions such as ceteris paribus (nothing else is changing), and are classified as either positive economics or normative economics.

What is the purpose of economic models?

implicit costs

What owners give up because of being involved with a business.

- Portfolio investment does not give the buyer controlling interest. - Direct investment is financial investment that gives the buyer controlling interest. - Other financial investments are linked to day-to-day fluctuations in bank deposits.

What three types of transactions are held in the Financial Account?

Commodity processing (C circle) fueled by steel, mass manufacturing (M circle) fueled by energy, and technology (T circle) fueled by microchips.

What were the three movements identified by Nuala Beck and what did she say they were fueled by?

Common market

a customs union that allows for the free movement of labour and capital among member countries (e.g. the EU).

The managed Float 1971-present

a flexible exchange rate system that sometimes involves short-term government intervention

Cartel

a formal organization of producers that agree to coordinate prices and production.

Customs union

a group of countries with common trade barriers with outside countries as well as a free trade area (e.g. Mercosur).

Joseph Schumpeter

believed that entrepreneurs are the driving force of economic progress in capitalism predicted that capitalism was doomed because of the growing dominance of government bureaucracy antagonistic to capitalism

The gold standard 1879-1934

each country set the value of its currency in terms of an amount of gold

Variable costs

Cost of all inputs that are not fixed.

Fixed costs

Cost of all inputs that are not variable.

The Bretton Woods System 1945-1971

Exchange rates are based on adjustable fixed exchange rates

Flexible Exchange Rates

Exchange rates that are allowed to move freely to their equilibrium levels

Fixed Exchange Rates

Exchange rates that are pegged to a certain value by a country's government.

Price supports for agricultural goods are an example of a price floor. They help overcome unstable agricultural prices. Farmers win from these supports. Consumers and taxpayers lose from these supports.

Explain Agricultural price supports.

Nuala Beck

Identified the movements that have shaped economic development since 1850. She also stated that each movement was driven by an abundant supply of a crucial resource.

Deadweight loss

reduction in both the consumer surplus and producer surplus due to the reduction in market output. This is typically because of an noncompetitive market/government policy.

The General Agreement on Tariffs and Trade (GATT), and the World Trade Organization (WTO)

represent multilateral initiatives to reduce trade protection among member countries, including Canada.

The National Policy 1879

initiated wide-ranging Canadian tariffs on manufactured goods to stimulate a domestic manufacturing sector.

The Auto Pact 1965

is an example of a free trade area in one class of products eliminated tariffs on both sides of the Canada-US border as long as the "Big Three" auto companies met North American content and Canadian value-added rules was successfully challenged in the WTO by Japan and the European Union

The Competition Act of 1986

major reform of Canada's anti-combines legislation.

Merchandise Balance of Trade

merchandise export receipts minus merchandise import payments

Balance of Payments Accounts

provide a summary of all transactions between Canadian residents and foreigners that involve exchanging Canadian dollars for some other currency.

Balance of Payments

receipts minus payments on the current account and capital and financial accounts combined.

The Free Trade Agreement 1988

signed by Canada and the US in 1988: has eliminated tariffs on virtually all products includes services reduces governments' ability to screen foreign direct investment has introduced a new North American content rule for autos has created a continental energy market excludes cultural industries has been accompanied by a significant increase in trade between the two countries

North American Free Trade Agreement

signed by Canada as well as the US and Mexico in 1993: extends most of the provisions of the FTA to include Mexico includes side agreements concerning labor and environmental standards has so far had little effect on Canada given Canada's relatively minor trade with Mexico

Financial Account

summarizes all foreign transactions of financial assets involving Canadian dollars

Capital Account

summarizes transfer of ownership of savings and intangible assets.

Positive economics

the analysis of facts or data to establish scientific generalizations about economic behavior

Game theory

the analysis of how mutually interdependent actors try to achieve their goals through the use of strategy. Originally a field in mathematics, this has become a set of concepts whose use has spread to all social sciences, especially economics.

Marginal revenue product

the change in total revenue associated with employing one additional unit of resource.

Law of supply

there is a direct relationship between price and quantity supplied.

Labor intensive and capital intensive

What are the two production processes?

