ECON 201 Final (copy)

Scarce resource

A resource that is limited in availability compared to the demand for it, such as clean air in certain contexts.

Factors of production

The three main components of production: land, labor, and capital.

Positive economic analysis

Answers questions about what is, concerning economic phenomena and relationships.

Normative economic analysis

Addresses questions about what ought to be, involving value judgments.

Positive relationships

Relationships where variables move in the same direction, unlike inverse relationships.

Opportunity cost

The value of the next best alternative forgone when making a decision.

Explicit costs

Direct, out-of-pocket expenses incurred in a decision-making process.

Implicit costs

Indirect costs representing foregone opportunities or benefits.

Marginal cost

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

Marginal benefit

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

Diminishing returns

A principle stating that as more units of a variable input are added to a fixed input, the additional output generated will eventually decrease.

Real-nominal principle

The distinction between nominal values that do not adjust for inflation and real values that have been adjusted.

Consumer surplus

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

Producer surplus

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

Price ceiling

A maximum price set by the government that is below equilibrium price, to be effective.

Deadweight loss

The loss of economic efficiency when equilibrium for a good or service is not achieved.

Internalizing an externality

The process of accounting for external costs or benefits in market transactions.

Pollution tax

A financial charge applied to companies for the environmental damage they cause.

Public good

A good that is non-excludable and non-rivalrous in consumption.

Economic cost

The total costs of using a factor of production, including both explicit and implicit costs.

Accounting cost

Costs that include only the explicit costs of production.

Marginal revenue

The additional income gained from selling one more unit of a good.

Short-run

A period in which at least one input is fixed, and firms can only change variable inputs.

Long-run

A timeframe in which all inputs can be varied and adjusted.

Elasticity of demand

A measure of how quantity demanded changes in response to price changes.

Cross-price elasticity

A measure of how the quantity demanded of one good responds to a price change of another good.

Network externality

A situation where the value of a product increases as more people use it.

Diseconomies of scale

The increase in average costs as a company grows larger and becomes less efficient.

Market power

The ability of a firm to influence the price of the product it sells.

Patent

Exclusive rights granted to an inventor to use, sell, or produce a product for a certain period.