ECON Term Test 2

Adverse Selection

Exploitation of under-informed party in transactions.

Affordable Point

Point on budget line representing maximum goods purchased.

Asymmetric Information

Unequal knowledge between buyer and seller.

Average Fixed Cost (AFC)

Total fixed cost per unit of output.

Average Fixed Costs (AFC)

Fixed costs when quantity produced is zero.

Average Fixed Costs (AFC) Formual

Cost when Q=0 / Q

Average Total Cost (ATC)

Total cost per unit of output.

Average Total Costs (ATC)

Total costs divided by quantity produced.

Average Total Costs (ATC) Formula

TC / Q

Average Variable Cost (AVC)

ATC minus AFC.

Average Variable Cost (AVC)

Total variable cost per unit of output.

Average Variable Cost (AVC) Formula

ATC - AFC

Black Market

Illegal market for goods or services.

Budget Line

Boundary showing affordable combinations of goods.

Budget Line

Graphical representation of consumer's income and prices.

Change in Budget

Shift of budget line due to income changes.

Change in Income

Effect of income change on consumption choices.

Close Substitutes

Goods easily substituted for one another.

Coase Theorem

Efficient outcomes achieved through negotiation.

Common Resources

Rival but non-excludable; limited use per person.

Compliments

Goods that are consumed together, enhancing value.

Constant Returns to Scale

Average total cost remains constant with output.

Consumer Equilibrium

Optimal consumption maximizing consumer satisfaction.

Consumer Surplus

Difference between what consumers are willing to pay and actual price.

Consumer Theory

Study of how consumers choose quantities to buy.

Consumption Expansion

Increase in affordable goods due to budget increase.

Consumption Patterns

Changes in consumption due to price and income.

Consumption Possibilities

Combinations of goods a consumer can afford.

Consumption Possibilities

Range of goods a consumer can afford.

Consumption Shrinkage

Reduction in affordable goods due to budget decrease.

Cost Curve

Graph showing output quantity versus production costs.

Cost of Enforcement

Expenses incurred to uphold laws or regulations.

Deadweight Loss

Loss of economic efficiency due to market distortion.

Decrease in Income

Reduces consumption possibilities and demand.

Degree of Substitutability

Extent to which one good can replace another.

Demand Curve

Graph showing relationship between price and quantity demanded.

Demand Curve Shift

Leftward shift from D0 to D1 due to income decrease.

Demand Curve with Externalities

In P/N externalities, demand curve equals SMB.

Demand for Labour

Firms' need for workers based on productivity.

Diminishing Marginal Rate of Substitution

MRS decreases as consumption of good X increases.

Diseconomies of Scale

Higher average total cost with increased output.

Downward Sloping AFC Curve

Indicates fixed costs spread over larger output.

Economic Deprecation

Change in market value of owned capital.

Economic Profit

Total revenue minus total costs.

Economies of Scale

Lower average total cost with increased output.

Elasticity of Demand

Responsiveness of quantity demanded to price changes.

Elasticity of Demand

Sensitivity of quantity demanded to price changes.

Elasticity of Supply

Responsiveness of quantity supplied to price changes.

Equilibrium

Point where supply equals demand in a market.

Equilibrium Quantity

Where PMB equals PMC in the market.

Example of Negative Externality

Coal burning emits pollutants affecting environment.

Example of Positive Externality

Beekeeping benefits fruit farming through pollination.

Excludable Goods

Preventable access; requires payment for benefits.

Explicit Costs

Direct monetary payments for resources used.

Externality

Cost or benefit affecting third parties.

Fixed Cost Increase Effect

Shifts TFC and AFC curves upward.

Fixed Costs

Costs independent of production quantity.

Flat Indifference Curve

Indicates low MRS; small Y sacrifice for large X.

Free Rider

Benefits from goods without paying for them.

Free-Rider Problem

Under-provision of public goods due to free riding.

Government Action

Required to address free-rider problem in public goods.

Highest Attainable Indifference Curve

Curve representing maximum satisfaction within budget constraints.

Identical Pens are

Two pens are perfect substitutes in consumer choice.

Implicit Costs

Opportunity costs without direct monetary payment.

Income Effect

Change in quantity demanded due to income change.

Increase in Income

Expands consumption possibilities and demand.

Indifference Curve

Represents consumer preferences between two goods.

Indifference Curve

Shows combinations of goods for equal consumer happiness.

Indifference Curve Bowing

Curves bow towards the origin indicating diminishing MRS.

Indifference Curve Shape

Reflects degree of substitutability between goods.

Indifference Curve Shift

Movement to a higher curve indicates increased consumption.

Indifference Curves

Graphical representation of consumer preferences.

Inelastic Demand

Demand that doesn't change significantly with price changes.

Inelastic Supply

Supply that doesn't change significantly with price changes.

Inferior Good

Demand decreases when consumer income rises.

Law of Demand

Lower prices lead to higher quantity demanded.

Left and Right Shoes are

Left and right shoes are perfect complements.

Leftward Shift of Budget Line

Occurs when consumer's budget decreases.

Long Run

Period where all resources can be varied.

Long-Run Average Cost Curve

Lowest average total cost for each output level.

Marginal Benefit

Additional satisfaction from consuming one more unit.

Marginal Cost

Cost of producing one additional unit.

Marginal Cost (MC)

Cost change from producing one more unit.

Marginal Cost (MC)

Cost of producing one additional unit.

Marginal External Cost

Cost of externalities imposed on others by production.

Marginal Private Cost

Cost incurred by producers for producing an additional unit.

Marginal Product

Change in total product from one more worker.

Marginal Product of Labour (MPL)

Output increase from hiring one additional worker.

Marginal Rate of Substitution

Rate at which consumer substitutes one good for another.

Marginal Rate of Substitution (MRS)

Rate of giving up good Y for more of good X.

Marginal Social Cost

Total cost to society of producing an additional unit.

Market Demand Curve

Graph showing relationship between price and quantity demanded.

Market Equilibrium Price

Price at which quantity supplied equals quantity demanded.

Market Equilibrium Quantity

Quantity supplied and demanded at equilibrium price.

Market Supply Curve

Graph showing relationship between price and quantity supplied.

MC Formual

Change in costs when the produce 1 more unit

Minimum Wage

Lowest legal wage employers can pay workers.

Natural Monopoly Goods

Excludable but non-rival; shared consumption allowed.

Negative Consumption Externalities

PMB curve shifts right of SMB curve.

Negative Externality

Cost imposed on third parties from production.