Economics HNRS 211

A measure of how much the quantity demanded of a good responds to a change in consumers' income, all else equal

Eab < 0

Eab>0

Ei > 0

Ei < 0

A measure of how much the quantity supplied of a good responds to a change in the price of that good

The amount a firm receives for the sale of its output minus the market value of the inputs a firm uses in production

A period of time sufficiently short that at least some factors of production are fixed

A period of time of sufficient length that all factors of production are variable

The relationship between te quantity of inputs used to make a good and the quantity of output of that good

output per worker Q/L

The change in output when one additional worker is hired

As the use of an input increases,holding other inputs constant,the resulting additions to output will eventually decrease

The addition of total cost from producing one additional unit of output

To maximize profits a perfectly competitive firm should choose to produce the quantity of output where P=MC

The difference between what consumers are willing to pay, and what they actually pay.

The difference between what sellers receive for the sale of their output and the lowest price at which they are willing to sell

Free markets allocate the supply of goods to those individuals who value them most highly, as measured by the willingness to pay

Free markets allocate the demand for goods to the sellers who can produce them at the least cost

The ability to set prices

costs/benefits that affect individuals other than buyers and sellers in the market

The total surplus lost due to a distortion in the market

A legal maximum on the price that can be changed in a market

A legal minimum on the price that can be changed in a market

The study of how people make choices under conditions of scarcity and the results of those choices for sociiety

Although we have needs and wants the resources available to us are limited. So more of one thing means less of another

An abstract representation of the decision making environment

A decision maker should take an action if, and only if, the extra benefits from taking the actions are at least as great as the extra costs

The extra benefit from performing an action one additional time

The extra cost of performing an action one additional time

Someone with well-defined goals who try to fulfill those goals as best he/she can

The value of the next best alternative forgone in order to undertake an activity

A cost that is beyond recovery at the moment a decision must be made

An economic agent is more likely to take an action if its marginal benefits rises or its marginal cost falls, or vice versa

A graph that describes the maximum amount of one good that can be produced for ever possible level of production of the other good

Any combination of goods that can be produced using currently available resources

Any combination of goods that cannot be produced using currently available resources

Any combination of goods for which currently available resources do not allow an increase in produciton of one good without a reduction

Any combination of goods for which currently available resources enable an increase in the produciton in one good without a reduction

In expanding production of any good, first employ those resources with the lowest opportunity cost, and only afterward turn to higher cost

This implies that, when resources are efficiently employed, the marginal opportunity cost of producing a good increases as more produced

1.) Downward sloping 2.) bowed out from the origin\

1.) Investment in physical capital 2.) Population growth 3.) Improvements in technology 4.) Investments in human capital

An economy where all economic decisions are made by an individual or a group of individuals

An economy where economic decisions are made by the free interaction of producers and consumers in private markets

An economy in which economic decisions are made through the interactions of products and consumers in private markets with some restrictions

1.) very large number or buyers 2.) very large number of sellers 3.) firms produce a homogenous project 4.) Agents know other firms

The relationship between the price of a good and the quantity that buyers are willing to buy, all else equal

People will tend to substitute other goods for the more expensive ones

People can't afford to buy as much of all goods when prices are higher than when prices are low

The relationship between the price of a good and the quantity that sellers are willing to sell, all else equal

A situation in which there is no tendency for change

Occurs when all buyers and sellers are satisfied with their respective quantities at the market price

When consumers increase the quantity they wish to purchase at each possible price

When consumers decrease the quantity they wish to purchase at each possible price

Two goods for which an increase in the price of one causes an increase in the demand for the other, all else equal

Two goods for which an increase in the price of one causes a decrease in the demand for the other, all else equal

A good whose demand increases when the income of buyers increases, all else equal

A good whose demand decreases when the income of buyers increases, all else equal

When firms increase the quantity they are willing to sell at each possible price

When firms decrease the quantity they are willing to sell at each possible price

A measure of the responsiveness of one variable to a change in another variance

A measure of how much the quantity demanded of a good responds to a change in the price of that good

Quantity demanded is not very responsive to change in price

Price change in quantity = Percent change in price

Elasticity at a particular point on the demand curve Ep= (1/Slope)(P/Qd)

When demand is a vertical line

When demand is a horizontal line

Cost incurred in getting orders from customers and providing customers with the finished product

Executive, organizational, and clerical that cannot logically be considered manufacturing or marketing costs

Costs assigned to products, which were either purchased for resale or manufactured sale (COGS)

Costs associated with the period in which they occur

Place external costs on others than those in the market

Place external benefits on others than those in the market

MC does not = Supply curve Adj Supply = MSC Neg. Externality = MSC lies to left Pos. Externality = MSC lies to the right

Demand does not = MB Adj. Dem. = MSB Neg. Consumption = MSB lies to the left Pos. Consumption = MSB lies to the right

1.) market will create its own solution 2.) Government policy can push the market towards efficiency. 3.) no solution

If at no cost people can negotiate the purchase and sale of the right toperform activities that cause externalities,

A tax levied on market activities that create negative externalities

A subsidy provided for market activities that create positive externalities

The actual payments a firm makes to its factors of production and other suppliers

The opportunity costs of the resources supplied by the firms owners

The sum of explicit and implicit costs

revenues minus explicit costs

Revenues minus economic costs

Distributes scarce resources to those consumers who value them most highly

Directs resources away from overcrowded markets and toward markets that are undeserved

Actions of Independent, self-interested buyers and sellers will often result in the most efficient use of resources

A market structure in which firms have at least some latitude to set their own prices

Monopoly, Oligopoly, and Monopolistic Competition

The only supplier of a unique product for which there are no close substitutes

A market structure in which there are a small number of firms producing close substitutes

A market structure in which there are a large number of firms producing slightly differentiated products that are reasonable substitutes

If average costs are downward sloping for all relevant values of output, larger firms have a cost advantage over smaller firms

e.g. R costs for pharmaceuticals, investment in drilling rigs for our companies

in the US, a patent is granted on new innovations for a period of 17 yearsfrom the date that the patent is granted or 20years from when file

superior technologies, superior management environments, firms can sometimes economize on costs by producing more than one product at a time

Foundation for monopolistic competition

Try to price potential competitors out of the market, carry out extensive advertising campaigns, creates excess productive capacity

A single firm is able to gain an initial competitive advantage

The Expenditure of resources to attain a monopoly

The practice of changing different consumers different prices for the same good or service

1.) Services in general cannot be resold 2.) Warranties 3.) Adulteration 4.) Transaction Costs

1.) Charge each customer their willingness to pay for a good. 2.) The price per unit depends on the quantity sold.

offer a price discount to those consumers that are willing to overcome some obstacle