actual payments a firm makes to its factors of production and other suppliers
New cards
3
Accounting profit
difference between a firm's total revenue and its explicit costs
New cards
4
Implicit costs
opportunity costs of the resources supplied by the firm's owners
New cards
5
Economic profit = excess profit
difference between a firm's total revenue and the sum of its explicit and implicit costs
New cards
6
Normal profit
opportunity cost of the resources supplied by a firm's owners, equal to accounting profit minus economic profit
New cards
7
Rationing function of price
changes in prices distribute scarce goods to those consumers who value them most highly
New cards
8
Allocative function of price
changes in prices direct resources away from overcrowded markets and toward markets that are underserved
New cards
9
Invisible hand theory
Adam Smith's theory that the actions of independent, self-interested buyers and sellers will often result in the most efficient allocation of resources
New cards
10
Barrier to entry
any force that prevents firms from entering a new market
New cards
11
Economic rent
that part of the payment for a factor of production that exceeds the owner's reservation price, the price below which the owner would not supply the factor
New cards
12
Explicit costs
Actual payments a firm makes to its factors of production and other suppliers
New cards
13
Accounting profit
Difference between a firm's total revenue and its explicit costs
New cards
14
Implicit costs
Opportunity costs of the resources supplied by the firm's owners
New cards
15
Economic profit = excess profit
Difference between a firm's total revenue and the sum of its explicit and implicit costs
New cards
16
Normal profit
Opportunity cost of the resources supplied by a firm's owners, equal to accounting profit minus economic profit
New cards
17
Rationing function of price
Changes in prices distribute scarce goods to those consumers who value them most highly
New cards
18
Allocative function of price
Changes in prices direct resources away from overcrowded markets and toward markets that are underserved
New cards
19
Invisible hand theory
Adam Smith's theory that the actions of independent, self-interested buyers and sellers will often result in the most efficient allocation of resources
New cards
20
Barrier to entry
Any force that prevents firms from entering a new market
New cards
21
Economic rent
That part of the payment for a factor of production that exceeds the owner's reservation price, the price below which the owner would not supply the factor
New cards
22
Market in equilibrium
A market in equilibrium is one in which no additional opportunities for gain remain available to individual buyers or sellers
New cards
23
Efficient market or Pareto efficient
A market in equilibrium is said to be efficient (or Pareto efficient), meaning that no reallocation is possible that will benefit some people without harming others
Studied by 3 people
