Unit 1 Defninitions

Chapter 20

1. Marginal Utility – The additional satisfaction received from the consumption of an additional unit of a good.

2. Normal Good – A product that has a positive income elasticity coefficient.

3. Inferior Good – A product that has a negative income elasticity coefficient.

Chapter 21

4. Residual Claimant – An individual who personally receives the excess, if any, of revenues over costs in a business endeavor.

5. Proprietorship – A business firm owned by an individual who possesses the ownership rights to the firm’s profits and is personally liable for the firm’s debts.

6. Partnership – A business firm owned by two or more individuals who possess ownership rights to the firm’s profits and are personally liable for the debts of the firm.

7. Corporation – An “artificial person” created by law whose shareholders possess ownership rights to the firm’s profits, and have limited liability.

8. Explicit Costs – Monetary payments by a firm, usually to purchase the services of productive resources.

9. Implicit Costs – The opportunity costs associated with a firm’s use of the resources that it owns.

10. Fixed Costs – Expenses incurred by a firm that do not change with output.

11. Variable Costs – Expenses incurred by a firm that rise as output is increased, but fall as output is decreased.

12. Marginal Cost – The change in total cost that is required to produce an additional unit of output.

13. Marginal Product – The change in total product that results from a unit increase in the employment of a variable input.

14. Economies of Scale – Reductions in the firm’s per-unit costs that are associated with the use of large plants to produce a large volume of output.

15. Sunk Costs – Expenses that have already been incurred as a result of past decisions, and can’t be recovered any longer.

Special Topic Three

16. Portfolio - All the stock, bonds, or other securities held by an individual or corporation for investment purposes.

17. Stock Option - The right to buy a specified number of shares in a corporation at a designated price.

Chapter 22 

18. Price Takers – Sellers who must accept the market price in order to sell their product because their output is small relative to the total market.

19. Price Searchers – Sellers that face a downward sloping demand curve for their product; the amount they are able to sell varies inversely with the price that they charge.

20. Marginal Revenue – The change in total revenue that results from the sale of an additional unit of a product.

Chapter 23

21. Differentiated Products – Goods or services that can be distinguished from other goods and services by such characteristics as quality, design, location, or method of production.

22. Contestable Market – A market in which the costs of entry and exit are low, firms risk little by entering, and zero economic profits are the ultimate result.

23. Price Discrimination (Differential Pricing) – A practice whereby a seller charges different consumers different prices for the same (basic) good or service.