Looks like no one added any tags here yet for you.
market
a group of buyers and sellers of a particular good or service
competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
monopoly
only one seller in a market
quantity demanded
the amount of a good that buyers are willing and able to purchase
law of demand
the claim that. other things equal, the quantity demanded of a good falls when the price of the good rises
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
demand curve
a graph of the relationship between the price of a good and the quantity demandedma
market demand
the sum of all the individual demands for a particular good or service
normal good
a good for which, other things equal, an increase in income leads to an increase in demand
inferior good
a good for which, other things equal, an increase in income leads to a decrease in demand
substitutes
two good for which an increase in the price of one leads to an increase in the demand for the other
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
quantity supplied
the amount of a good that sellers are willing and able to sell
law of supply
that claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
supply curve
a graph of the relationship between the price of a good and the quantity supplied
equailibrium
the market reaches a point where quantity supplied is equal to quantity demanded
equilibrium quantity
the quantity supplied and the quantity demanded at the equilibrium price
equilibrium price
the price that balances quantity supplied and quantity demanded
perfectly competitive market
so many buyers and sellers that no one can affect the market price —> each is a price taker
law of supply and demand
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of the good, computed as the percentage change in quantity demanded divided by the percentage change in price
price elasticity of demand (Formula)
percentage change in quantity demanded / percentage change in price
total revenue
the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold
income elasticity of demand (formula)
percentage change in quantity demanded / percentage change in income
income elasticity of demand
a measure of how much time the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change in quantity demanded divided by the percentage change in income
cross-price elasticity of demand (Formula)
percentage change in quantity demanded good 1 / percentage change in the price of good 2
cross-price elasticity of demand
a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good.
price elasticity of supply
a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity sipplied divided by the percentage change in price
price ceiling
a legal maximum on the price at which a good can be sold
price floor
a legal minimum on the price at which a good can be sold
tax incidence
who in the market will bear the burden of the tax
binding constraint
the ceiling is a binding constraint because the forces of supply and demand tend to move the price towards equilibrium price, but when the market price hits the ceiling, it can, by law, rise no further
willingness to pay
the maximum amoutn that a buyer will pay for a good
consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
cost
the value of everything a seller must give up to produce a good
producer surplus
the amount a seller is paid for a good minus the seller’s cost of providing it
efficienty
the property of a resource allocation of maximizing the total surplus received by all members of society
consumer surplus
value to buyers - amount paid by buyers
producer surplus
amount receieved by sellers - cost to sellers
total surplus
(value to buyers - amount paid by buyers) + (Amount received by sellers - cost to sellers)
equality
the property of distributing economic prosperity uniformly among the members of society
free markets
one without government intervention or regulation
market outcomes (free markets)
free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay
free markets allocate the demand for goods to the sellers who can produce them at the lowest cost
free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus
laissez faire
the policy of leaving well enough alone (not interfering)
market power
the ability to influence prices
allocate
to distribute for a particular purpose
deadweight loss
the fall in total surplus that results from a market distortion, such as a tax
underground economy
engaging in illegal economic activity, to evade taxes
world price
the price of a good that prevails in the world market for that good
tariff
a tax on goods produced abroad and sold domestically
import quota
a quantitative limit on imports of a good
externality
the uncompensated impact of one person’s actions on the well-being of a bystander
internalizing the externality
altering incentives so that people take account of the external effects of their actions
industrial policy
government intervention in the economy that aims to promote technology-enhancing industries
property right
the theoretical and legal ownership of resources and how they can be used
government responses to externalities
command-and-control policies
market-based policies
command-and-control policies
regulate behavior directly
market-based policies
provide incentives so that private decision makers will choose to solve the problem on their own
corrective act
a tax designed to induce private decision makers to take account of the social costs that arise from a negative externality
coase theorem
the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
transaction costs
the coasts that parties incur in the process of agreeing toa nd following through on a bargain
excludable
a person can be prevented from using it (fish tacos and wireless internet access)
not excludable
people cant be prevented from using it (FM radio signals and national defense)
rival in consumption
one person’s use of it diminishes others’ use
rival good
can only be possesed or consumed by one person
not rival good
an MP3 file of someone’s latest single. — can be consumed over and over again
private good
excludable, rival in consumption (food)
public good
not excludable, not rival (national defense)
common resources
rival but not excludable (fish in the ocean)
natural monopolies
excludable but not rival (cable TV)
free rider
a person who receives the benefit of a good but avoids paying for it
cost-benefit analysis
a study that compares the costs and benefits of providing a public good
excludability
the property of a good whereby a person can be prevented from using it
rivalry in consumption
the property of a good whereby one person’s use diminishes other people’s use
tragedy of the commons
a parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole
ways to solve the tragedy
privatization
command and control
taxing
marginal tax rate
the taxrate applied to each additional dollar of income
payroll tax
a tax on the wages that a firm pays its workers
corporation
a business that is set up as a seperate legal entity
excise taxes
are taxes on specific goods
transfer payments
a government payment not made in exchange for a good or service
budget deficit
an excess of government spending over government spending
average tax rate
the extra taxes paid on an additonal dollar of income
lump-sum tax
a tax that is the same amount for every person
benefits principle
the idea that people should pay taxes based on the benefits they receive from government services
ability-to-pay principle
the idea that taxes should be levied on a person according to how well that person can shoulder the burden
vertical equity
the idea that taxpayers with a greater ability to pay taxes, should pay larger amounts
horizontal equity
the idea that taxpayers with similar abilities to pay taxes should pay the same amount
proportional tax
a tax for which high income and low income taxpayers pay the same fraction of income
regressive tax
a tax for which high income taxpayers pay a smaller fraction of their income than do low income taxpayers
progressive tax
a tax for which high income taxpayers pay a larger fraction of their income than do low income taxpayers
market failure
fails to allocate resources efficiently
marginal benefit
the maximum amount a consumer is willing to pay for an additional good or service or the additional satisfaction experienced when purchasing
total revenue
the amount a firm receives for the sale of its output
total cost
the market value of the inputs a firm uses in production
profit
TR - TC
explicit costs
input costs that require an outlay of money by the firm (recorded in the books)
implicit costs
input costs that do not require an outlay of money by the firm (not recorded in the books)