Basic Economic Questions

marginal cost

The increase in cost that accompanies a unit increase in output; the partial derivative of the cost function with respect to output. Additional cost associated with producing one more unit of output

variable cost

A cost that changes with the change in volume of activity of an organization.

average total cost

Average cost or unit cost is equal to total cost divided by the number of goods produced (the output quantity, Q). It is also equal to the sum of average variable costs (total variable costs divided by Q) plus average fixed costs (total fixed costs divided by Q).

fixed cost

A cost of business which does not vary with output or sales; overheads.

capital

Already-produced durable goods available for use as a factor of production, such as steam shovels (equipment) and office buildings (structures).

labor

The workers used to manufacture the output.

input

Something fed into a process with the intention of it shaping or affecting the outputs of that process.

supply chain

a system of organizations, people, technology, activities, information, and resources involved in moving a product or service from supplier to customer

centrally planned economy

when the government is responsible for setting the amount produced

autonomy

self-government; freedom to act or function independently

market economy

an economy in which goods and services are exchanged in a free marker, as opposed to a state-controlled or socialist economy; a capitalistic economy

variable costs

those expenses that are directly ties to the production of more units; fixed costs are not included

opportunity costs

the cost of an opportunity forgone ; the cost equals the most valuable forgone alternative (the loss of the benefits that could be received from that opportunity)

average total cost

all expenses incurred to produce the product, including fixed costs and opportunity costs, divided by the number of the units of the good produced

economic profit

the firm's average total cost is less than the price of each additional product at the profit-maximizing output. The economic profit is equal to the quantity output multiplied by the difference between the average total cost and the price.

normal profit

the average total cost equals the price at the profit-maximizing output. In this case, the economic profit equals zero. In this scenario, the firm should produce of the product.

loss-minimizing condition

the firm's product price is between the average total cost and the average variable cost. The firm should still continue to produce because additional sales would offset a portion of fixed costs. If the manufacturer stopped production, it would sustain all the fixed costs as a loss.

shutdown

the price is below average variable cost at the profit-maximizing output. Production should be shutdown because every unit produced increases loss. The revenue gained from sales of these products do not offset variable and fixed costs. If it does not produce goods, the firm suffers a loss due to fixed costs, but it does not incur any variable costs.

production

this is the process that transforms the elements acquired from the prior step into the finished good. Economic actors involved in this step include product designers, assembly-line workers, and floor management.

inventory

once the good is completed, it is generally placed into a centralized inventory location while decisions are made by inventory managers and a firm's sales division.

Transportation

finished goods must be transported to stores and other locations where consumers can obtain the good. Depending on the type of business, goods may be transferred to smaller regional inventory depots, merchants, or directly to a consumer.

wholesaler

wholesaler is someone who sells a good to smaller stores, who in turn sells the good to consumers.

retailer

the retailer buys the product in bulk and sells individual or smaller groups of units to the end consumer.

assumption

the act of taking for granted, or supporting a thing without proof; a supposition; an unwarrantable claim

simplify

to make simpler, either by reducing in completely, reducing to component parts, or making easier to understand

different ways a government directly intervenes in an economy

1. granting a business a monopoly
2. granting a subsidy to a sector
3. creating and enforcing regulation
4. direct participation in the market
5. providing money and other resources segments of its populations

what are individuals in mixed economies able to do

1. participate in managerial decisions
2. travel
3. buy and sell items privately
4. hire and fire employees
5. organize organizations
6. communicate
7. protest peacefully

economic assumptions

1. People have rational preferences among outcomes that can be identified and associated with a value.
2. Individuals maximize utility (as consumers) and firms maximize profit (as producers).
3. People act independently on the basis of full and relevant information.

normative economics

economic thought in which one applies moral beliefs or judgement, claiming that an outcome is “good” or “bad”

positive economics

the description and explanation of economic phenomena and their casual relationships

deflation

a decrease in the general price level

macroeconomics

 The study of the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets

inflation

an increase in the general level of prices or in the cost of living

microeconomics

That field that deals with the small-scale activities such as that of the individual or company.

Scarcity

 an inadequate amount of something; a shortage

Price

The quantity of payment or compensation given by one party to another in return for goods or services.

Welfare

Health, safety, happiness and prosperity; well-being in any respect

commodity

Raw materials, agricultural and other primary products as objects of large-scale trading in specialized exchanges.

marginal

Of, relating to, or located at or near a margin or edge; also figurative usages of location and margin (edge).

expanditure

Act of expending or paying out.

Factors of production

In economics, factors of production are inputs. They may also refer specifically to the primary factors, which are stocks including land, labor, and capital goods applied to production.