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.