econ 102

Specialization (or division of labor) ( LESSON 6)

We do what we do best, and trade for all the rest

2 main benefits

• Makes us better at what we do

• improves our skills in that certian skill

Theory of Absolute Advantage ( LESSON 6)

The theory that a person will specialize in producing the good for which they have the lowest resource cost. (being the best at doing something, You use fewer resources or less time than anyone else to get the job done.

Example: Me and my friend are washing cars. I take 20 and my friend takes 40. while it takes my friend 40, bc I am faster at washing the car I have the absolute advantage in car washing.

The Theory of Comparative advantage ( LESSON 6)

A person will specialize in producing the good for which they have the lowest opportunity unit. ( two people can benefit from trading if each person focuses on the task where they give up the task (lowest opportunity cost) even though one person is better at doing both things.

Example: Although i can make both cookies and brownies fast, ym friend still gives up fewer cookies than i do to bake brownies so my friend has the comparative advantage brownies. I have the comparative advantage in making cookies because i give ip fewer brownies to make ONE cookie.

Exports ( LESSON 6)

To sell something to a buyer in another country

Imports ( LESSON 6)

To buy something from a seller in another country

Free trade ( LESSON 6)

Trade unrestricted by physical force, such as government intervention or special taxes.

Effects (Producers) of Exports ( LESSON 6)

• Harm American consumers

• Benefit American producers

• The benefit is large than the harm (the benefit outweighs the harm)

Effects (Consumers) of Imports ( LESSON 6)

• Harm American producers

• Benefit American consumers

• The benefit is larger than the harm (The benefit outweighs the harm)

Trade Barrier ( LESSON 6)

Any government action that restricts international trade

Protectionism ( LESSON 6)

Supports for trade ( barriers )

Tariff ( LESSON 6)

A tax on imports

• Imported shoes are being taxed ( coming rom foreign sellers )

Do trade barriers protect jobs? (LESSON 6)

• Imports don’t destroy jobs, they move jobs

• tariffs don’t protect jobs they move jobs too

The price of a good ( LESSON 7 )

The amount of money the buyer has to spend to buy it from the seller.

The cost of a good ( LESSON 7 )

The amount of money the seller has to spend to produce it.

The total cost of a good ( LESSON 7 )

The cost of producing a certain quality of units of a good

Fixed Cost ( LESSON 7 )

The costs that do not vary with the quantity of units produced

Variable cost ( LESSON 7 )

The cost are vary with the quantity of units produced

Marginal Cost ( LESSON 7 )

The cost of producing one more unit of a good

The law of diminishing marginal returns states LESSON 7 )

With a fixed input, and an increasing variable input at some point the marginal product of the variable input must decline.

• if i hire another worker how many tables can i produce?

Marginal Product ( LESSON 7 )

The additional output produced when one more unit of variable uniput

Marginal Cost ( LESSON 7 )

The cost producing one more unit of a good

The phase of increase marginal returns ( LESSON 7 )

The range of input usage over which marginal product increases.

Average Total Cost ( Average Cost ) ( LESSON 7 )

The total cost divided by the quantity of units produced

Average Fixed Costs ( LESSON 7 )

The total fixed cost divided by the quantity units produced

Average variable costs ( LESSON 7 )

The total variable costs divided by the quantity of units produced ( LESSON 7 )

Short Run ( LESSON 7 )

The time horizon where some inputs ( and costs ) are fixed, and some are variable.

Long Run ( LESSON 7 )

The time horizon where all inputs (and costs) are variable

Economics of scale ( LESSON 7 )

The range where long run average total costs decreases as outputs increase.

Diseconomies of scale ( LESSON 7 )

The range where long runs average total costs increase as outputs increase

Constant returns to scale ( LESSON 7 )

The range where long runs average total costs stay consistent as output increases

Optimal firm size (minimus efficient scale ) ( LESSON 7 )

The quantity production that minimizes long run average total costs.

Transaction Costs ( LESSON 7 )

Any cost of going through with an exchange transaction, other than the price of the good itself

Example: I sell a bookshelf for 100 but you have to pay $25 to rent a truck and spend 2 hours carrying it and just taking it home. The 25 and the 2 hour labor are the transaction cost.

Coercive barrier to entry ( LESSON 7 )

The use or threat of force to prevent others from offering their product for sale to the same costumers.

Total revenue ( LESSON 7 )

The amount of money a seller receives in exchange for their product

Marginal revenue ( LESSON 7 )

The additional revenue a seller gets from one more unit of a good.

Profit ( LESSON 7 )