Economics Review - Vocabulary Flashcards

Flashcards for exam review based on lecture notes.

AFC (Average Fixed Cost)

Fixed Cost divided by Quantity (FC / Q)

TC (Total Cost)

Total Fixed Cost plus Total Variable Cost (TFC + TVC)

AC (Average Cost)

Total Cost divided by Quantity (TC/Q)

MC (Marginal Cost)

Change in Total Cost divided by Change in Quantity (ΔTC/ΔQ)

PS (Producer Surplus)

Total Revenue minus Variable Costs (TR - VC)

π (Profit)

Total Revenue minus Total Costs (TR - TC)

CS (Consumer Surplus)

Area above the price and below the demand curve: (Pmax - P) * Q / 2

Price Elasticity of Demand

Percentage Change in Quantity Demanded divided by Percentage Change in Price (%ΔQd / %ΔP)

Income Elasticity of Demand

Percentage Change in Quantity Demanded divided by Percentage Change in Income (%ΔQd / %ΔI)

Cross Price Elasticity of Demand

Percentage Change in Quantity Demanded of good A divided by Percentage Change in Price of good B (%ΔQa / %ΔPb)

AVC (Average Variable Cost)

Variable Cost divided by Quantity (VC/Q)

TR (Total Revenue)

Price multiplied by Quantity (P x Q)

MP (Marginal Product)

Change in Total Quantity divided by Change in Input (ΔTq / ΔInput)

VMPL (Value of Marginal Product of Labor)

Marginal Product of Labor

MRPL (Marginal Revenue Product of Labor)

Change in total revenue resulting from employing one additional unit of labor.

OEP (Optimal Employment Point)

The point where the additional benefit from labor equals the cost (MEL=MRPL)

Lerner Index

(P - MC) / P. Measures market power.

Concentration Ratio

Sum of market shares of the n largest firms in an industry.

Game Theory

The study of strategic interactions among rational players.

Dominant Strategy

A strategy that is optimal for a player regardless of the strategies chosen by other players.

Nash Equilibrium

A set of strategies where no player has an incentive to deviate, given the strategies of other players.

Subgame Perfect Equilibrium

Eliminates non-credible threats, forms Nash equilibrium in every subgame.

Simultaneous Game

Players make their decisions at the same time without knowing the choices of others (e.g., Prisoner's Dilemma).

Sequential Game

Later players know the earlier moves (e.g., Stackelberg competition).

Co-operative Game

Players can form binding agreements to coordinate strategies (e.g., cartels in oligopoly).

Non-cooperative Game

Players act independently and cannot make binding agreements.

Zero-Sum Game

One player's gain equals the other players' losses.

Non-Zero-Sum Game

The gains and losses of the players do not necessarily balance out.

Prisoner's Dilemma

A situation where the best individual strategy leads to a worse collective outcome.

Cournot Competition

Firms choose quantities to produce (Q), taking other firms' quantities as fixed.

Bertrand Competition

Firms set prices, often leading to price wars driving prices to marginal cost (MC).

Stackelberg Competition

A leader firm moves first by setting quantity, and follower firms react.

Price Discrimination

Charging different prices to different customers for the same product.

Labour Discrimination

Individual workers who have identical product characteristics, treated differently because of demographic groups

Statistical Discrimination

Using group averages/ characteristics to judge individuals.