Econ Final Exam Review

Incentives

Factors that influence our actions in predictable ways and can lead to unintended consequences.

Trade-offs

The entire set of alternative actions that we might have taken.

Opportunity Cost

The highest valued alternative that must be given up to engage in an activity.

Marginal Thinking

Considering whether the additional benefit outweighs the additional cost to determine the optimal amount of an activity.

Trade

Creates value and depends on specialization and comparative advantage.

Ceteris Paribus

A condition that holds all other variables constant while examining the effect of one variable.

Endogenous Factors

Variables inside the model used for economic analysis.

Exogenous Factors

Variables outside of the model that can affect outcomes.

Production Possibilities Frontier (PPF)

A curve showing the maximum amount of two products that can be produced from a fixed number of resources.

Comparative Advantage

The ability of an entity to produce a good at a lower opportunity cost than others.

Law of Demand

States there is an inverse relationship between price and the quantity demanded.

Market Equilibrium

Occurs when quantity demanded equals quantity supplied.

Surplus

When quantity supplied is greater than quantity demanded at a given price.

Shortage

When quantity demanded is greater than quantity supplied at a given price.

Price Ceiling

A legally imposed maximum price for a good.

Price Floor

A legally imposed minimum price for a good.

Externalities

When social costs or benefits differ from private costs or benefits, creating a third-party problem.

Deadweight Loss

The decline in economic activity that results from a tax.

Coase Theorem

States that externalities will be internalized if there are no transaction costs.

Private Goods

Goods that are excludable and rival in consumption.

Public Goods

Goods that are not excludable and not rival in consumption.

Accounting Profit

Total revenue minus explicit costs of business.

Economic Profit

Total revenue minus both explicit and implicit costs of doing business.

Sunk Costs

Costs that have already been incurred and cannot be recovered.

Monopoly

A market structure characterized by one seller, many buyers, and a lack of substitutes.

Monopsony

A market with only one buyer.

Elasticity

A measure of how much quantity demanded or supplied changes in response to a change in price.

Consumer Goods

Goods produced for personal satisfaction.

Capital Goods

Goods used to produce other goods.