Microeconomics Chapter 3-4
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
