Unit 5/6 DC Microeconomics Vocab

physical capital

often referred to simply as capital—consists of manufactured (human-made) productive resources, such as equipment, buildings, tools, and machines, used to produce other goods and services

derived demand

demand for a factor is a derived demand because it results from (that is, it is derived from) the demand for the output being produced

marginal revenue product

the additional revenue generated by employing one more unit of a factor

marginal revenue product curve

shows how the marginal revenue product of a factor depends on the quantity of that factor employed

economic rent

the payment to a factor of production in excess of the minimum payment necessary to employ that factor

individual labor supply curve

shows how the quantity of labor supplied by an individual depends on that individual's wage rate

marginal factor cost

the additional cost of employing an additional unit of a factor of production

monopsonist

a single buyer in a factor market

cost-minimization rule

employ factors so that the marginal product per dollar spent on each factor is the same; this rule is used by a firm to determine the cost-minimizing combination of inputs

externalities

external costs and external benefits

external cost

an uncompensated cost that an individual or a firm imposes on others

external benefits

a benefit that an individual or a firm confers on others without receiving compensation

market failure

when the outcome in a market is ineffective

marginal social cost

the additional cost imposed on society as a whole by one additional unit

marginal social benefit

the additional gain to society as a whole from an additional unit

socially optimal quantity

the quantity that society would choose if all the costs and benefits of pollution were fully accounted for

marginal private benefit

the marginal benefit that accrues to consumers of the good, not including any external benefits

marginal external benefit

the addition to external benefits created by one more unit of the good

pigouvian subsidy

a payment designed to correct for the effects of external benefits

marginal private cost

the marginal cost of producing the good, not including any external costs

marginal external cost

the increase in external costs to society created by one more unit of the good

pigouvian taxes

taxes designed to correct for the effects of external costs

excludable

a good is excludable if the supplier of that good can prevent people who do not pay from consuming it

rival in consumption

a good is rival in consumption if the same unit of the good cannot be consumed by more than one person at the same time

private good

a good that is both excludable and rival in consumption

nonexcludable

when a good is nonexcludable, the supplier cannot prevent consumption by people who do not pay for it

nonrival in comparison

a good is nonrival in consumption if more than one person can consume the same unit of the good at the same time

free-rider problem

goods that are nonexcludable suffer from the free-rider problem. Individuals have no incentive to pay for their own consumption and instead will take a "free ride" on anyone who does pay

public good

both nonexcludable and nonrival in consumption

lorenz curve

shows the percentage of all income received by the poorest members of the population, from the poorest 0% to the poorest 100%