AP Economics Chapter 10-12

Human Capital

A form of intangible capital that includes the skills and other knowledge that workers have or acquire through education and training that yields valuable services to a firm over time.

Stock

A share of stock in an ownership claim on a firm, entitling its owner to a profit share.

Imperfectly Competitive Industry

An industry in which individual firms have some control over the price of their output.

Social Capital or Infrastructure

Capital that provides services to the public. Most social capital takes the form of public works (roads and bridges) and public services (police and fire protection).

Externality

A cost or benefit imposed or bestowed on an individual or a group that is outside, or external to, the transaction.

Three Basic Questions of Economics Systems

1. What gets produced? 2. How is it produced? 3. Who gets what is produced?

Pareto Efficiency

A condition in which no change is possible that will make some members of society better off without making some members of society worse off.

Bond

A contract between a borrower and lender, in which the borrower agrees to pay the loan at some time in the future, along with interest payments along the way.

Capital Stock

For a single firm, the current market value of the firm's plant, equipment, inventories, and intangible assets.

Public Goods or Social Goods

Goods or services that bestow collective benefits on members of society. Generally, no one can be excluded from their benefits. The classic example is national defense.

Capital Income

Income earned on savings that have been put to use through financial capital markets.

Interest Rate

Interest payments expressed as a percentage of the loan.

Physical or Tangible Change

Material things used as inputs in the production of future goods and services. The major categories of physical capital are nonresidential structures, durable equipment, residential structures, and inventories.

Intangible Capital

Nonmaterial things that contribute to the output of future goods and services.

Market Failure

Occurs when resources are misallocated, or allocated inefficiently. The result is waste or lost value.

Imperfect Information

The absence of full knowledge concerning product characteristics, available prices, and so on.

Marginal Product of Labor (MP subscript L)

The additional output produced by one additional unit of labor.

Marginal Revenue Product (MRP subscript L)

The additional revenue a firm earns by employing one additional unit of input, ceteris paribus.

Productivity of an Input

The amount of output produced per unit of that output.

Expected Rate of Return

The annual rate of return that a firm expects to obtain through a capital investment.

Efficiency

The condition in which the economy is producing what people want at the least possible cost.

General Equilibrium

The condition that exists when all markets in an economy are in simultaneous equilibrium.

Depreciation

The decline in an asset's economic value over time.

Derived Demand

The demand for resources (inputs) that is dependent on the demand for the outputs those resources can be used to produce.

Technological Change

The introduction of new methods of production or new products intended to increase the productivity of existing inputs or to raise marginal products.

Capital (financial) market

The market in which households supply their savings to firms that demand funds to buy capital.

Financial Capital Markets

The part of the capital market in which savers and investors interact through intermediaries.

Interest

The payments made for the use of money.

Pure Rent

The return to any factor of production that is in fixed supply.

Factor Substitution Effect

The tendency of firms to substitute away from a factor whose price has risen and toward a factor whose price has fallen.