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Production Possibilities Curve (PPC)
[Or “Frontier” in other textbooks] - is a graphical representation of the production schedule. Shows the relationship between maximum production of one good for a given level of production of another good
Opportunity Cost
what you give up to produce one additional good
Comparative Advantage
is the ability of an individual, firm, or country to produce a certain good at a lower opportunity cost than other other producers
Absolute Advantage
is the ability of an individual firm or country to produce more of a certain good than other competing producers given the same amount of resources
Export
any good that is produced domestically but sold abroad
Import
is any good that is produced abroad but sold domestically
Tariff
are taxes levied on goods and services transported across political boundaries
Externality
A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service
(Marginal) Private Benefit (MPB)
The benefit received by the consumer of a good or service
(Marginal) Private Cost (MPC)
The cost born by the producer of a good or service
(Marginal) Social Benefit (MSB)
The total benefit from consuming a good or service, including both the private benefit and any external benefit
(Marginal) Social Cost (MSC)
The total cost of producing a good or service, including both the private cost and any external cost
Excludable
The situation in which anyone who does not pay for a good cannot consume it
Non-Excludable
means that it is impossible to exclude others from consuming the good, whether they have paid it or not
Rival
The situation that occurs when one person’s consuming a unit of a good means no one else can consume it
Non-Rival
means that a one person’s consumption does not interfere with another person’s consumption
Private Good
A good that is both rival and excludable
Public Good
A good that is both non-rival and non excludable
Common Resource
(or “Common-Pool Resource Good”) - A good that is rival but not excludable
Club Good
(or Quasi-Public Good; and this corresponds to a “Natural Monopoly” market structure) - a type of good that is excludable (meaning you can prevent people from using it) but non-rivalrous (meaning one person's use doesn't diminish the availability for others)
Tragedy of the Commons
The tendency for a common resource to be overused
Free Rider / Free-Rider Problem
Benefiting from a good without paying for it
Coase Theorem
The argument that if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities
Marginal product (MP)
the additional output produced by adding one more unit of a specific input (like labor), while keeping all other inputs constant
Marginal product of labor (MPL)
is the increase in a firm’s revenues created by hiring an additional laborer
Value of the marginal product of labor (VMPL)
[The extra V is to be unambiguous whenever the output is in dollars, with the extra L is to be unambiguous whenever the input is labor.] - What MPL is called whenever it is explicitly in dollars. MPL can thus refer to marginal product of actual stuff, like cups of coffee
Human capital
is tools of the mind, the stuff in people’s heads that makes them productive
Compensating wage differential
(or just “compensating differential”) - A compensating differential is a difference in wages that offsets differences in working conditions
Residual Demand Curve
Demand curve of an individual perfectly competitive producer ( Straight horizontal line)
Price Discrimination
many monopolists find that they can increase their profits by selling the same goods to different customers for different prices : they practice price discrimination. Sellers engage in this when they charge different prices to different consumers for the same good.
Perfect Price Discrimination
(also known as “first-degree price discrimination”) - takes place when a monopolist charges each consumer his or her willingness to pay, the maximum the consumer is willing to pay. Also called “first degree price discrimination”
Quantity Effect
One more unit is sold, increasing total revenue by the price at which the unit is sold
Price Effect
In order to sell that last unit, the monopolist must cut the market price on all units sold. This decreases total revenue
Natural Monopoly
a market where one company can provide a product or service more cheaply than multiple companies
Monopolistic Competition
a market structure where many companies sell similar but not identical products. It's a type of imperfect competition that combines aspects of monopolies and perfect competition
