Econ Final Study Guide

Long Run Average Cost Curve

The lowest average cost of producing every level of output in the long run.

Network Externality

Occurs when the value of a product or service increases for users as more people use it.

Endowment Effect

The tendency of people to overvalue their possessions simply because they own them.

Explicit Cost

Actual cash outflows or payments made by a business, such as wages, rent, and utilities.

Implicit Cost

Forgone benefits or earnings associated with the use of resources in a particular manner.

Explicit Cost vs Direct Cost

Explicit Cost focuses on direct monetary payments, whereas Direct Cost emphasizes cost specificity tied to a particular product.

Variable Cost

Costs that change in proportion to the level of production or business activity.

Fixed Cost

Expenses that do not vary with the level of production within a certain range.

Average Variable Cost

Represents the variable cost per unit of output in the short run.

Perfect Competition

Market structure where many sellers sell identical products and none have influence over the market price.

Monopolistic Competition

Market structure with many sellers offering differentiated products and some control over prices.

Allocative Efficiency

Situation where resources are allocated to maximize overall societal satisfaction or welfare.

Productive Efficiency

State where a firm produces goods at the lowest possible cost.

Patent

Gives a firm the exclusive right to a new product for a period of 20 years.

Collusion

A secret or explicit agreement between firms to cooperate rather than compete.

Cartel

A formal agreement among firms to coordinate actions and reduce competition.

Economies of Scale

As production increases, the average cost per unit decreases.

Transaction Costs

Costs incurred in the process of agreeing to and carrying out an exchange of goods or services.

Price Discrimination

The practice of charging different prices for the same good or service to different customers.

Marginal Tax Rate

Rate at which an additional dollar of income would be taxed.

Average Tax Rate

Overall percentage of income that is paid in taxes.

Progressive Tax System

Tax system where the marginal tax rate increases with higher income levels.

Regressive Tax

Tax where the tax rate decreases as income increases.

Benefits Received Principle

Those who benefit more from services should bear a higher share of the tax burden.

GDP (Gross Domestic Product)

Total monetary value of all finished goods and services produced within a country's borders.

Gross National Product vs Gross Domestic Product

GNP measures total value produced by residents, while GDP measures total value produced within a country's borders.

Cyclical Unemployment

Unemployment resulting from changes to the economy's business cycle.

Consumer Price Index (CPI)

Measures the average change in prices of a good or service over time.

Substitution Bias

Distortion in measuring inflation when consumers substitute goods based on relative price changes.

Inflation

General increase in price levels of goods and services over time.

Nominal Interest Rate

Stated rate of interest on a loan or investment.

Real Interest Rate

Nominal interest rate adjusted for inflation.

Microeconomics vs Macroeconomics

Microeconomics focuses on individuals and businesses, while macroeconomics deals with government actions and economies.

Aggregate Demand

Total quantity of goods and services that all sectors are willing to purchase at a given price level.

Aggregate Supply

Total quantity of goods and services that producers are willing to supply at a given price level.

Money

Assets that people are willing to accept in exchange for goods and services.

Four Functions of Money

Medium of exchange, unit of account, store of value, and standard of deferred payment.

Bank Run

Situation where many depositors withdraw money from a bank simultaneously.

Money Supply (M1, M2)

M1 includes liquid forms of money, while M2 includes M1 plus savings and time deposits.

Fiscal Policy

Government spending and tax policies used to influence economic conditions.

Long Run Economic Growth

Sustained increase in production of goods and services within an economy over time.

Law of Diminishing Returns

In the short run, adding more variable factors to fixed factors will yield initially high returns, which eventually decrease.

Marginal Product

The additional output generated by adding one more unit of a factor of production.

Globalization

Process of countries becoming more open to foreign trade.

Disposable Income

Amount available for spending and saving after taxes.

Marginal Propensity to Consume

The amount by which consumption spending changes when disposable income changes.

Aggregate Expenditure

Total spending in the economy, including consumption, investment, government purchases, and net exports.

Macroeconomic Equilibrium

When aggregate expenditure equals the level of GDP.

Negative Supply Shock

An unexpected event causing a sudden decrease in the supply of goods and services.