Econ201 final

Excludable

A good that can prevent people who have not paid for it from using it (e.g., a movie ticket).

Non-excludable

A good that cannot prevent people who have not paid for it from using it (e.g., national defense).

Rival in Consumption

A good whose use by one person diminishes another person's ability to use it (e.g., a hamburger).

Non-rival in Consumption

A good whose use by one person does not diminish another person's ability to use it (e.g., a public park).

Private Goods

Goods that are excludable and rival (e.g., food, clothing).

Public Goods

Goods that are non-excludable and non-rival (e.g., national defense).

Common Resources

Goods that are rival and non-excludable (e.g., fish in the ocean).

Club Goods

Goods that are excludable and non-rival (e.g., cable TV).

Free-Rider Problem

The issue where individuals benefit from a public good without paying for it.

Tragedy of the Commons

The overuse of a common resource due to individuals acting in their own self-interest.

Profits

The difference between total revenue and total cost.

Explicit Costs

Direct, out-of-pocket payments for inputs (e.g., wages, rent).

Implicit Costs

The opportunity cost of using the firm's own resources.

Accounting Profit

Total Revenue minus Explicit Costs.

Economic Profit

Total Revenue minus both Explicit and Implicit Costs.

Production Function

Shows the relationship between quantity of inputs used and quantity of output produced.

Marginal Product

The increase in output resulting from a one-unit increase in input.

Diminishing Marginal Product

A principle stating that as more of a variable input is added, the marginal product eventually declines.

Variable Costs

Costs that vary with the quantity of output produced (e.g., wages).

Fixed Costs

Costs that do not vary with the quantity of output produced (e.g., rent).

Average Variable Cost (AVC)

Variable Cost divided by Quantity of Output.

Average Fixed Cost (AFC)

Fixed Cost divided by Quantity of Output.

Marginal Cost (MC)

The increase in total cost from producing one more unit of output.

Economies of Scale

As output increases, the average cost of production decreases.

Diseconomies of Scale

As output increases, the average cost of production increases.

Price Taker

A firm that must accept the market price for its product.

Marginal Revenue (MR)

The change in total revenue from selling one more unit of output.

Demand Curve for Perfectly Competitive Firms

A horizontal curve at the market price, indicating perfect elasticity.

Profit Maximizing Rule

Firms should produce where Marginal Revenue equals Marginal Cost (MR = MC).

Sunk Costs

Costs that have already been incurred and cannot be recovered.

Monopoly

A market structure characterized by one seller, a unique product, and significant barriers to entry.

Price Maker

A firm that can influence the market price of its product.

Long Run Economic Profit

Monopolies can earn economic profit in the long run due to barriers to entry.