Economics Lecture: Markets, Elasticity, and Trade Policies

A collection of vocabulary flashcards covering price elasticity, market structures, surplus and deadweight loss, trade regulations, and case studies from the lecture.

Right-to-Work Law

A statute that guarantees that no person can be compelled to join a labor union as a condition of employment.

Prerequisites of a Market System

A legal system that protects private property and creates enforceable contracts, which is protected in all high-income countries.

Patents

Legal protections that provide an incentive for individuals and firms to engage in research and development.

Production Possibility Frontier (PPF) Operating Point

The internal region where a nation operates if it does not protect the property rights of its citizens and does not ensure that contracts are enforced.

Budget Share Effect on Elasticity

The principle that goods taking up a smaller fraction of a consumer's budget, such as salt compared to gasoline, have a more inelastic price elasticity of demand.

Perfectly Inelastic Demand Curve

A demand curve that has a price elasticity of demand equal to $0$.

Debt Financing

The method by which a firm raises capital through issuing bonds.

Residual Claimants

A term for stockholders because they own whatever remains after all costs have been paid.

Bonds

Investments considered safer than stocks because they offer a predictable stream of interest payments and return the face value to the bondholder if held until maturity.

Mutual Funds

Financial vehicles that allow small investors a way to diversify their holdings, thereby reducing risk.

Effective Price Ceiling

A legally mandated price set below price equilibrium, which causes shortages to develop.

Effective Price Floor

A legally mandated price set above price equilibrium, which causes surpluses to develop.

Consumer Surplus

The difference between the highest price a consumer is willing to pay for a good and the price the consumer actually pays.

Producer Surplus

The difference between the price a producer receives for a good and the lowest price which the producer is willing to accept for a good.

Deadweight Loss

The reduction in economic surplus resulting from a market not being in competitive equilibrium.

Gains from Trade

The total surplus measured by summing producer surplus and consumer surplus, which is reduced by the imposition of a price ceiling or a price floor.

Income Elasticity of Demand

The percentage change in the quantity demanded of good $X$ divided by the percentage change in income; it is positive for normal goods and negative for inferior goods.

Cross-Price Elasticity of Demand

The percentage change in the quantity demanded of good $X$ divided by the percentage change in the price of good $Y$; negative values indicate complements and positive values indicate substitutes.

Bowen Flowers' Cotton Farm

A cotton farm visited by Planet Money that produces enough cotton every year to make $9\text{-million}$ t-shirts.

Jasmine

A garment worker from Bangladesh featured by Planet Money who earns $\\text{\$}80$ per month working $6$ days per week.

The Jones Act

A law specifying that all cargo moved by ship from one US port to another US port must travel on a ship built in the US, staffed by Americans, and owned by Americans.

Mr. Van Holt

A Hawaii cattle rancher who avoided high shipping costs by transporting cows to Canada on cheap ships before shipping them by land into the US.

Concentrated Benefits and Diffuse Costs

An economic phenomenon where a small group of people benefit substantially from a policy while the cost is passed on to the rest of the public in small, hidden ways.

Key Fees

Fees charged in Santa Monica that helped landlords recoup the financial losses created by rent control price ceilings.

Tax Incidence Under Steep Demand

An outcome where most of an imposed tax on a producer is passed on and paid by the consumer because demand is relatively steep.

Elastic Demand

Demand where $|P_{ed}| > 1$ and $|\text{\% change } Q_d| > |\text{\% change price}|$, meaning consumers are price sensitive and total revenue increases when the price decreases.

Inelastic Demand

Demand where $|P_{ed}| < 1$ and $|\text{\% change } Q_d| < |\text{\% change price}|$, meaning consumers are price insensitive and total revenue increases when the price increases.