Perfectly Elastic Supply

a constant price and a horizontal supply curve.

Average fixed cost

Fixed costs divided by total products. As units go up, this goes down.

Unit Elastic demand

% change in quantity demand equals % change in price

Inelastic demand

% change in quantity demanded is less than % change in price

Elastic demand

% change in quantity demanded is more than % change in price

Inelastic Supply

% change in quantity supplied is less than % change in price.

Elastic Supply

% change in quantity supplied is more than % change in price.

Changes in Official Reserves

- shows the effect of the Bank of Canada's buying and selling of foreign currency on the flow of Canadian dollars - is equal in value (and opposite in sign) to the surplus or deficit noted in the balance of payments

John Helliwell

A Canadian economist who believes that national borders still play a large role in trade patterns and flows of financial capital as well as the movement of people. Despite perceptions to the contrary, the proportion of Canadians moving to the US is much lower than in previous decades. He suggests that Canadian economic welfare compares well with other nations, and in particular the US, which illustrates how small economies can stand up against larger economies in today's global economy. Satisfaction with our health care system is relatively high by international standards. Canada has been relatively successful at educating its workforce, though there are some problems in the area of knowledge production (ie. research). Canada has high levels of social capital, which refers to levels of mutual trust found in society.

Market power

A business' ability to affect the price it charges. Monopolies have the most and perfect competitors have the least.

Excise tax

A dollar amount tax per a particular quantity. This creates a new supply curve seen by consumers. It is vertically above the initial supply curve seen by producers.

John Kenneth Galbraith

A man who believed that ownership and control is separated in large corporations. He argued that the shareholders (the owners) give up control to managers. He held out the possibility that managers are more interested in maximizing sales than maximizing profits.

Oligopoly

A market in which a few businesses provide standard or similar products, protected by entry barriers. They have some market power. Example: Car manufacturers.

Monopoly

A market in which a single business provides a product with no close substitutes, protected by entry barriers. They have great market power. Example: Public utilities.

Perfect competition

A market with many buyers and sellers, a standard product, easy entry and exit, and no market power. Example: Farming.

Monopolistic competition

A market with many buyers and sellers, slightly different products, easy entry and exit, and some market power. Example: Restaurants.

Conglomerate merger

A merger between firms that are involved in totally unrelated business activities.

Natural Monopoly

A monopoly whose ATC curve is downward sloping indefinitely because of increasing returns to scale. MC < ATC. Natural entry barrier, high fixed costs such as subway train line.

Mixed Economy

A range between economic systems.

Mutual interdependence

A situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm (or other firms). Any firm that makes such a change can expect the other rivals to react to the change.

Marginal productivity theory

A theory outlining how a business uses resources based on how much extra profit each of these resources provides.

Free trade Area

A trading bloc that promotes an area as tariff free although member countries are able to impose tariffs on outside countries. For example, NAFTA.

The Production Possibilities Model

An economic model that is based on three assumptions: an economy makes only two products, resources and technology are fixed, and all resources are utilized to their fullest capacity. It shows a range of possible output quantities for an economy.

Human capital

An economic resource that involves the increase of productivity due to the attaining of skills (through education, etc.)

Command Economy

An economic system that equalizes incomes but often has a lack of freedom. Public.

Market economy

An economic system that is consumer-centered and innovative but create inequality and instability.

Gini Coefficient

Area over lorenz curve and under y=x divided by the total area of the triangle. 0 is perfect distribution of wealth and 1 is perfectly unequal.

Marginal revenue

Change in total revenue / change in output

Negative

Cross price elasticity coefficient for a complementary product will be...

Positive

Cross price elasticity coefficient for a substitute product will be...

In the mid-1990s, market reforms provided enhanced economic stability and fostered high economic growth. The main driver of economic growth has been Brazil's abundant supplies of natural resources such as oil, minerals and freshwater. Economic disparities remain, but extreme poverty is quickly receding, though rapid resource exploitation has also brought significant environmental damage.

Describe the Economic Transition of Brazil.

Canada's merchandise exports are about equally divided between natural resources (both raw and processed) and manufactured goods. Canada's merchandise imports of manufactured goods are more than double its merchandise imports of natural resources (both raw and processed).

