Microeconomics
Oligopoly
(economics) a market in which control over the supply of a commodity is in the hands of a small number of producers and each one can influence prices and affect competitors Ex: Pepsi, Coke
Monopsony
(economics) a market in which goods or services are offered by several sellers but there is only one buyer Ex: Ingles only buys milk from a certain person
Liberalism
A belief that government can and should achieve justice and equality of opportunity. Ex: Mixed economies
Income Effect
A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price. Ex: Higher wages will buy higher priced goods
Sunk Cost
A cost that has already been committed and cannot be recovered Ex: Paying rent at the beginning of each month and not being able to get it back for the rest of the month
Profit
A financial gain, esp. the difference between the amount earned and the amount spent in buying, operating, or producing something
Cartel
A formal organization of producers that agree to coordinate prices and production Ex: Drug trade in Mexico
Giffen Good
A good for which an increase in the price raises the quantity demanded Ex: Purses
Normal Good
A good for which, other things equal, an increase in income leads to an increase in demand Ex: Cars
Normal Good
A good for which, other things equal, an increase in income leads to an increase in demand Ex: Eating out at a nice resturaunt
Inferior Good
A good that consumers demand less of when their incomes increase Ex: Bus Rides
Inferior Good
A good that consumers demand less of when their incomes increase Ex: Riding the bus
Complement Good
A good that is consumed jointly with another good. With these, the price of one and the demand for the other move in opposite directions Ex: Ketchup and Fries
Tariff
A government tax on imports or exports Ex: When there are feuds between countries they make their exports more expensive by taxes
Demand Curve
A graph of the relationship between the price of a good and the quantity demanded
Supply Curve
A graph of the relationship between the price of a good and the quantity supplied
Production Possibilities Frontier
A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good
Market
A group of buyers and sellers of a particular good or service Ex: The Bacon hotdog market in California
Ceteris Paribus
A latin phrase that means "all other things held constant" Ex: Seeing how price affects the market without anything else changing
Price Ceiling
A legal maximum on the price at which a good can be sold Ex: Rent Control
Price Floor
A legal minimum on the price at which a good can be sold Ex: Gasoline that is sold real cheaply
Import Quota
A limit on the amount of a good that can be imported Ex: America can only import 800,000 gallons of oil a day
Competitive Market
A market in which there are many buyers and many sellers so that each has a negligible impact on the market price
Economic Efficiency
A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum Ex: A car company is producing at its best possible economic benefit
Elasticity
A measure of how much one economic variable responds to changes in another economic variable. Ex: When the price of a good shifts up a dollar and many people stop buying it
Income Elasticity of Demand
A measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income
Price Elasticity of Demand
A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
Price Elasticity of Supply
A measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price
Gini Coefficient
A measure of income inequality within a population, ranging from zero for complete equality, to one if one person has all the income. Ex: Shows how well spread wealth is in US
Concentration Ratio
A measure of market power - the percentage of all sales that is accounted for by the four or eight largest firms in the market
Poverty Line
A method used to count the number of poor people, it considers what a family must spend for an "austere" standard of living. Ex: Many people during the Great Depression were under this line
Circular Flow Model
A model that shows the flow of goods and services and the interaction among households, businesses, and banks
Natural Monopoly
A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms Ex: Amicalola Electric
Tragedy of the Commons
A parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole Ex: People eating food for the taste, not for huner
Short Run
A period during which at least one of a firm's resources is fixed Ex: Rocco's
Long Run
A period of sufficient time to alter all factors of production used in the productive process - all inputs can be changed. Ex: Ingles
Free Rider
A person who receives the benefit of a good but avoids paying for it Ex: People riding on the side of a train instead of paying to be in it
Collusion
A secret agreement between oligopolies Ex: If Pepsi and Coke talked about how to set their prices
Productive Efficiency
A situation in which a good or service is produced at the lowest possible cost Ex: All resources are put to use in a company
Market Failure
A situation in which a market left on its own fails to allocate resources efficiently Ex: All monopolies because they do not produce efficiently
Nash Equilibrium
A situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen Ex: Rock, Paper, Scissors
Shortage
A situation in which quantity demanded is greater than quantity supplied Ex: When disasters strike, generators are very hard to find
Surplus
A situation in which quantity supplied is greater than quantity demanded Ex: Candy after a major holiday
Scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants Ex: The Gold Rush in the 1800's
Allocative Efficiency
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it. Ex: Spending on aircraft during a time of war
Supply
A stock of a resource from which a person or place can be provided with the necessary amount of that resource.
