Microeconomics Monster Vocab

allocative efficiency

A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it

Ceteris Paribus

all other things held constant

Circular Flow

A model of the movement of goods, services, resources, and money in an economy.

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

complementary goods

Goods that are commonly used with other goods

absolute advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

accounting profit

total revenue minus total explicit cost

Average Fixed Cost (AFC)

fixed cost divided by the quantity of output

Average Total Cost (ATC)

total costs divided by quantity of output

Average Variable Cost (AVC)

total variable costs divided by quantity of output

consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

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,

deadweight loss

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

derived demand

Business demand that ultimately comes from (derives from) the demand for consumer goods.

determinants of demand

the external factors that shift demand to the left or right

determinants of supply

factors other than price that determine the quantities supplied of a good or service

diseconomies of scale

the property whereby long-run average total cost rises as the quantity of output increases

economic costs

explicit costs + implicit costs

economic profits

total revenues minus explicit and implicit costs

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

explicit costs

The actual payments a firm makes to its factors of production and other suppliers.

free rider

a person who receives the benefit of a good but avoids paying for it

human capital

the knowledge and skills a worker gains through education and experience

implicit costs

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur

income effect

the change in consumption resulting from a change in real income

inferior goods

Goods for which demand tends to fall when income rises.

law of demand

consumers buy more of a good when its price decreases and less when its price increases

law of diminishing marginal returns

as more of a variable resource is added to a given amount of other resources, marginal product eventually declines and could become negative

law of diminishing marginal utility

the principle that consumers experience diminishing additional satisfaction as they consume more of a good

law of increasing costs

law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases

law of supply

Tendency of suppliers to offer more of a good at a higher price

The Lorenz curve and Gini ratio

income gap (inequality of distribution)

Marginal Benefit

the additional benefit to a consumer from consuming one more unit of a good or service

marginal cost

the cost of producing one more unit of a good

Payoff Matrix (Game Theory)

strategies of one player against strategies of another player

marginal product of labor

the change in output from hiring one additional unit of labor

Marginal Resource Cost

The change in total cost caused by a one-unit change in an input.

marginal revenue product of labor

the change in a firm's revenue as a result of hiring one more worker

marginal utility

an additional amount of satisfaction

market failure

a situation in which a market left on its own fails to allocate resources efficiently

monopolistic competition

a market structure in which many companies sell products that are similar but not identical

monopoly

A market in which there are many buyers but only one seller.

Monopsony

a market structure in which there is only a single buyer of a good, service, or resource

natural monopoly

a market that runs most efficiently when one large firm supplies all of the output

negative externality

the harm, cost, or inconvenience suffered by a third party because of actions by others

normal profit

the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm

Oligopoly

A market structure in which a few large firms dominate a market

opportunity cost

whatever must be given up to obtain some item

perfectly elastic

flat demand curve; consumers are perfectly price sensitive

perfectly inelastic

quantity does not respond at all to changes in price (E=0)

positive externality

beneficial side effect that affects an uninvolved third party

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

Prisoner's Dilemma

a paradox in decision analysis in which two individuals acting in their own self-interests do not result in the optimal outcome.

producer surplus

the amount a seller is paid for a good minus the seller's cost of providing it

Production Possibilities Curve (PPC)

a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology

profit maximizing resource employment

The firm hires the profit maximizing amount of a resource at the point where MRP = MRC

progressive tax

A tax for which the percentage of income paid in taxes increases as income increases

proportional tax

A tax in which the average tax rate is the same at all income levels.

regressive tax

A tax for which the percentage of income paid in taxes decreases as income increases

resources

Land, Labor Capital

short run

the period of time during which at least one of a firm's inputs is fixed

substitute goods

Products or services that can be used in place of each other.

substitution effect

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

Total Cost

the sum of fixed and variable costs

Total fixed costs

all the expenses that remain the same no matter how many products are made or sold

total product(TPL) of labor

The total quantity of output produced for a given quantity of labor employed

total revenue test

means for determining whether demand is elastic or inelastic.

total variable costs

Variable cost per unit x number of units sold

utility maximizing rule

equating the ratio of the marginal utility of a good to its price for all goods

Demand-Supply with Surpluses

PPC (Constant and Increasing)

Cost Curves (Fixed-Average-Total-Marginal)

Lorenz Curve

Diminishing Marginal Returns

Monopoly

Externality with DWL (Negative and Positive)

Gov Set Prices (Ceilings and Flooors)

Monopolistic Competition

Product Market Perfect Competition

Factor Market Perfect Competition

Payoff Matrix (Game Theory)

Monopsny