Describe Canada's merchandise trade

It is the same as the market demand curve. It is downward sloping.

Describe a monopolist's business demand curve.

Monopolists meet neither the minimum cost pricing nor the marginal cost pricing.

Describe a monopolist's pricing conditions.

The demand curve is elastic because of the many substitutes for the product, but it is not perfectly elastic like that of perfect competition.

Describe a monopolistic competitor's demand curve.

They meet neither marginal cost pricing nor minimum cost pricing because too few units of output are produced.

Describe a monopolistic competitor's pricing conditions.

Business' demand curve is different from the market demand curve. The business' demand curve is horizontal (perfectly elastic) at the prevailing market price. They are price takers.

Describe a perfect competitor's business' demand curve.

A business raising price finds rivals keeping theirs relatively constant, so demand is relatively flat. A business lowering their price finds other businesses doing the same so demand is relatively steep.

Describe an oligopolist's demand curve.

Some economists stress the way that economic models are like artistic sketches with the added need to include society's political and cultural climates. When social surroundings change, economic models may also need to change.

Describe how economics could be considered an art.

1. The resource's marginal cost is constant. 2. The resource's marginal product is variable. 3. The marginal revenue of new units of output is constant.

Describe how the resource market operates if a business is a product and resource price taker.

1. The resource's MC is constant. 2. The resource's MP varies. 3. MR of new units of output falls as quantity rises. The profit-maximizing employment rule also applies here. AKA a business should use a resource up to the point where MRP = MRC.

Describe how the resource market operates if a business is a product price maker and a resource price taker.

This is the minimum short run average cost at every output value. This curve is saucer shaped because of various ranges of return to scale. It features an initial range of increasing returns to scale, then a period of constant returns to scale, and ends with a period of decreasing returns to scale. Essentially, a small company can expand in order to become more efficient, they eventually reach peak efficiency and invest more capital in order to grow their existing operations, and in the end, they become limited by outside factors and more investment leads to decreasing returns.

Describe long run average costs.

Entry and exit by businesses in the long run drives a perfectly competitive market to the breakeven point.

Describe perfect competition in the long run.

A monopolist charges a higher price and supplies less than if the market were in perfect competition.

Describe price and Quantity supplied in a monopoly.

Oligopolists meet neither minimum cost pricing nor marginal cost pricing.

Describe pricing conditions for an oligopolist.

- Some inputs (such as capital) are fixed - Other inputs (such as labor) are variable - All inputs are combined to make total product. This takes average product and marginal product into account.

Describe production in the short run

Average revenue is equal to their kinked demand curve. The marginal revenue curve have two segments that are below the AR line.

Describe revenue conditions for an oligopolist.

Marginal cost pricing is met, meaning that equilibrium will occur where marginal benefit (demand/AR/MR) equals marginal cost (Supply) and both consumer and producer surplus are maximized.

Describe surplus in a perfectly competitive market.

The contemporary economic transformation of China began in the 1970s with growth-enhancing reforms in its agricultural sector. In the 1980s, this growth spread to other sectors, thanks to reforms allowing state-owned producers to keep some of their profits. After 1990, private companies became common, causing a further increase in annual growth. By the late 2000s, this growth meant that China's economy was five times larger than in 1978.

Describe the Economic Transition of China

Reforms during the early 1990s freed private businesses in key sectors of India's economy. High growth rates appeared first in services, before being extended to manufacturing. India's annual rates of economic growth now average about 8% - just a little less than the 10% rates found in China's economy.

Describe the Economic Transition of India

1. MR=MC ---> Qmax 2. Qmax --> AR --> Price 3. Qmax --> AC --> Cost 4. Profit rectangle = (AR-AC)*Qmax

Describe the Nicholson Four Step.

Consumer spending goes to businesses, and consumer products go to households all through the product market. Household incomes go to households and economic resources go to businesses through the resource market.

Describe the circular flow Diagram.

Marginal productivity theory is not always applicable to other resources. It works for labor and natural resources because these resources are measured inn standardized units, however, it is harder to calculate the marginal revenue product for capital goods, because one investment project differs from another.

