ECON 102 Final CWRU

Opportunity Cost

The value of the next best alternative foregone when making a choice.

Budget Constraint

A limitation on the consumption choices of individuals or households due to limited income.

Production Possibility Frontier (PPF)

A curve that shows the maximum feasible amount of two goods that can be produced with available resources.

Marginal Cost

The additional cost incurred from producing one more unit of a good or service.

Marginal Benefit

The additional benefit received from consuming one more unit of a good or service.

Demand/Supply Analysis

An examination of how demand and supply determine prices and quantities in a market.

Shortage

A situation where demand exceeds supply at a given price.

Surplus

A situation where supply exceeds demand at a given price.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in price.

Income Elasticity of Demand

A measure of how much the quantity demanded of a good changes as consumer income changes.

Cross-Price Elasticity of Demand

Measures the responsiveness of the quantity demanded of one good to a change in the price of another good.

Price Elasticity of Supply

A measure of how much the quantity supplied of a good responds to a change in price.

Price Ceiling

A maximum price set by the government for a good or service.

Price Floor

A minimum price set by the government for a good or service.

Quantity Controls

Restrictions on the quantity of a good that can be bought or sold in the market.

Taxes

Mandatory financial charges imposed by the government on individuals or businesses.

Subsidies

Financial assistance granted by the government to support a business or economic sector.

Consumer Surplus (CS)

The difference between what consumers are willing to pay for a good and what they actually pay.

Producer Surplus (PS)

The difference between what producers are willing to sell a good for and the price they actually receive.

Deadweight Loss (DWL)

The loss of economic efficiency that occurs when the equilibrium outcome is unattainable or unachievable.

Comparative Advantage

The ability of an individual or group to carry out a particular economic activity more efficiently than another activity.

Absolute Advantage

The ability of an individual or group to carry out a particular economic activity better than another individual or group.

Negative Externalities

Costs that are suffered by a third party as a result of an economic transaction.

Positive Externalities

Benefits that are enjoyed by a third party as a result of an economic transaction.

Rational Rule for Buyers

Buy more of a good if the marginal benefit exceeds the marginal cost.

Rational Rule for Sellers

Produce more of a good if the marginal cost is less than the marginal benefit.

Rational Rule for Markets

In a competitive market, resources will be allocated efficiently.

Coase Theorem

The proposition that if property rights are well-defined and transaction costs are low, parties can negotiate solutions to externalities.

Public Goods

Goods that are non-excludable and non-rivalrous in consumption.

Common Resources

Resources that are non-excludable but rivalrous, leading to potential overuse.

Tragedy of the Commons

A situation where individuals acting independently according to their own self-interest deplete a shared resource.

Accounting Profit

Total revenue minus explicit costs.

Economic Profit

Total revenue minus both explicit and implicit costs.

Long Run

A period in which all factors of production and costs are variable.

Short Run

A period in which at least one factor of production is fixed.

Perfect Competition

A market structure characterized by a large number of firms, identical products, and free entry and exit.

Imperfect Competition

Market structures where firms have some control over pricing, unlike in perfect competition.

Monopoly graph

A graphical representation of a market structure where a single seller dominates.

Monopoly welfare (CS, PS, DWL)

Analyzes the impacts of monopolies on consumer surplus, producer surplus, and deadweight loss.

Entry and Exit Decisions in the Long Run

Decisions made by firms about entering or leaving an industry based on long-term profitability.

Long Run Equilibrium

A market condition where firms earn zero economic profits.

Barriers to Entry

Obstacles that prevent new competitors from easily entering an industry.

Market Structures

Different ways in which firms relate to one another in terms of competition and market power.

Game Theory

A mathematical framework for modeling scenarios where decisions are made by multiple players.

Prisoner's Dilemma

A situation in which two individuals acting in their own self-interest do not produce the optimal outcome.