Midcourse Econ

demand

the want or willingness to buy a good or service

substitution effect

as prices rise, consumers may switch to cheaper substitutes

income effect

higher prices reduce the purchasing power of consumers

diminishing marginal utility

satisfaction of each unit of good decreases as consumers buy more of a good

supply

willingness and ability of firms to make a product available to consumers

competitive supply

situation where increased output of one limits output of an alternative

marginal cost

cost of producing one additional unit of output

law of diminishing marginal returns

theory that after an optimal level of capacity if reached, adding additional FoP results in smaller increases in output

price mechanism

prices act as a signal for where resources should be allocated to

rationing function

role of price mechanism that decreases demand for scarce goods due to high prices, preserving reserves

consumer surplus

difference between price consumers are willing and able to pay, and the price they actually pay

producer surplus

difference between the price producers are willing and able to supply for and the price they actually recieve

social surplus

sum of consumer and producer surplus

allocative efficiency

P = MC = MB

equilibrium

allocative efficiency, surplus maximised

imperfect information

when inaccurate, incomplete or unreliable information is presented

profit satisficing

when firms accept a level profit as satisfactory rather than striving for absolute maximum

profit maximisation

MC = MR

PED

responsiveness of quantity demanded of a good to a change in price

primary commodity

raw materials/natural resources

commodity

undifferentiated goods

YED

responsiveness of demand following a change in income

market segmentation

strategy of dividing a large target market into smaller audiences

normal goods

goods for which demand increases when income increases

inferior good

goods for which demand falls when income increases

luxury good

type of normal good where demand increases proportionately more as income rises

real income

pre-tax income adjusted for inflation

giffen good

core necessity

PES

responsiveness of quantity supplied of product due to a change in price

direct provision

gov produces or supplies the good itself

command and control

state uses laws, regulations or direct mandates to influence and restrict economic behaviour

consumer nudges

subtle policy tool used to influence people's behaviour without restricting their choices

price floor

legally binding minimum price

price ceiling

legally binding max price

indirect tax

tax imposed on suppliers

specific tax

fixed amount per unit

ad valorem tax

% tax

subsidies

financial payment or tax reduction provided by the government to reduce the cost of producing or consuming a good

market failure

when the free market does not allocate resources efficiently

merit good

goods that are socially desirable with positive externalities, private and social benefits

demerit good

socially harmful good, negative externalities and private harms

common pool resources

rivalrous resources that are non-excludable

pigouvian tax

tax on markets with negative externalities

international agreements

reaties or frameworks between countries that aim to collectively manage and protect global common resources

collective self-governance

communities/industries manage resources through agreed rules

tradable permits

cap and trade - limit about + firms trade shares of quota

public good

non rivalrous and non excludable

quasi

almost

free rider

individuals benefit from a good or service without paying for it

tragedy of the commons

individuals acting in their own self-interest deplete a shared, finite resource

asymmetric information

when one economic agent has more information than the other in an economic transition

adverse selection

imperfect information creates power imbalance and distorts consumption, leading to suboptimal choices

moral hazard

one party is protected from risks and takes more risks as potential costs are not imposed on them

principal

person who bears burden of the risk, responsible party

dynamic efficiency

producing at a point that allows for innovation + profits + investment

shutdown rule

when price of production is less that average variable cost, the firm leaves the market

normal profit

a rate of return that is necessary to stay in the market, must cover opportunity cost

injections

I + G + X

withdrawals

S + T + M

national income

value of goods and services produced / year

GDP

C + I + G + (X-M)

GNI

GDP + net factor income from abroad

net factor income

interest, profit, wage, dividend

real gdp

nominal gdp / gdp deflator

gdp deflator

1 + inflation decimal

recession

two or more consecutive quaters of negative economic growth

inflationary gap

when output is beyond the point of full employment

deflationary gap

actual output is below full employment

natural rate of unemployment

level of u/e at Yf

Yf

full employment

monetarist

self correcting, straight LRAS

keynsian

not self correcting, intervention, curved LRAS

stagflation

high inflation, high unemployment, negative economic growth

trend growth

level of growth with no inflation or deflation

general purpose technology

technology that can apply to multiple applications, a foundational innovation

economic growth

increase in GDP over time

unemployment

people of working age who are without work, available for work and actively seeking employment

underemployment

individuals that have jobs, but wish to work more hours or in a more skilled job

economically inactive

those who are not working and unwilling

hyperflation

rate of inflation where some functions of money ceases to occur

increase demand for labour

increase wages!

nru

seasonal + frictional

cyclical ue

demand deficient, during recession

structural ue

when structure of economy changes

seasonal ue

ue caused by seasonal labour

frictional

when workers switch between jobs

technological ue

job loss caused by innovation, automation or new production process

real wage ue

when inflation adjusted wages are above eq, causing reduction in demand of labour