Describe the demand for resources other than labor in the resource market.

If tech increases, complementary resource demand increases while substitute resource demand decreases.

Describe the effects of technological advancements on resource demand.

An import quota has the same effect as a tariff, except that the increase in government revenues is replaced by an increase in the price of foreign imports

Describe the impact of an import quota on a perfectly competitive market

A tariff decreases consumption and foreign imports, while it increases domestic production and government revenues

Describe the impact of tariffs on a perfectly competitive market

Elastic: When price changes, revenue moves in the opposite direction. Inelastic: When price changes, revenue moves in the same direction. Unit-Elastic: When price changes, revenue does not change.

Describe the results of a price change in terms of total revenue for elastic, inelastic, and unit-elastic demand curves.

Average revenue is the same as their downward sloping demand curve. Marginal revenue is below their demand curve because as they produce more, their demand curve (average revenue) falls.

Describe the revenue conditions for a monopolist.

- Average revenue equals price so that a perfect competitors average revenue curve is also its business' demand curve. - Average revenue/Price is constant so that AR=MR in perfect competition.

Describe the revenue conditions for a perfect competitor.

Average revenue is equal to the downward sloping demand curve. Marginal revenue is below the demand curve (AR) because demand falls as quantity increases.

Describe the revenue conditions of a monopolistic competitor.

In the short run, a monopolistic competitor may make a profit or a loss. In the long run, they break even.

Describe the short and long run profit of a monopolistic competitor.

Immediate Run: Supply is perfectly inelastic Short Run: Supply is either elastic or inelastic Long Run: Supply is perfectly elastic for a constant cost industry or very elastic for an increasing cost industry.

Describe time's relation to the price elasticity of supply.

Canada along with many other nations entered into a time of protectionism.

Describe what happened in Canada due to the Great Depression

Normative economics

Describes what should be/opinions rather than facts. It can have evidence to support it, however, is impossible to prove.

Jane Jacobs

Economic Thinker who said "[P]overty has no causes... Only prosperity has causes." In her view, small-scale creativity and productive efficiency are the main drivers of growth.

The economic Problem

Economic agents have unlimited wants but finite resources. This is the fundamental reason for economics.

Modern Mixed Economy

Economic system that is a range between private and public.

Traditional Mixed economy

Economic system that is a range between public or private and traditional.

Average cost

Either total cost divided by total product or average fixed cost + average variable cost.

She believed that growth came from people who produce previously imported items. Her theory essentially states that long term growth comes from fostering vigorous import replacing cities within its borders like what has been done by South Korea, Japan, and China. In her mid career, she extended her theory to devise a model of social and economic ethics with diversity as the key. - Societies thrive only as long as the rules that underlie commerce and politics remain distinct. - Businesspeople need to tout honesty, initiative and inventiveness, recognize the benefits of efficiency, voluntary contracts, know when to collaborate and compete, and understand the costs of ostentatious consumption and pessimism about the future. Rulers in contrast must honor loyalty, discipline and respect for hierarchy. If business people act like rulers or vice versa, monstrous hybrids are created. For example, the recent mania for corporate mergers and acquisitions, which is seen as one of the main causes for the 2008 financial crisis.

Explain Jacobs' economic beliefs

Rent controls are an example of a price ceiling. They keep down prices of controlled rental accommodation. Some (especially middle-class) tenants win from these controls. Other (especially poorer) tenants lose from these controls.

Explain Renting price supports.

The demand for Canadian dollars is the relationship between the price of a Canadian dollar and the quantity demanded in exchange for another currency (e.g. the U.S. dollar). The demand curve's negative slope is determined by foreign export buyers, since the higher Canadian $ means that Americans find Canadian products more expensive and so they buy fewer of them.

Explain the Demand of Canadian Dollars

The supply of Canadian dollars is the relationship between the price of a Canadian dollar and the quantity supplied in exchange for another currency (e.g. the U.S. dollar). The supply curve's positive slope is determined by Canadian import buyers, since a higher Canadian $ means that Canadians find American products cheaper and so they buy more of them.

