Quizlet Econ Test 2

Tarif

A tax imposed by a government on imports

Imports

Goods and services bought domestically but produced in other countries

Exports

Goods and services produced domestically but sold in other countries

Quota

A numerical limit a government imposes on the quantity of a good that can be imported into that country.

Autarky

A situation in which the country does not trade with other countries

Free trade

Trade between countries that is without government restrictions

Pareto efficiency

is a state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off.

Political efficiency

is the citizens' faith and trust in government and their belief that they can understand and influence political affairs

Budget constraint

The limited amount of income available to consumers to spend on goods and services

utility

the enjoyment or satisfaction that people obtain from consuming goods and services

marginal utility

The amount by which it would change when consuming an extra unit of a good or

service

Law of diminishing marginal utility

The principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time

Celebrity endorsements

Firms use celebrity endorsements regularly.

Network externalities

Situations in which the usefulness of a product increases with the number of consumers who use it.

Fairness

People like to be treated fairly and prefer to treat each other fairly even if it is bad for them financially

Endowment Effect

The tendency of people to be unwilling to sell a good they already own, even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn’t already own it.

Technology

The processes a firm uses to turn inputs into outputs of goods and services.

Technological change

A change in the ability of a firm to produce a given level of output with a given quantity of inputs.

short run

a period of time during which at least one of a firm’s inputs is fixed.

long run

no inputs are fixed, the firm can adopt new technology, and increase or decrease the size of its physical plant.

Variable costs

are costs that change as output changes

Fixed costs

are costs that remain constant as output changes

Explicit cost

A cost that involves spending money

Implicit cost

A non-monetary opportunity cost

long run average cost curve

shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.

economies of scale

The firm’s long-run average costs fall as it increases the quantity of output it produces.

minimum efficient scale

The lowest level of output at which all economies of scale are exhausted

constant returns to scale

its long-run average cost remains unchanged as it increases output.

diseconomies of scale

a situation in which a firm’s long-run average costs rise as the firm increases output.

Perfectly competitive market

there are many buyers and sellers, all firms sell identical products; and there are no barriers to new firms entering the market

price-takers

unable to affect the market price. This is because they are tiny relative to the market, and sell exactly the same product as everyone else.

Average revenue

Total revenue divided by the quantity of the product sold.

Marginal revenue

the change in total revenue from selling one more unit of a product.

Allocative Efficiency

a state of the economy in which production is in accordance with consumer preferences. Every good is produced up to the point where the last unit provides a marginal benefit to society equal to marginal cost of production. Since the price represents MB consumers receive from consuming the last unit of the good

Productive Efficiency

a situation in which a good or a service is produced at a lowest possible cost 

Monopoly

is a market structure consisting of a firm that is the only seller of a good or service that does not have a close substitute.

Arbitrage

buying a product in one market and reselling it in a market with a higher price, receiving a profit

transactions costs

The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services.

Price discrimination

the practice of charging different prices to different customers for the same product when the price differences are not due to differences in cost.

Price discrimination is possible when

Firms possess market power, Identifiable groups of consumers have different willingness to pay for the product, Arbitrage of the product is not possible

Oligopoly

a market structure in which a small number of interdependent firms compete, will require completely different tools to analyze.

barriers to entry

anything that keeps new firms from entering an industry in which firms are earning economic profits.

Economies of scale

the situation when a firm’s long-run average costs fall as the firm increases its output.

Ownership of a key input

If control of a key input is held by one or a small number of firms, it will be difficult for additional firms to enter.

Government-imposed barriers

Governments might grant exclusive rights to some industry to one or a small number of firms.

Game theory

The study of how people make decisions in situations in which attaining their goals depends on their interactions with others; in economics, the study of the decisions of firms in industries where the profits of a firm depend on its interactions with other firms