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