Sellers and Incentives

A collection of flashcards to help understand key terms and concepts related to sellers and incentives in economics.

Perfectly Competitive Market

A market where no buyer or seller has the power to influence the market price, characterized by identical goods and free entry and exit.

Homogenous Goods

Goods that are identical in quality, making it impossible for sellers to influence the market price.

Price Taker

A seller that must accept the market price as given and cannot charge a higher price due to competition.

Marginal Product

The change in total output associated with using one more unit of input.

Short Run

A period when at least one of the firm’s inputs cannot be changed, affecting production capabilities.

Long Run

A period when all of the firm’s inputs can be changed, allowing for complete adaptation in production.

Variable Factor of Production

Inputs that can change in the short term, impacting the level of output.

Fixed Factor of Production

Inputs that remain unchanged in the short run regardless of the output level.

Total Revenue

The total income a firm earns from selling its product, calculated as price multiplied by quantity sold.

Economic Profit

Total revenue minus total costs, including both explicit and implicit costs.

Opportunity Costs

The cost of forgoing the next best alternative when making a decision.

Average Total Cost (ATC)

Total cost divided by the number of units produced.

Producer Surplus

The difference between the amount producers are willing to accept for a good versus what they actually receive.

Elastic Supply

A situation where the quantity supplied is very responsive to price changes (elasticity greater than 1).

Inelastic Supply

A situation where changes in price result in smaller changes in quantity supplied (elasticity less than 1).

Shutdown Point

The price level at which a firm's revenue cannot cover its variable costs, leading to temporary cessation of production.

Profits Maximation Rule

A firm maximizes its profits by producing up to the point where marginal revenue equals marginal cost.

Economies of Scale

The cost advantages that firms obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Diminishing Returns

The reduction in the incremental output or benefit gained from an additional unit of input, occurring at some point in the production process.

Free Entry and Exit

The absence of barriers that allows firms to enter or exit an industry freely, affecting overall supply and price equilibrium.