Academic Decathlon Economics

Scarcity

an inescapable fact of human existence that results from the fact that the available resources are always less than our limitless desires

Opportunity Cost

the cost of any choice is what must be given up by making that choice

Rationality

when individual choices are made by comparing the benefits and costs of different actions and then selecting the action that produces the greatest benefit

Positive Economics

the use of the tools of economic analysis to describe and explain economic phenomena and to make predictions about what will happen under particular circumstances

Consumption

spending by households on goods and services, with the exception of the purchase of new housing

Normative Economics

economic analysis used to guide decisions about what should be as opposed to what is the case

Pareto Efficiency

describes an allocation in which the only way to make any individual or group of individuals better off would require making at least one other person worse off

Microeconomics

the interaction of supply and demand in markets

Market

comprised of all buyers and sellers of a particular good or service

Demand

the quantity of goods that buyers will take at a particular price

Law of Demand

the negative relationship between a good's price and the quantity demanded

Demand Curve

a graphical representation of the quantity of a good or service demanded as a function of the price

Normal Good

a good or service for which demand is positively relative to the buyer's income

Inferior Good

a good for which the quantity demanded falls as buyers' income increases

Substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

Complements

two goods for which a rise in the price of one leads to a decline in the demand for the other

Supply

the quantity of a commodity that is in the market and available for purchase or that is available for purchase at a particular price

Law of Supply

the quantity supplied is positively related to the price; the higher the price is, the number of suppliers that want to produce increases

Supply Curve

a graphical representation of the quantity of a good or service supplied as a function of the price

Equilibrium

a situation in which the forces in a system are in balance so that the situation is stable and changing

Competitive Market

a market with many buyers and sellers trading a homogeneous good or service in which each buyer and seller is a price taker

Consumer Surplus

the difference between the amount that a buyer would be willing to pay for a good or service and the price actually paid

Producer Surplus

the difference between the price that producers receive for supplying a good and their marginal cost of producing it

Elasticity

the percentage change in quantity demanded or supplied as a result of a 1% change in price

Total Revenue

the total revenue received by a supplier

Deadweight Loss

the reduction in total surplus that results from a market distortion such as a tax

Gains from Trade

the benefits that both individuals or nations realize from mutuality beneficial exchange

Production Possibility Frontier (PPF)

a graphical depiction of the combinations of output that can be produced by an economy

Comparative Advantage

the ability to produce a good or service at a lower opportunity cost than other producers

Economic Profit

the difference between the revenue realized by a producer and the opportunity cost of production

Fixed Cost

a cost of production that is independent of the quantity produced

Variable Cost

a cost of production that depends on the quantity produced

Marginal Cost

the additional cost of production associated with a small increase in the quantity produced

Diminishing Returns to Scale

the property whereby each additional increase in inputs results in a smaller increase in the quantity produced

Marginal Revenue

the additional revenue resulting from a small increase in the quantity produced

Market Power

the situation in which a producer knows that changes in the quantity produced will alter the price at which the good or service can be sold

Monopoly

a market in which there's a single producer

Barriers to Entry

conditions that prevent firms from freely entering or exiting a market

Price Discrimination

when a business sells the same product to different buyers at different prices

Oligopoly

a market in which there are just a few producers

Cartel

an agreement between suppliers to restrict production and raise prices

Imperfect Competiton

the case of a market with a small number of sellers, so that sellers have market power

Monopolistic Competition

a market in which there is free entry or exit, but every producer supplies a differentiated product and faces a downward sloping demand curve

Entrepreneur

an individual who takes on the risk of attempting to create new products or services, establish new markets, or develop new methods of production

Market Failures

conditions in which a competitive market fails to produce a socially efficient outcome

Externality

when the action of one person affects the well-being of someone else, but where neither party pays nor is paid for these effects

Public Good

A good or service for which it is not possible to establish individual property rights

Coase Theorem

the proposition that if private parties can bargain without cost over the allocation of resources, then they can solve the problem of externalities on their own

Tragedy of the Commons

the depletion of a common resource due to overuse

Rival Goods

goods or services characterized by the fact that one's person's enjoyment of the good or service reduces the quantity available for others' enjoyment