Explain the Supply of Canadian Dollars

Low: Stimulates exports but runs a risk of causing inflation High: Puts downward pressure on inflation but also on output and employment

Explain the benefits and drawbacks of a high and low fixed exchange rate.

Canada has a high reliance on foreign trade as it accounts for approximately 35 percent of their GDP.

Explain the importance of trade for Canada

Low demand, high supply, balance of payments deficit, official Canadian reserves up

Explain what happens to supply and demand as well as the balance of payments and the official Canadian reserves if a fixed exchange rate is set above equilibrium.

Excess demand, low supply, balance of payments surplus, official Canadian reserves down

Explain what happens to supply and demand as well as the balance of payments and the official Canadian reserves if a fixed exchange rate is set below equilibrium.

Market supply curve

Found by horizontally adding all of the business' supply curves in the industry.

Resource market demand curve

Found by horizontally summing all of the labor demand curves from all businesses within an industry.

Economic Profit

Found by subtracting economic costs from total revenue.

Accounting profit

Found by subtracting explicit costs from total revenue. This will always exceed economic profit by the amount of implicit costs.

Complementary economic goals

Goals in an economy that support each other. For example, full employment and economic growth.

Conflicting economic goals

Goals in an economy that work against each other. For example, economic growth and environmental sustainability.

When making more of a product means repeating exactly the same task.

How do constant returns to scale occur?

Minimum-cost pricing (AR=minimumAC) and marginal-cost pricing (AR=MR=MC).

How does perfect competition benefit consumers?

Rational Behavior

How economists think the public behaves. People are assumed to make choices logically, weighing the opportunity costs of either option.

Elasticity of demand

How responsive consumers are to price changes

Multiply tax induced price rise with after tax quantity

How to find the total excise tax payed by consumers?

Multiply their price drop by tax induced quantity.

How to find the total excise tax payed by producers?

Concentration ratios

How we measure industrial concentration

Economic Costs

Include implicit and explicit costs.

Positive

Income elasticity coefficient for a normal product will be...

Negative

Income elasticity coefficient for an inferior product will be...

Industrial Unions

Labor unions who include all workers of a certain industry.

Craft Unions

Labor unions who include workers in a particular occupation and restrict who can be members.

Anti-combines legislation

Laws aimed at preventing industrial concentration and abuses of market power. Criminal offences under the Competition Act include: conspiracy bid-rigging predatory pricing abuse of dominant position Civil matters reviewed by the Competition Tribunal include: abuse of dominant position mergers horizontal merger vertical merger conglomerate merger

Thomas Malthus/The Doomsday Prophet

Man who predicted predicted that over time population growth would outstrip growth in the food supply with disastrous effects

Price floor

Minimum price set above equilibrium. It results in a surplus.

Cooperative oligopolies

Markets with very few producers who might cooperate through price leadership, collusion, and cartels.

Price Ceiling

Maximum price set below equilibrium. It results in a shortage.

1. Number of Suppliers 2. Prices of Related goods (sub/comp) 3. State of Technology 4. Changes in Nature 5. Producer Expectations 6. Resources Prices 7. Taxes and Subsidies

Name The Supply Shift Factors

1. Number of Consumers 2. Income 3. Substitute Products 4. Complementary Products 5. Consumer Preferences 6. Consumer Expectations

Name the Demand Shift Factors

overestimate competition in localized markets and underestimate it in global markets.

Name the drawbacks of concentration ratios.

1. Portion of consumer income (the larger the portion, the more elastic) 2. Access to substitutes (the more substitutes, the more elastic) 3. Necessities vs. Luxuries (the more of a luxury, the more elastic) 4. Time (the longer the passage of time, the more elastic)

Name the four determinants of the price elasticity of demand.

Price difference (lower prices in your country means increased demand for your currency and a lower supply of it causing the value of your currency to appreciate and vise versa), Product demand (A rise in demand for your country's products means increased demand for your currency and a lower supply of it causing the value of your currency to appreciate and vise versa), Interest rates (a rise in your country's interest rate means increased demand for your currency and a lower supply of it causing the value of your currency to appreciate and vise versa), Speculation (Signs that your country's currency will increase in value means increased demand for your currency and a lower supply of it causing the value of your currency to appreciate and vise versa).

