ECF1100 key terms

absolute advantage

the ability to produce a good using fewer inputs than another producer

club goods

goods that are excludable but not rival in consumption

coase theorem

the proposition that if private parties can bargain over the allocation of resources at no cost, they can solve the problem of externalities on their own

common resources

goods that are rival in consumption but not excludable

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

competitve market

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

complements

two goods for which a decrease in the price of one good leads to an increase in the demand for the other good (e.g. software and computer)

consumer surplus

a buyer’s willingness to pay minus the amount the buyer actually pays

cross-price elasticity of demand

a measure of how much the quantity demanded of one good responds to a change in the price of another good

deadweight loss

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

demand curve

graph

demand schedule

a table

diminishing marginal product

the property whereby the marginal product of an input declines as the quantity of the input increases

diseconomies of scale

the property whereby long-run average total cost rises as the quantity of output increases

economies of scale

the property whereby long-run average total cost falls as the quantity of output increases

elasticity

a measure of responsiveness of quantity demanded or quantity supplied to one of its determinants

excludability

the property of a good whereby a person can be prevented from using it

externality

the uncompensated impact of a person’s actions on the wellbeing of a bystander. positive=better off negative=worse off

game theory

the study of how people behave in strategic situations

inferior good

a good for which, other things being equal, an increase in income leads to a decrease in quantity demanded

law of demand

the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

law of supply

the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises

marginal cost

the increase in total cost that arises from an extra unit of production

marginal product

an increase in output that arises from an additional unit of input

market failure

a situation in which a market left on its own fails to allocate resources efficiently

monopolistic competition

a market structure in which many firms sell products that are similar but not identical

monopoly

a firm that is the sole seller of a product without close substitutes

nash equilibrium

a situation in which economic actors interacting with another each choose their best strategy given the strategies that all other actors have chosen

normal good

a good for which, other things being equal, an increase in income leads to an increase quantity demanded

oligopoly

a market structure in which only a few sellers offer similar or identical products

price elasticity of demand

a measure of how much the quanity demanded of a good responds to a change in the price of that good

price elasticity of supply

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

private goods

goods that are both excludable and rival in consumption

producer surplus

the amount a seller is paid for a good minus the seller’s cost

productivity

the quanity of goods and services procuced from each hour of a worker’s time

public goods

goods that are neither excludable not rival in consumption

rivalry in consumption

the property of a good whereby one person’s use diminishes other people’ use

shortage

a situation in which quantity demanded is greater than quantity supplied

short run

a period of time during which at lease one factor of production is fixed

substitutes

two goods for which a decrease in the price of one good leads to a decrease in the demand for the other good

tarrif

a tax on goods produced abroad and sold domestically

willingness to pay

the maximum amount that a buyer will pay for a good

world price

the price of a good that prevails in the world market for that good

long run

the period of time needed for all factors of production to become variable

explicit cost

input costs that require an outlay of money by the firm

economic profit

total revenue minus total cost including implicit and explicit costs

accounting profit

total revenue minus explicit cost

implicit costs

input costs that do not require an outlay of money by the firm

productive efficiency

Output produced at a minimum average cost

allocative efficiency

output is produced where marginal cost is equal to the marginal benefit to society