Econ 1101

Economy

Comes from the Greek word for “one who manages a household”

Economics

The study of how society manages its scare resources

Equity

Benefits of those resources shared fairly among the members of society

Opportunity Cost

Whatever must be giving up to obtain some item

Rational People

those who systematically and purposefully do their objectives

Market Economy

People and companies decide what to make, sell, and buy

Market Failure

When a market is left alone and fails to allocate resources efficiently caused by either externality or market power

Market Power

The ability of a single economic actor to have substantial influence on the market prices

Productivity

the quantity of goods and services produced per hour of worker’s time

Business Cycle

The economy's natural cycle of ups and downs over time

Externality

They are market failures that affect the uncompensated impact of one person’s actions on the well-being of a bystander

Negative Externalities

Lead markets to produce a larger quantity than is socially desirable.

Positive Externalities

Lead markets to produce a smaller quantity than is socially desirable

Internalized Externality

When incentives are altered in a way in which the external effects of their actions are accounted for

Corrective Taxes

Deal with the effects of negative externalities

Corrective subsidy

Equal the external benefit of positive externalities

Excludable Goods

Is the property of a good whereby a person can be prevented from using it.

Rival in Consumption

Is the property of a good whereby one person’s use diminishes other people’s use

Private Goods

• Goods that are both excludable and rival in consumption.

• A good that can be obtained through payment and once it’s paid for you are the only one with benefits

Examples of a private good

Ice Cream, Clothing, and Congested Toll Roads

Public Goods

• Are neither excludable nor rival in consumption.

• People cannot be prevented from using a good because one person’s use doesn’t reduce another’s ability to use it

Examples of public goods

Amber Alerts, National Defence, Uncongested Toll- Free Roads

Common Resources

• Are rival in consumption but not excludable

• Goods available to everyone but once taken by someone else it becomes unavailable

Examples of common resources

The Environment, Fish in the ocean, Congested Toll -Free roads

Club Goods

• Are excludable but not rival in consumption

• Your Access to the good doesn’t affect other’s use of the good

Examples of Club Goods

Wifi, Fire Protection, Uncongested Toll Roads

Industrial Organization

Is the study of how firms’ make decisions regarding prices and quantities depend on the market condition they face

Total Revenue for a Firm

Is the amount a firm receives for the sale of its output

Total Cost

Is the market value of inputs a firm uses in production

Profit

Total revenue minus total cost

Explicit costs

Input cost that require a momentary payment by the firms

Implicit Costs

Input Costs that do not require a monetary payment by the firm

Economic Profit

Total revenue - ( explicit + implicit costs )

Accounting Profit

Total revenue - explicit costs

Production Function

The relationship between the quantity of labour used to produce a good and the quantity of output of the good

Marginal Product

Is the increase in output that arises from an additional unit of input

Diminishing Marginal Product

The property whereby the marginal product of an input declines as the quantity of the input increases

Fixed Costs(FC)

Are costs that do not vary with the quantity of output produced

Variable Costs (VC)

Are costs that do vary with the quantity of output produced

Efficient Scale

Is the level of output that minimizes average total costs

Economies of Scale

occurs when LRATC decreases as the quantity of output increases.

Diseconomies of Scale

Occurs when LRATC increases as the quantity of output
increases.

Constant Returns to Scale

occurs when LRATC stays the same as the quantity of output changes.

Competitive Market

is a market in which there are many buyers and many sellers
so that each has a negligible impact on the market price

Average Revenue

Is the total revenue divided by quantity sold

Marginal Revenue

Is the change in total revenue from selling one more unit