Exam Review Flashcards

Flashcards for reviewing key concepts from economics lecture notes.

Externalities

Costs or benefits that affect a party who did not choose to incur that cost or benefit.

Public Good

A good that is non-excludable and non-rivalrous, meaning that it is difficult to prevent people from using it, and one person's use of the good does not diminish another person's ability to use it.

Free-Rider Problem

The burden on a shared resource that is created by its use or overuse by people who aren't paying their fair share for it or aren't paying anything at all.

Luxury Goods

Goods for which demand increases more than proportionally as income rises.

Utility

A term used to describe the total satisfaction received from consuming a good or service.

Marginal Utility

The additional satisfaction or benefit that a consumer derives from consuming one additional unit of a good or service.

Budget Constraint

Represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income.

Indifference Curve

A curve on a graph (the axis representing quantities of two goods) linking those combinations of quantities which the consumer regards as of equal value.

Marginal Rate of Substitution (MRS)

The rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility.

Long-Run Average Total Cost

Cost per unit of output when all inputs are variable.

Minimum Efficient Scale (MES)

The lowest point on the long run average cost curve at which a company can produce its product at a competitive cost.

Shutdown Condition

A point where a company experiences economic losses, forcing it to temporarily close down production.

Total Cost

The total expense incurred in reaching a particular level of output; equals the sum of total fixed cost and total variable cost.

Fixed Costs

Costs that do not vary with the quantity of output produced.

Variable Costs

Costs that change as the firm alters the quantity of output produced.

Perfect Competition

A market structure in which a large number of small firms sell identical products, there are no barriers to entry, and firms are price takers.

Monopoly

A market structure characterized by a single seller, selling a unique product in the market. The seller faces no competition, as he is the sole seller of goods with no close substitute.

Deadweight Loss

A loss of economic efficiency that occurs when the equilibrium for a good or service is not Pareto optimal or is not economically efficient.

Monopoly Rent

A surplus that firms can hold onto because of their monopoly over a market, government regulations, or other barriers to entry.

Game Theory

A theoretical framework for conceiving social situations among competing players and producing optimal decision-making of independent actors in a strategic setting.

Strategic Pricing

When a firm sets its price based on the expected reactions of its competitors.

Price Elasticity of Demand

A measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price.

Income Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in consumers' income.

Tax Incidence

The division of a tax burden between buyers and sellers.

Progressive Tax

A tax in which the tax rate increases as the taxable base amount increases.

Regressive Tax

A tax in which the tax rate decreases as the amount subject to taxation increases.

Ad Valorem Tax

A tax based on the assessed value of an item, such as real estate or personal property.

Per-Unit Tax

A fixed amount of tax per unit sold.

Production Possibility Frontier (PPF)

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.).

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay (i.e., the market price).

Producer Surplus

The difference between the amount a producer of a good receives and the minimum amount the producer is willing to accept for the good.