Name the four factors that affect exchange rates.

Natural resources, capital resources, human resources, and human capital.

Name the four types of economic resources.

Risk taking, ability, and wealth.

Name the other reasons for income inequality other than the wage determinants.

Economic efficiency, income equity, price stability, full employment, viable balance of payments, economic growth, environmental sustainability.

Name the seven economic goals

1. Increasing returns to scale. 2. Market experiences. 3. Restricted ownership of resources. 4. Legal obstacles such as patents. 5. Market abuses (such as predatory pricing) 6. Advertising (which is the most common in olies)

Name the six entry barriers in monopolies and oligopolies.

Traditional Economies, Market economies, and command economies.

Name the three economic systems

Natural resources

Nature's contribution to production, primary goods.

- When MP is increasing - When MP is decreasing but still positive - When MP is decreasing and negative

On a production graph, which regions should be shaded?

Explicit costs

Payments to resource supplies outside a business.

Capital resources

Processed materials, equipment, and buildings used in the production of other goods.

Substitute resources

Resources that are used in place of one another. They have a direct relationship between each other concerning the effects of price changes on demand. For example, if steam shovel prices go down, the demand for manual labor goes down.

Complementary resources

Resources that are used together that have an inverse relationship between each other concerning the effects of price changes on demand. For example, if steam shovel prices go down, the demand for steam shovel operators goes up.

Market Demand

Sum of quantities demands by all consumers.

Current Account

Summarizes all foreign transactions associated with current economic activity in Canada and involving Canadian dollars.

Marginal resource cost

The change in total cost when employing one additional unit of resource.

Total cost

The addition of fixed costs and variable costs

The profit-maximizing employment rule

The rule stating that profits are maximized when marginal revenue product equals marginal resource cost.

Fair rate of return

The amount that a regulated industry can charge for its good/service. For example, water treatment plants can charge fees.

Consumer Surplus

The amount that consumers are willing to pay more than what they actually pay for a product.

Adam Smith

The founder of modern economics. Explained how the division of labour increases production. Argued that self interest is transformed by the invisible hand of competition so that it creates significant economic benefits. Stressed the principle of laissez faire, which means that governments should not intervene in economic activity.

Poverty Line

The income level below which a household is considered poor. In Canada, this is if a household spends more than 63% of its income on food, clothing, and shelter.

Lowest-cost process

The labor and capital ratio that provides the most production efficiency.

Human resources

The labor and entrepreneurship of individuals.

Shutdown point

The lowest price at which a business will choose to operate in the short run. This occurs where price equals minimum average variable cost.

Increasing returns to scale

The percent change in output is greater than the percent change in inputs.

Constant returns to scale

The percent change in outputs equals the percent change in inputs.

Decreasing returns to scale

The percent change in outputs is smaller than the percent change in inputs.

Market share

The percentage of a market's total sales that is earned by a single company.

The Profit-Maximizing Output Rule

The rule stating that profit is maximized when MR = MC. This means that output should be increased if MR>MC, and output should be decreased if MR<MC.

Resource market supply curve

The total number of workers offering their services in the industry at each wage amount.

Total Benefit

The total satisfaction from consuming a product, measured in dollars.

Opportunity Cost

The utility of the best foregone alternative to an economic decision.

Exchange Rate

The value of one nation's currency in term's of another.

- Extended range of increasing returns to scale - Extended range of constant returns to scale - Extended range of decreasing returns to scale

What are the possible long run average costs?

Benefits received and ability to pay.

What are the principles of taxation?

domestic employment infant industries terms of trade environment and safety standards cheap foreign labor national security cultural sovereignty

What are the seven arguments in favor of trade protection?

Free trade areas, a customs union, and a common market.

What are the three forms of trading blocs?

product variety, competition, and specialization

What are the three main economic gains of international trade?

The gold standard, The Bretton Woods System, and the Managed Float

What are the three main exchange rate systems used in the past?

resources, market size, and climate

What are the three main factors that determine what a country trades?

Collusion

This is oftentimes secret cooperation within (usually) an oligopoly.

