Econ Final Study Guide

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49 Terms

1

Long Run Average Cost Curve

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

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2

Network Externality

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

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3

Endowment Effect

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

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4

Explicit Cost

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

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5

Implicit Cost

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

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6

Explicit Cost vs Direct Cost

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

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7

Variable Cost

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

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8

Fixed Cost

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

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9

Average Variable Cost

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

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10

Perfect Competition

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

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11

Monopolistic Competition

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

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12

Allocative Efficiency

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

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13

Productive Efficiency

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

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14

Patent

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

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15

Collusion

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

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16

Cartel

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

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17

Economies of Scale

As production increases, the average cost per unit decreases.

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18

Transaction Costs

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

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19

Price Discrimination

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

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20

Marginal Tax Rate

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

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21

Average Tax Rate

Overall percentage of income that is paid in taxes.

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22

Progressive Tax System

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

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23

Regressive Tax

Tax where the tax rate decreases as income increases.

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24

Benefits Received Principle

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

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25

GDP (Gross Domestic Product)

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

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26

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.

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27

Cyclical Unemployment

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

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28

Consumer Price Index (CPI)

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

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29

Substitution Bias

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

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30

Inflation

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

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31

Nominal Interest Rate

Stated rate of interest on a loan or investment.

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32

Real Interest Rate

Nominal interest rate adjusted for inflation.

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33

Microeconomics vs Macroeconomics

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

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34

Aggregate Demand

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

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35

Aggregate Supply

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

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36

Money

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

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37

Four Functions of Money

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

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38

Bank Run

Situation where many depositors withdraw money from a bank simultaneously.

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39

Money Supply (M1, M2)

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

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40

Fiscal Policy

Government spending and tax policies used to influence economic conditions.

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41

Long Run Economic Growth

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

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42

Law of Diminishing Returns

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

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43

Marginal Product

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

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44

Globalization

Process of countries becoming more open to foreign trade.

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45

Disposable Income

Amount available for spending and saving after taxes.

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46

Marginal Propensity to Consume

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

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47

Aggregate Expenditure

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

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48

Macroeconomic Equilibrium

When aggregate expenditure equals the level of GDP.

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49

Negative Supply Shock

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

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