Dominant Strategy
A strategy that is best for a player in a game regardless of the strategies chosen by the other players Ex: I can gain the most from producing different products at night than in the morning
Cost-Benefit Analysis
A study that compares the costs and benefits to society of providing a public good Ex: Figuring out the tax for healthcare
Demand Schedule
A table that shows the relationship between the price of a good and the quantity demanded
Supply Schedule
A table that shows the relationship between the price of a good and the quantity supplied
Regressive Tax
A tax for which the percentage of income paid in taxes decreases as income increases Ex: Bill Gates pays less than I would for a specific service
Progressive Tax
A tax for which the percentage of income paid in taxes increases as income increases Ex: Bill Gates pays more than I do in taxes
Proportional Tax
A tax in which the average tax rate is the same at all income levels. Ex: Bill Gates and I pay the same proportion of our income
Negative Income Tax
A tax system that collects revenue from high-income households and gives transfers to low-income households Ex: Bill Gates tax money goes to people in need
Lump-Sum Tax
A tax that is a constant amount (the tax revenue of government is the same) at all levels of GDP. Ex: Sales tax
Union
A worker association that bargains with employers over wages, benefits, and working conditions Ex: Unions in many stores
Utility
Ability or capacity of a good or service to be useful and give satisfaction to someone. Ex: How much a good benefits someone
Utility
Ability or capacity of a good or service to be useful and give satisfaction to someone. Ex: My marginal utility for a NBA ticket is really high then compared to an average person
Game Theory
An approach to evaluating alternative strategies in situations where the outcome of a particular strategy depends on the strategies used by other individuals. Ex: Coke determining price based on Pepsi's actions
Diseconomies of Scale
An economic concept referring to a situation in which economies of scale no longer function for a firm. Rather than experiencing continued decreasing costs per increase in output, firms see an increase in marginal cost when output is increased.
Externality
An economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume Ex: The cologne that smelled awful in the movie clip that we watched in class.
Libertarianism
An ideology that cherishes individual liberty and insists on minimal government, promoting a free market economy, a noninterventionist foreign policy, and an absence of regulation in moral, economic, and social life. Ex: The free market system
Revenue
An increase in owner's equity resulting from the operation of a business
Duopoly
An oligopoly with only two firms Ex: Pepsi and Coke
Discrimination
Behaving differently, usually unfairly, toward the members of a group. Ex: Segregation in the 1970's
Derived Demand
Business demand that ultimately comes from (derives from) the demand for consumer goods. Ex: Gas station wage and the demand for gas
Demand
Consumer willingness and ability to buy products
Substitution Effect
Consumers ability to substitute other products for the focal brand and increase price elasticity of demand for the focal brand Ex: Buying hamburgers instead of high priced steaks
Opportunity Cost
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another Ex: Giving up money at a job while on vacation
Variable Cost
Costs that change as output changes
Fixed Cost
Costs that do not vary with the quantity of output produced
Macroeconomics
Deals with the economy as a whole. Macroeconomics focuses on the determinants of total national income, deals with aggregates such as aggregate consumption and investment, and looks at the overall level of prices instead of individual prices. Ex: Government spending on imports from China
Diminishing Marginal Returns
Decreasing satisfaction or usefulness as additional units of a product are acquired
Economy of Scale
Economic philosophy during the Industrial revolution that understood that volume of production lessens the costs to produce and drives down prices and increases demand.
Absolute Advantage
Exists when a country can produce a good or service at a lower cost than other countries. Ex: When a country produces the most of any product when compared to another country.
Marginal Cost
Extra cost of producing one additional unit of production.
