SS201 Economics WPR 1

Labor - Leisure Tradeoff

The more you work, the less leisure you get and vice versa.

Price Elasticity of Demand

The price elasticity of demand measures the percentage change in quantity demanded of a good due to a percentage change in its price.

Economics

The study of how agents choose to allocate scarce resources and how those choices affect society.

Value of Marginal Product of Labor

The value of marginal product of labor is the contribution of an additional worker to a firm's revenues.

Total Cost

Total cost is the sum of variable and fixed costs.

Budget Constraint

A budget constraint shows the bundles of goods or services that a consumer can choose given his/her limited budget.

Budget Deficit

A budget deficit occurs when tax revenues do not cover government spending.

Budget Surplus

A budget surplus occurs when tax revenues exceed government spending.

Fixed Cost

A fixed cost is the cost of fixed factors of production, which a firm must pay even if it produces zero output.

Nash Equilibrium

A strategy combination is a Nash equilibrium if each strategy is a best response to the strategies of others.

Variable Cost

A variable cost is the cost of variable factors of production, which change along with a firm's output.

Average Fixed Cost

AFC is the total fixed cost divided by the total output.

Average Total Cost

ATC is the total cost divided by the total output.

Average Variable Cost

AVC is the total variable cost divided by the total output.

Externalities

An externality occurs when when an economic activity has either a spillover cost or spillover benefit on a bystander.

Diminishing Marginal Benefit

As you consume more of a good, your willingness to pay for an additional unit declines.

Consumer Surplus

Consumer surplus is the difference between the willingness to pay and the price paid for the good.

Cross Price Elasticity of Demand

Cross-price elasticity of demand measures the percentage change in quantity demanded of a good due to a percentage change in another good's price.

Economics of Scale

Economics of Scale occur when average total cost falls as the quantity produced increases.

Factors of Production

Factors of production are the inputs to the production process (Labor, Capital, Land).

Normal Good

For a normal good, an increase in income causes the demand curve to shift the the right (holding the good's price fixed), or in other words, causes consumers to buy more of the good.

Inferior good

For an inferior good, an increase in income causes the demand curve to shift to the left (holding the good's price fixed), or in other words, causes consumers to buy less of the good.

Gains from Specialization

Gains from specialization are the economic gains that society can obtain by having some individuals, regions, or countries specialize in the production of certain goods or services.

Adverse Selection

In a market with adverse selection, one agent in a transaction knows about a hidden characteristic of a good and decides whether to participate in the transaction on the basis of this information.

Asymmetric Information

In a market with asymmetric information, the information available to sellers and buyers differs.

Perfectly Competitive Market

In a perfectly competitive market, (1) sellers all sell an identical good or service, and (2) any individual buyer or any individual seller isn't powerful enough on his or her own to affect the market price of that good or service.

Principle-agent Relationship

In a principle-agent relationship, the principle designs a contract specifying the payments to the agent as a function of his or her performance, and the agent takes an action that influences performance and this the payoff of the principle.

Law of Demand

In almost all cases, the quantity demanded rises when the price falls (holding all else equal).

Law of Supply

In almost all cases, the quantity supplied rises when the price rises (holding all else equal).

Legal Market Power

Legal Market Power occurs when a firm obtains market power through barriers to entry created not by the firm itself, but by the government.

Marginal Revenue

Marginal Revenue is the change in total revenue associated with producing one more unit of output.

Marginal Benefit

Marginal benefit is the additional satisfaction or utility that a person receives from consuming an additional unit of a good or service. A person's marginal benefit is the maximum amount they are willing to pay to consume that additional unit of a good or service. In a normal situation, the marginal benefit will decrease as consumption increases. (Investopedia).

Market Power

Market Power relates to the ability of sellers to affect prices.

Moral Hazard

Moral Hazard is another term for actions that are taken by one party but are relevant for and not observed by the other party in the transaction.

Natural Market Power

Natural Market Power occurs when a firm obtains market power through barriers to entry created by the firm itself.

Opportunity Cost

Opportunity cost is the best alternative use of a resource.

Tax incidence

Tax incidence refers to how the burden of taxation is distributed.

Income Elasticity of Demand

The income elasticity of demand measures the percentage change in quantity demanded to a percentage change in income.