Chapter 1
Economics:
The study of how best to allocate scarce resources among competing uses in the best possible way.
Opportunity Cost
The most desired goods and services that are foregone in order to obtain something else.
Factors of production are the resource inputs used to produce goods and services. Such factors include land, labor, capital, and entrepreneurship.
Scarcity
Lack of available resources to satisfy all desired uses of those resources.
Production Possibilities Curve
Describes the alternative combinations of goods and services that can be produced in a given time period with all available resources and technology.
Economic Growth
An increase in output (real GDP).An expansion of production possibilities outward.Due to increased capital and technology.
The Market Mechanism
The use of market prices and sales to signal desired outputs (or resource allocations).
Laissez faire
Leaving the market alone to make basic economic decisions.
Mixed Economies
Economies that use both market and non-market signals to allocate goods and resources are mixed economies.
Market Failure
The market mechanism does not generate the optimal (best possible) answers to the WHAT, HOW, and FOR WHOM questions.
Externalities
A cost imposed on innocent third parties.
Macroeconomics
Macroeconomics is the study of aggregate economic behavior, of the economy as a whole.
Microeconomics
Microeconomics is the study of individual behavior in the economy, of the components of the larger economy.
Ceteris Paribus
It is the assumption that nothing else is changing.
Chapter 2
Market
A market is any place where goods are bought and sold and includes the interaction of all buyers and sellers.
Factor Market:
Any place where factors of production (land, labor, capital, and entrepreneurship) are bought and sold.
Product Market:
Any place where finished goods and services (products) are bought and sold.
Law of Demand
The quantity of a good demanded in a given time period increases as its price falls, ceteris paribus.
Law of Supply
The quantity of a good supplied in a given time period increases as its price increases, ceteris paribus.
Demand Curve
A curve describing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.
Supply
The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus (other things being equal).
Demand –
The ability and willingness to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus (other things being equal).
Barter
Barter is the direct exchange of one good for another, without the use of money.
Shift in Demand
The demand schedule and curve remain unchanged only so long as the underlying determinants of demand remain constant.
Market Demand
The total quantities of a good or service people are willing and able to buy at alternative prices in a given time period.
Market Supply
The total quantities of a good or service that sellers are willing and able to sell at alternative prices in a given time period, ceteris paribus.
Equilibrium price
The price that matches the quantity demanded to the quantity supplied.
Market Shortage
The amount by which the quantity demanded exceeds the quantity supplied at a given price.
Market Surplus
The amount by which the quantity supplied exceeds the quantity demanded at a given price.
Price Ceilings
A regulation preventing the price from rising above the ceiling.
Price Floors
A minimum amount below which the price is not permitted to fall.
Government failure
– a government intervention that fails to improve economic outcomes.
Laissez Faire
The doctrine of \"leave it alone”, or of nonintervention by government in the market mechanism.
Market Mechanism in Action
WHAT? – Produce what consumers are willing to buy.HOW? Profitably; at the most efficient consumption of resources.FOR WHOM? For those willing and able to pay the market price.
Chapter 3
Utility
is the pleasure or satisfaction obtained from a good or service.
Total utility
is the amount of satisfaction obtained from entire consumption of a product.
Marginal utility
is the change in total utility obtained by consuming one additional (marginal) unit of a good or service.
Law of Diminishing Marginal Utility
The marginal utility of a good declines as more of it is consumed in a given time period.
price elasticity of demand
is the percentage change in quantity demanded divided by the percentage change in price.
Total revenue –
the price of a product multiplied by the quantity sold in a given time period.
Total revenue = price x quantity sold
Chapter 4
The Production Function
A technological relationship expressing the maximum quantity of a good attainable from different combinations of factor inputs.
Marginal Physical Product (MPP)
The MPP is the change in total output associated with one additional unit of input.
Law of Diminishing Returns
The marginal physical product of a variable input eventually declines or
diminishes as more of it is employed with a given quantity of other (fixed) inputs.
Short run
is the period in which quantity of some inputs, usually land and capital, can’t be changed.
Long run
is the period of time long enough for all inputs to be varied.
Total profit
is the difference between total revenue and total cost.
Total cost
is the market value of all resources used to produce a good or service.
Variable Costs
Costs of production that change when the rate of output is altered.
Average Total Cost (ATC)
Is simply total cost divided by the rate of output (total cost /total output)
Marginal Cost (MC)
The increase in total cost when one more unit of output is produced:
Economic costs
– the dollar value of all resources used to produce a good or service; the opportunity cost of resource use.
Profit
The difference between total revenue and total costs.
Chapter 5
market structure:
We mean all the characteristics of a market that influence the behavior of buyers and sellers when they come together to trade.
Competitive Firm
A perfectly competitive firm has no market power: It is not able to alter the market price of the good it produces.
Competitive Market
A competitive market is one in which no buyer or seller has market power.
Monopoly
A monopoly firm is one that produces the entire market supply of a particular good or service.
No Market Power
The output of a perfectly competitive firm is so small relative to market supply that it has no significant effect on the total quantity or price in the market.
Total revenue
is the price of a product multiplied by the quantity sold in a given time period:
Total revenue = Price x Quantity
Barriers to entry
are obstacles that make it difficult or impossible for would-be producers to enter a market, such as patents.
Chapter 6
monopoly
A monopoly is one firm that produces the entire market supply of a particular good or service.
Marginal revenue (MR)
is the change in total revenue that results from a one-unit increase in quantity sold.
Production Decision
It is the selection of the short-term rate of output (with existing plant and equipment).
Barriers to Entry
Obstacles that make it difficult or impossible for would-be producers to enter a particular market.
Patent
A patent is a government grant of exclusive ownership of an innovation.
Economies of Scale
Economies of scale are present if average costs fall as the size (scale) of plant and equipment increases.
Contestable Markets
A contestable market is an imperfectly competitive industry subject to potential entry if prices or profits increase.
Natural Monopoly
A natural monopoly is an industry in which one firm can achieve economies of scale over the entire range of market supply.
Labor Supply
The willingness and ability to work specific amounts of time at alternative wage rates in a given time period, ceteris paribus.
Market supply of labor
– the total quantity of labor that workers are willing and able to supply at alternative wage rates in a given time period, ceteris paribus.
Demand for labor –
the quantities of labor employers are willing and able to hire at alternative wage rates in a given time period, ceteris paribus.
Derived demand
– the demand for labor and other factors of production is derived from the demand for the final goods and services produced by these factors.
Marginal Physical Product (MPP)
the change in total output associated with one additional unit of an input:MPP=Change in total output /Change in quantity of labor
The Law of Diminishing Returns
The marginal physical product of labor (MPP) eventually diminishes as the quantity of labor employed increases.
Equilibrium Wage
The intersection of the market supply and demand curves establishes the equilibrium wage.
Opportunity wage
is the highest wage an individual would earn in his or her best alternative job.
Chapter 8
A public good is a good or service whose consumption by one person does not preclude consumption by others.
a private good is a good or service whose consumption by one person excludes consumption by others.
A free rider is an individual who reaps direct benefits from someone else’s purchases (consumption) of a public good.
Social costs are the full resource costs of an economic activity, including externalities.
Private costs are the costs of an economic activity directly borne by the immediate producer or consumer (excluding externalities).
Market power is the ability to alter the market price of a good or service, which may cause the response to price signals to be flawed.
Antitrust policy: government intervention to alter market structure or prevent abuse of market power.
Emission charge
An emission charge increases private marginal cost and thus encourages lower output.
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