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Economics

CHAD Economics 2017

TermDefinition
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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