The Law of Diminishing Marginal Returns

This law determines short run production. According to this, the addition of more variable costs cause the marginal product to fall after some point. Because of this, average product also falls. Outputs are limited because of certain factors such as space, then in the long run, one must expand.

Primary, secondary, and service

What are the three types of production?

What to produce, how to produce, for whom to produce.

What are the tree basic economic questions?

Industrial concentration

This refers to market domination by a few large businesses. It can provide the consumer with benefits due to increasing returns to scale. It can impose costs on the consumer due to market power. It may or may not encourage technical innovation

Average product

Total product divided by the number of workers.

Average revenue

Total revenue / output

Nonprice competition

Typically conducted by oligopolies and monopolistic competitors. Two examples of this would be advertisement and product differentiation. This may or may not be beneficial to consumers.

Average variable cost

Variable cost divided by total product.

Management difficulties and limited resources.

What are some things that cause decreasing returns to scale?

The division of labor, specialized capital, specialized management, etc.

What are some things that cause increasing returns to scale?

Perfect competition, monopolistic competition, oligopoly, monopoly.

What are the four market structures?

Average fixed cost, average variable cost, and average cost.

What are the per-unit costs?

Perfectly inelastic demand

a constant quantity demanded and a vertical demand curve. You can raise price as high as you want and people will keep buying the product. (Like medicine to survive).

Perfectly Inelastic supply

a constant quantity supplied and a vertical supply curve. Such as for a concert, there is a fixed number of seats. No matter the price, the supply will be the same.

Utility Maximizing rule

a consumer should reach the same marginal utility per dollar for all products consumed. MU1/P1 = MU2/P2.

Law of diminishing marginal utility

a consumer's marginal utility declines as more of a product is consumed

Demand

the relationship between price and the quantity demanded of a certain good or service

Ceteris Paribus

a Latin phrase that means "all other things held constant."

The intersection between marginal costs and average costs.

Where on the graph of the family of short run cost curves is the most efficient point?

Canada's primary trading partner is the US, which buys almost three-quarters of Canadian merchandise exports and provides just under two-thirds of Canadian merchandise imports.

Who is Canada's number one trading partner and how much do they trade?

Those with the most inelastic demand curve.

Who is most negatively affected by excise taxes?

The bottom fifth of households receive the most in terms of percentage of their income, but the second bottom fifth of households receive the most in pure dollar amount.

Who receives the most in transfer payments?

Perfectly elastic demand

a constant price and a horizontal demand curve. You lose all demand even if price changes a tiny bit. (Highly competitive)

Supply

a relationship between a product's price and quantity supplied

Trading bloc

a relatively small number of countries involved in a trade agreement

Comparative Advantage

exhibited by a producer who can supply a certain item with a lower opportunity cost than can other producers.

Absolute Advantage

exhibited by a producer who can supply a certain quantity of an item more efficiently than can other producers.

balance of trade

export receipts minus import payments for both goods and services.

Traditional Economy

focus on non-economic concerns and have tight social constraints. These are like tribes that maintain traditional economic values. Or like India and their caste hierarchy.

Lorenz Curve

graph showing the cumulative distribution of income for households categorized into five groups based on their income levels.

Law of Demand

price and quantity demanded are inversely related

Producer Surplus

the extent to which producers receive a price different from the lowest one they are willing to accept.

Welfare Society

the government plays a major role in attempting to ensure the economic well-being of its citizens. Transfer payments and personal income taxes are the most important elements.

The four-firm concentration ratio

the percentage of total sales revenue in a market earned by the four largest business firms. 50 percent or higher = oligopoly, 90 percent or higher = monopoly.

Breakeven point

the point at which the costs of producing a product equal the revenue made from selling the product. For a perfect competitor, this occurs where price equals minimum average cost.

Law of increasing opportunity costs

the principle that as the production of a good increases, the opportunity cost of producing an additional unit rises.

Economic Contraction

the production possibilities curve shifts inward the economy moves from a point on the production possibilities curve to a point within the area bounded by the curve

Economic Growth

the production possibilities curve shifts outwards due to more resources or an improvement in technology the economy moves from a point within the area bounded by the production possibilities curve to the curve itself