Excludability

the ability to prevent buyers from enjoying the benefits of consuming a good or service without paying for it

Private Goods

characterized by a high degree in rivalry in consumption and a high degree of excludability
ex. pizza, gasoline, & haircuts

Common Resources

characterized by a high degree in rivalry in consumption, but a low degree of excludability
ex. fish in the ocean, city streets, & the environment

Collective Goods

low degree of rivalry but a high degree of excludability
ex. Websites, satellite radio, & pay-per-view TV

Public Goods

combines non-rivalry in consumption with non-excludability
ex. radio broadcasts, tornado sirens, & national defense

Institutions

formal and informal rules that structure human interactions

Logrolling

the practice of elected officials trading votes

Rent Seeking

using political influence to increase one's economic profits at the expense of others

Macroeconomics

deals with the broad and general aspects of an economy, such as the relationship between the income and investments of a country as a whole; concerned with performance of national economies

Unemployment Rate

the number of unemployed workers as a fraction of the total labor force

Inflation

a general increase in prices

Unemployment

the state of actively seeking paid work but being unable to find it

Gross Domestic Product (GDP)

the market value of final goods and services produced in an economy during a specified period of time

Per Capita

literally per head, used to denote an average value for a population

Average Labor Productivity

total output divided by the quantity of labor employed in its production

Expansions

periods of rapid growth of output
ex. World War 2

Recessions

periods of slow growth or decline in output
ex. Great Depression

Great Depression

Most severe episode of economic decline observed to date; the economic crisis and period of low business activity in the U.S. and other countries, roughly beginning with the stock-market crash in October, 1929, and continuing through most of the 1930s.

Depression

a severe recession

Business Cycle

fluctuations in aggregate economic activity; alternation of periods of expansion & recession

Trade Surplus

when exports exceed imports

Trade Deficit

when exports are less than imports

Aggregation

combination of many different things into a single economic varable

Final Goods

goods or services that are purchased by their ultimate user

Intermediate Goods

goods or services that are used in the process of producing the final good

Capital Goods

long-lived goods that are themselves produced and are used to produce other goods and services, but aren't used up in the production process

Labor Force

sum of employed and unemployed individuals

Investment

spending on capital equipment, inventories, and structures, including household purchases of new housing

3 Categories of Investment

1) Business fixed investment
2) Residential fixed investment
3) Inventories

Business fixed investment

business purchases of factories, offices, machinery, and equipment

Residential fixed investment

purchase of new homes and apartment buildings

Inventories

consists of additions of unsold goods to company inventories

Government Purchases

spending on goods and services by federal, state, and local governments

Net Exports

difference between value of domestically produced goods sold to foreigners (exports) and value of foreign-produced goods purchased by domestic buyers

Real GDP

production of goods and services valued at constant prices

Nominal GDP

production of goods and services valued at current prices

Consumer Price Index (CPI)

an index constructed by comparing the cost of purchasing a fixed basket of goods at different time; measures the cost of purchasing a market basket of goods and services intended to be representative of the consumption of a typical consumer

Employed

if the person worked for pay either full or part time during the previous week/is on vacation/sick leave from a regular job

Unemployed

if the person didn't work for the previous week but made some effort to find paid employment during the past 4 weeks

Out of Labor Force

if the person didn't work for the past week and didn't actively seek work during the previous four weeks

Labor Force Participation Rate

the ratio of the working-age population to those in the labor force

Frictional Unemployment

unemployment that results because it takes time for workers to search for jobs that are best suited to their tastes and skills

Structural Unemployment

unemployment that results from the mismatch in skills, locations, or other characteristics between job seekers and the available jobs

Cyclical Unemployment

unemployment caused by deviations of output from its potential level

Physical Capital

modern manufacturing methods rely on the use of large quantities of capital per worker to achieve high levels of production

Human Capital

skills and experience that are acquired through education, training, and on the job experience that increase a worker's productivity

Natural Resources

contribute to the wealth of their citizens

Wealth

the total value of assets used as a store of value

Financial Markets

the institutions through which individuals with savings can supply these funds to persons of firms that wish to borrow money to purchase consumption goods or invest in physical capital

Bond

a certificate of indebtedness that specifies the obligations of the borrower to the holder of the bond; like an IOU