Marginal Revenue
Extra revenue from the sale of one additional unit of output
Average Fixed Cost
Fixed cost divided by the quantity of output
Total Cost
Fixed costs plus variable costs
Import
Goods coming into a country Ex: Iphones imported from China
Export
Goods leaving the country Ex: Saudi Arabia exporting oil to America
Private Goods
Goods that are both excludable and rival in consumption Ex: NFL tickets
Public Goods
Goods that are neither excludable nor rival in consumption Ex: The sun
Welfare
Government aid to the poor Ex: Medicare, Medicaid
Perfect Substitutes
Identical Products that can be switched for another if price becomes to high or low for one product Ex: Spaghetti and Ramen Noodles
Implicit Cost
Input costs that do not require an outlay of money by the firm Ex: The amount of hours putting information together
Explicit Cost
Input costs that require an outlay of money by the firm (e.g. rent). Money that actually leaves a firm in the productive process. Ex: Paying employees
Factors of Production
Land, labor, and capital; the three groups of resources that are used to make all goods and services Ex: Employees, Machines, and Parking Lot
Strike
Nonviolent refusal to continue to work until a problem is resolved. Ex: Ghandi in India
Substitute Good
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. Ex: Steak and Spam
Prisoner's Dilenma
Shows outcomes of game theory by determining the best decision for a prisoner to do Ex: Should the prisoner tell the truth and for sure go to jail for less time or tell a lie and maybe get away with it but spend longer in prison
Microeconomics
Study of a single factor of an economy - such as individuals, households, businesses, & industries - rather than an economy as a whole. Ex: Studying a small business in a certain area like Rocco's.
Law of Supply
Tendency of suppliers to offer more of a good at a higher price Ex: When price of plates goes up, there are more of them
Comparative Advantage
The ability of a country to produce a good at a lower cost than another country can. Ex: When a country can produce purses and lose less clothes production than another country.
Market Power
The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices Ex: Coke and Pepsi have a substantial influence of the price of soft drinks in their industry
Consumer Surplus
The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it Ex: A buyer might pay $10 but instead pays only $8
Producer Surplus
The amount a seller is paid for a good minus the seller's cost of providing it Ex: How much Mcdonalds makes off of chicken nuggets when compared to how much they paid for them
Quantity Demanded
The amount of a good that buyers are willing and able to purchase
Quantity Supplied
The amount of a good that sellers are willing and able to sell
Marginal Product of Labor
The change in output from hiring one additional unit of labor
Transaction Costs
The costs associated with the time and effort needed to search out, negotiate, and consummate an exchange Ex: How much I actually spent making enough money to buy food
Marginal Tax Rate
The extra taxes paid on an additional dollar of income Ex: Kroger paying more than Ingles
Deadweight Loss
The fall in total surplus that results from a market distortion, such as a tax Ex: What is lossed with a shift in demand
Deadweight Loss
The fall in total surplus that results from a market distortion, such as a tax Ex: When supply shifts and there is a gap where CS and PS used to be
Ability-To-Pay Principle
The idea that taxes should be levied on a person according to how well that person can shoulder the burden Ex: I wouldn't have to pay much taxes since I have little income
Horizontal Equity
The idea that taxpayers with similar abilities to pay taxes should pay the same amount Ex: I should pay as much as Bill Gates
Marginal Product
The increase in output that arises from an additional unit of input
Tax Incidence
The manner in which the burden of a tax is shared among participants in a market Ex: When a consumer takes out 3/4 of the tax and allows the consumer to pay the other 1/4
World Price
The price of a good that prevails in the world market for that good Ex: How much the average price of gasoline is world wide
Excludability
The property of a good whereby a person can be prevented from using it Ex: Fire services outside a county
Equilibrium Quantity
The quantity supplied and the quantity demanded at the equilibrium price
Production Function
The relationship between quantity of inputs used to make a good and the quantity of output of that good Ex: Honda taking good resources to build a long lasting car
Cost
The value of everything a seller must give up to produce a good Ex: Rent, Labor, Machinery etc.
