Chapter 9-11

  • Tariff= a tax imposed by a government on imports into a country 

  • Imports= goods & services purchased domestically that are produced in other countries

  • Exports= goods & services produced domestically and sold in other countries  

  • comparative advantage= the ability of an individual, a firm, or a country to produce a good or service at lower opportunity cost than competitors

  • Opportunity cost= the highest valued alternative that must be given up to engage in an activity

  • absolute advantage= the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

  • Autarky = a situation in which a country does not trade with other countries

  • Terms of trade= ratio at which a country can trade its exports for imports from other countries

  • Technology= processes firms use to turn inputs into goods and services 

  • External economies= reductions in a firm’s costs that result from an increase in the size of an industry

  • Free trade= trade between countries that is without government restrictions

  • Quota= a numerical limit that a government imposes on the quantity of a good that can be imported into the country

  • Voluntary export restraint (VER)= a restriction on the quantity of a good that can be imported by one country from another country 

  • World trade organization (WTO)= an international organization that oversees international trade agreements

  • Globalization= the process of countries becoming more open to foreign trade and investment

  • Protectionism= the use of trade barriers to shield domestic firms from foreign competition

  • Dumping= selling a product for a price below its cost of production    

  • Utility - the enjoyment or satisfaction people receive from consuming goods/services

  • Marginal utility (MU)= the change in total utility a person receives from consuming one additional unit of a good or service

  • Law of diminishing marginal utility= the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time

  • Budget constraint= the limited amount of income available to consumers to spend on goods/services

  • Income effect= the change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant

  • substitution effect= the change in the quantity demanded of a good that results from a change in price making that food more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power 

  • Network externality= a situation in which the usefulness of a product increases with the number of consumers who use it

  • Behavioral economics= the study of situations in which people make choices that do not appear to be economically rational

  • opportunity cost= the highest valued alternative that must be given up to engage in an activity

  • Endowment effect= the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn’t already own it

  •  Sunk cost= cost that has already been paid and cannot be recovered

  • Technology= the process a firm uses to turn inputs into outputs of goods and services

  • Technological change= a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs 

  • Short run= period of time during which at least one of a firm’s inputs is fixed

  • Long run= the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical p;ant

  • Total cost= the cost of all the inputs a firm uses in production

  • Variable costs= costs that change as output changes

  • Fixed costs= costs that remain constant as output changes

  • Opportunity cost= highest valued alternative that must be given up to engage in an activity

  • Explicit cost= a cost that involves spending money

  • Implicit cost= a nonmonetary opportunity cost

  • Production function= the relationship between the inputs employed by a firm and maximum output the firm can produce with those inputs 

  • Average total cost total cost divided by the quantity of output produces

  • Marginal product of labor= additional output a firm produces as a result of hiring 1 more worker 

  • Law of diminishing returns= the principle that at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline 

  • Average product of labor= the total output produced by a firm divided by the quantity of workers

  • Marginal cost= the change in a firm's total cost from producing one more unit of a good or service

  • Average fixed cost= fixed cost divided by quantity of output produced

  • Average variable cost= variable cost divided by the quantity of output produced 

  • Long run average cost curve= a curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed

  • Economics of scale= the situation in which a firm’s long run average cost falls as it increases the quantity of output it produces

  • Constant returns to scale= the situation in which a firm’s long run average costs remain unchanged as it increases output

  • Minimum efficient scale= level of output at which all economies of scale are exhausted

  • Diseconomies of scale- the situation in which a firm’s long run average cost rises as the firm increases output