Unit 1 Defninitions

Marginal Utility

The additional satisfaction received from the consumption of an additional unit of a good.

Normal Good

A product that has a positive income elasticity coefficient.

Inferior Good

A product that has a negative income elasticity coefficient.

Residual Claimant

An individual who personally receives the excess, if any, of revenues over costs in a business endeavor.

Proprietorship

A business firm owned by an individual who possesses the ownership rights to the firm’s profits and is personally liable for the firm’s debts.

Partnership

A business firm owned by two or more individuals who possess ownership rights to the firm’s profits and are personally liable for the debts of the firm.

Corporation

An 'artificial person' created by law whose shareholders possess ownership rights to the firm’s profits and have limited liability.

Explicit Costs

Monetary payments by a firm, usually to purchase the services of productive resources.

Implicit Costs

The opportunity costs associated with a firm’s use of the resources that it owns.

Fixed Costs

Expenses incurred by a firm that do not change with output.

Variable Costs

Expenses incurred by a firm that rise as output is increased, but fall as output is decreased.

Marginal Cost

The change in total cost that is required to produce an additional unit of output.

Marginal Product

The change in total product that results from a unit increase in the employment of a variable input.

Economies of Scale

Reductions in the firm’s per-unit costs that are associated with the use of large plants to produce a large volume of output.

Sunk Costs

Expenses that have already been incurred as a result of past decisions, and can’t be recovered any longer.

Portfolio

All the stock, bonds, or other securities held by an individual or corporation for investment purposes.

Stock Option

The right to buy a specified number of shares in a corporation at a designated price.

Price Takers

Sellers who must accept the market price in order to sell their product because their output is small relative to the total market.

Price Searchers

Sellers that face a downward sloping demand curve for their product; the amount they are able to sell varies inversely with the price that they charge.

Marginal Revenue

The change in total revenue that results from the sale of an additional unit of a product.

Differentiated Products

Goods or services that can be distinguished from other goods and services by such characteristics as quality, design, location, or method of production.

Contestable Market

A market in which the costs of entry and exit are low, firms risk little by entering, and zero economic profits are the ultimate result.

Price Discrimination (Differential Pricing)

A practice whereby a seller charges different consumers different prices for the same (basic) good or service.