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Economics
CHAD Economics 2017
| Term | Definition |
|---|---|
| Imperfectly competitive | Market with one or only a few suppliers |
| Market power | When a firm can choose market prices (typically in an imperfectly competitive market) |
| Important barriers to entry | Ownership of a key resource, government created monopolies (patents), and natural monopolies (one company has large fixed costs so prices are falling at a rate of production that can serve all the demand) |
| Marginal Revenue | The amount of benefit you will receive from producing one more item |
| Marginal Cost | The increase in cost when you produce one more item |
| Relating marginal cost to marginal revenue | If equal, that is the perfect price/supply for a producer. If marginal revenue is higher than marginal cost, increasing supply causes profits to increase. If marginal cost is higher than marginal revenue, decreasing supply cause profits to increase. |
| Sherman Anti-Trust Act (1890) | first law seeking to increase market competition and prevent monopolies |
| Price discrimination | Monopolies charging different prices to customers based on how much they value the product (i.e. Cable companies offering channel packages based on price)(Has a positive affect on social welfare) |
| Oligopoly | A market with only a few sellers |
| Cartel | Suppliers in an oligopoly agreeing to cooperate with prices and behave like one monopoly. Illegal in the U.S. |
| Monopolistic Competition | markets in which firms produce similar but different materials and compete (ie cereals, restaurants, and books) |
| Joseph Schumpter | Economist who described innovation as creative destruction. This is because it destroys old systems while creating new ones forever. |
| Market Failure | When competitive markets fail to produce socially desirable outcomes. |
| Two types of market failures | Externalities and the institution of private property breaking down (public goods) |
| Public Goods | Goods or services that are impossible to establish private property rights in. |
| Externality | Happens when one person's actions affect another person, but there is no money exchanged. (Film released on blu-ray increases blu-ray player sales.) usually are "too little of an activity that generates positive externalities" and opposite w/negative |
| Coast Theorem | Ronald Coase. Says the private market can resolve the inefficiencies from externalities if the parties involved can negotiate. (I.e. Tad and sue yard example.) The initial distribution of rights/power doesn't affect ability to negotiate. |
| Tragedy of the commons | The overuse of a common resource negatively affecting everyone who uses it. There's a good TedEd on it |
| Two dimensions that can be used to see if a good can be easily privatized | Rivalry in consumption and excludability |
| Rival Good | A good when one person consuming it decreases the amount available for others. (I.e. Pizza) (non example: radio station) |
| Excludability | The ability to control who consumes a good. (I.e. Pizza) (non-example: military defense. Fireworks display.) |
| Private goods | Have high degree of rivalry and high degree of excludability (pizza, gas, haircuts) |
| Common resources | High degree of rivalry and a low degree of excludability (often suffer from tragedy of the commons.) (fish in an ocean, the environment, streets) (source of externalities) |
| Collective goods | Low degree of rivalry and a high degree of excludability (often create monopolies because supplying it doesn't reduce the supply of it, so marginal costs are low) (radio, websites, pay-per-view) |
| Public goods | Low degree of rivalry and low degree of excludability (often run by governments) (national defense, tornado sirens, radio broadcasts) |
| Institutions | Formal and informal rules that structure human interaction (markets, marriage practices, tipping.) Organizations are formal institutions. They need voluntary cooperation to work. |
| Pork Barrel Politics | The proclivity of elected officials to introduce projects that put money into their communities. (Make constituents happy, but increase the cost of government.) |
| Logrolling | One legislator supporting another's pet project, so they will later support their own pet project |
| Rent seeking | Adjective used to describe socially unproductive activities that want to direct economic benefits to one set of people rather than another |
| Gross Domestic Product (GDP) | Measure if the total quantity of goods and services produced in the economy (adjusted to remove the effects of inflation) |
| By how much has the US increased its total real output since 1900? | It has increased by a factor of 32 (population has only grown by a factor of 4) |
| GDP per capita | (On average) how much each person produces in an economy |
| Average labor productivity | How much the typical worker can produce. (Calculated by dividing total output by total number of workers.) |
| Expansion | A period between a trough and a peak in economic activity |
| Recession | A period between a peak and a trough in ecomnomic activity |
| Depression | A sever recession |
| Business cycle | The alteration of periods of expansion and recession |
| The unemployment rate | The percentage of the labor force that would like to work but cannot find employment. (Never zero) |
| Inflation | When all prices rise together. It reduces purchasing power |
| Trade surplus | When exports exceed imports |
| Trade deficit | When imports exceed exports |
| Final good | End product of a chain of purchases and production |
| Intermediate goods | Goods that are used up in the production of a final good. (Sale of these not counted in GDP) |
| Capital goods | Goods that are used to produce other goods but not used up in production. (Machinery) (only counted in GDP the year they were produced.) |
| Simon Kuznets | Invented and applied GDP for measuring economic activity. (In 1934 in America) |
| Sir William Petty | First to try to measure national output |
| Real GDP | Isolated the effects of changes in production from changes in price. Used prices from a single year (the base year) to value production in every year. |
| Nominal GDP | GDP calculated using the current year prices |
| Consumer Proce Index (CPI) | Measured the cost of purchasing a market basket of goods/services intended to represent the consumption of a typical consumer. Can overstate the cost of living because of substitute bias, unmeasured quality change, and new goods and services |
| Boskin Comission | (1996) Led by Michael Boskin. Calculated CPI overstates rate of inflation by 1.3% each year |
| GDP deflator | Measures relationship between real and nominal GDP. Equation: Nominal GDP=(GDP Deflator/100)*(real GDP). Rewritten: GDP deflator=100*(nominal GDP)/(real GDP) |
| Employed | Defined by BLS. If a person worked for pay either full or part-time during the previous week (or is on vacation/sick leave from a regular job) |
| Unemployed | Defined by BLS. If a person did not work during the previous week but made some effort to find paid employment during the past four weeks. |
| Out of the labor force | Defined by BLS. If a person did not work during the past week and did not actively seek work during the previous four weeks. |
| Labor force participation rate | Amount of working age people who are in the labor force over amount of working age people. (About 66%) |
| Frictional unemployment | Refers to portion of unemployed who are currently not working because of the normal process of matching employees and employers. (I.e. Takes time to leave job then find new one.) |
| Structural unemployment | Portion of unemployed attributed to the mismatch of job openings and job seekers. Sometimes available jobs require skills that those seeking jobs don't have. Or the jobs are in a different location than the workers. |
| Cyclical unemployment | Unemployment caused by the increases in lay-offs and decreases in hires that happen during a recession. |
| Factors of average labor productivity | Physical capital (efficient machinery,) human capital (skills of workers,) natural resources, technological knowledge, and the political/legal environment |
| Financial markets | Institutions where people who have money they want to save can give these funds to people/companies who want to borrow money to invest. (Bond Market(Debt finance), Stock Market(Equatiy finance)) |
| Financial intermediaries | A third party who acts as a link between savers and borrowers (banks and mutual funds.) |
Created by:
bramlgra000
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