Average Variable Cost
The variable cost per unit produced
Real Wage
The wage rate divided by the price level
Capital
Tools used to make the product, altered raw materials, money can be capital if it's necessary for production Ex: The machine used to make shirts
Average Revenue
Total revenue divided by the quantity sold
Economic Profit
Total revenue minus total cost, including both explicit and implicit costs
Average Tax Rate
Total taxes paid divided by total income Ex: My taxes/ My income divided by
Philips Curve
a curve showing the relationship between unemployment and changes in wages or prices. The Philips curve gives the trade-off between unemployment and inflation. Ex:Really high during inflation in Germany after the World Wars.
Indifference Curve
a curve that shows consumption bundles that give the consumer the same level of satisfaction Ex: Shows that different level of consumption will equal consumer needs
Compensating Differential
a difference in wages that arises to offset the nonmonetary characteristics of different jobs Ex: Waitresses are paid below minimum wage however they make enough to cover it
Monopolistic Competition
a market structure in which many companies sell products that are similar but not identical Ex: Wendys, Mcodnalds, Burger King
Cross-Price Elasticity of Demand
a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
Profit Maximization
a method of setting prices that occurs when marginal revenue equals marginal cost Ex: MR=MC
Marginal Change
a small incremental adjustment to a plan of action
Pigovian Tax
a tax enacted to correct the effects of a negative externality Ex: Taxes on public goods
Efficiency Wages
above-equilibrium wages paid by firms to increase worker productivity Ex: Paying managers more so that they work better
Internalizing an Externality
altering incentives so that people take account of the external effects of their actions Ex: Feeling bad after pulling out in front of somebody
Herfindahl Index
an index of market concentration calculated by adding the squared value of the individual market shares of all the firms in the industry
Rivalry
an ongoing competition Ex: Coke and Pepsi
Positive Statement
claims that attempt to describe the world as it is Ex: Dave Ramsey, "Unequal is fair while equal is unfair."
Normative Statement
claims that attempt to prescribe how the world should be Ex: The "I Have a Dream Speech!"
Monoploy
complete control of a product or service Ex: ETC
Law of Demand
consumers buy more of a good when its price decreases and less when its price increases Ex: Gas is bought more when its at a lower price
Perfect Complements
goods that a consumer will consume in the same ratio regardless of their relative price Ex: Ketchup and Fries
Common Resource
goods that are rival but not excludable Ex: Fruits from trees
Poverty Rate
percentage of people whose income falls below the poverty line Ex: Great increase during the Great Depression
Rent-Seeking Behavior
the actions by persons, firms, or unions to gain special benefits from government at the taxpayers' or someone else's expense Ex: Saying your family isnt married to get tax benefits
Economic Equity
the attempt to balance an economic policy so that everyone benefits fairly Ex: Taxes are equal for everyone
Price Discrimination
the business practice of selling the same good at different prices to different customers Ex: Theater tickets cost more for adults than children
Nominal Wage
the dollar amount of the wage paid Ex:
Benefits Principle
the idea that people should pay taxes based on the benefits they receive from government services Ex: People on Medicaid should pay more since they use the service
Vertical Equity
the idea that taxpayers with a greater ability to pay taxes should pay larger amounts Ex: Bill Gates should pay more than me
X-Ineffiency
the inefficiency that arises when monpolies are protected from competitive pressures. Spending on corporate jets, travel, and other perks of business Ex: NFL buying luxury rooms for athletes
Comparable Worth
the issue raised when women who hold traditionally female jobs are paid less than men for working at jobs requiring comparable skill Ex: If women were paid less for being a fire fighter
Value of Marginal Product
the marginal product of an input times the price of the output
Equilibrium Price
the price that balances quantity supplied and quantity demanded
Constant Returns to Scale
the property whereby long-run average total cost stays the same as the quantity of output changes
Coase Theorem
the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own Ex: Coke and Pepsi helping each other out with resources
Efficient Scale
the quantity of output that minimizes average total cost
Marginal Rate of Substitution
the rate at which a consumer is willing to trade one good for another
Human Capital
the skills and knowledge gained by a worker through education and experience Ex: A manager has more experience than a new employee through education
Average Total Cost
total cost divided by the quantity of output
Accounting Profit
total revenue minus total explicit cost