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Econ Final
All vocab
| Term | Definition |
|---|---|
| Economics | The social science that studies production and trade |
| Spontaneous Order | order that is from human action, not human design |
| Positive Analysis | Analysis that attempts to describe the way things are in reality |
| Normative Analysis | analysis that describes a value judgment |
| Theory | an abstract explanation of some phenomenon |
| Society | A group of people who have moral, political, or economic relationships with each other |
| Social System | A set of rules that determine the role of physical force in human relationships |
| Market Economy | A social system in which resources are privately owned and controlled |
| Property Right | A moral and legal right to control a resource, and to exclude others from using it |
| Common Economy | A social system in which resources are collectively owned or controlled |
| Mixed Economy | A social system inn which some resources are privately owned and controlled, and some are owned or controlled by the government |
| Scarcity | The amount of goods available is not sufficient to satisfy all human desires |
| Unlimited Desires | No matter what one's current circumstances, it is always possible to imagine and achieve a more desirable state of affairs |
| Methodological Individualism | The principle that the individual human being is the basic unit of research in the social sciences |
| Rational Choice | People pursue their values |
| Price System | A network of interrelated prices of good and services |
| Exchange of Equivalents | the theory that people exchange one good for another when both parties value the goods equally |
| Just Price Theory | the theory that there is a single just price at which each good should be sold |
| Nominal Value of Money | the face value of money |
| Real Value of Money | the goods and services that can be bought with money |
| Zero-Sum Game | a situation in which for one party to win, another must lose |
| Mutually Beneficial Exchange | an exchange that benefits both parties |
| invisible Hand | Adam Smith's metaphor for the power of individual self-interest to create spontaneous order |
| Utility | usefulness of something for human desires |
| subjective theory of price | the theory that the price of a good is determined by its utility |
| Water-Diamonds Paradox | water is very useful but has a low price, while a diamond is not very useful but has a high price |
| Labor Theory of Value | the theory that the price of a good is determined by its cost of production or the amount of labor used to produce it |
| Iron Law of Wages | the theory that the price of labor is determined by the cost of human subsistence and reproduction |
| Intrinsic Value Theory | the theory that the value of an object is inherent in the object itself |
| Marginal Revolution | the discovery of the theory of marginal utility in the early 1870s |
| Consumer Good | a good that serves our desires directly |
| Producer good | a good that is used in the production of another good |
| Structure of production | the set of steps by which producer goods are used to make a consumer good |
| Theory of Derived Demand | the value of higher order goods is derived from goods of lower order |
| Marginal | at the edge |
| Marginal Unit | the next unit gained or given up |
| Marginal Utility | the additional utility a person gets from having one more or less unit of good |
| Theory of Marginal Utility | the price of a good is determined by its marginal utility |
| Ordinal ranking | a list in order of preference |
| Opportunity cost | the best alternative given up when making a choice |
| Diminishing Marginal Utility | the satisfaction of a good decreases as each new unit is acquired |
| Range of Indeterminacy | the range of potential prices |
| Market Clearing Price | a price at which anyone who wants to buy or sell can find a willing trade partner |
| Quantity Demanded | the amount of good a person is willing and able to buy at a specific price |
| Law of Supply | as price increases, supply increases |
| Law of Demand | as price increases, demand decreases |
| Ceteris Paribus | Holding all other variables constant |
| Quantity Supplied | the amount of a good a person is wiling and able to sell at a specific price |
| Market clearing price | a price where the quantity demanded and quantity supplied are equal |
| Market clearing quantity | the number of exchanges that take place at a market clearing price |
| Comparative Statics | studying how supply and demand curves shift |
| Elasticity | a measure of the responsiveness of one variable to change in another variable |
| Income elasticity of demand | the effect that a change in a person's income has on their demand for a certain good |
| Normal good | a good for which demand increases when income increases, and decreases when income decreases |
| Inferior good | a good for which demand decreases when income increases, and demand increases when income decreases |
| Cross-price elasticity of demand | the effect that a change in the price of one good has on the demand for another good |
| Substitutes | goods that perform a similar function or satisfy a similar human desire |
| Complements | goods that are more valuable when consumed together |
| Own-Price Elasticity of demand | the responsiveness of the quantity demanded for a good to change in the price of that good |
| Inelastic | when the absolute value of a good's price elasticity of demand is less than 1 |
| Elastic | when the absolute value of good's price elasticity of demand is greater than 1 |
| consumer surplus | a measure of the gain that the buyer experiences from an exchange |
| producer surplus | a measure of the gain that the seller experiences from an exchange |
| total gain from trade | the sum of consumer surplus and producer surplus |
| Equilibrium | a situation in which no individual, taking the behavior of all others as given, wants to change their own behavior |
| Shortage | when the quantity supplied is lower than the quantity demanded |
| Surplus | when the quantity demanded is lower than the quantity supplied |
| Dead weight loss | gains from trade that are not being made |
| economic efficiency | a situation in which all possible gains from trade are being made |
| direction of causation | the causal relationship between one event and another |
| price control law | a law that mandates what price buyers and sellers must trade at |
| Effective price control | a price control law that keeps the price above or below the market-clearing price |
| Price Ceiling | a law that prohibits people from trading above the legal maximum |
| Price floor | a law that prohibits people from trading below the legal minimum |
| Rent Control Law | a maximum price control on rental housing |
| Rationing laws | laws that restrict people's consumption of certain goods |
| Price gouging | charging a price that is "too high" |
| Price gouging laws | maximum price control laws imposed on necessities during an emergency, typically set at the pre-emergency price |
| Minimum wage laws | a minimum price control on workers' wages |
| Unemployment rates | the percentage of the population that is actively looking for work but has no job |
| Specialization | we do what we do best, and trade for all the rest |
| Theory of Absolute advantage | the theory that a person will specialize in production the good for which they have the lowest resource cost |
| Theory of comparative advantage | a person will specialize in producing the good for which they have the lowest opportunity cost |
| Export | to sell something to a buyer in another country |
| Import | to buy something from a seller in another country |
| Free Trade | trade unrestricted by physical force, such as government intervention or special taxes |
| Trade barrier | any government action that restricts international trade |
| Protectionism | Support for trade |
| Tariff | a tax on imports |
| Total Cost (C) | The cost of producing a certain quantity of units of a good C=FC+VC |
| Fixed Costs (FC) | costs that do not vary with the quantity of units produced |
| Variable Costs (VC) | Costs that vary with the quantity of units produced |
| Marginal Cost (MC) | the cost of producing one more unit of good |
| Law of diminishing marginal returns | with a fixed input, and an increasing variable input, at some point the marginal product of there variable input must decline |
| Marginal Product | the additional output produced when one more unit of variable input is added |
| Increased marginal returns | the range of input usage over which marginal product increases |
| Diminishing marginal returns | the range of input usage over which marginal product decreases |
| Average Total Cost | the total cost divided by the quantity of units produced |
| Average fixed costs | the total fixed cost divided by the quantity of units produced |
| Average variable cost | the total variable cost divided by the quantity of units produced |
| Short Run | the time horizon where some inputs are fixed, and some are variable |
| Long Run | the time horizon where all inputs are variable |
| Economics of scale | the range where long run average total costs decrease as output increases |
| Diseconomies of scale | the rang where long run average total costs increases as output increases |
| Constant returns to scale | the range where long run average total costs stay constant as output increases |
| Optimal Firm Size | the quantity of production that minimizes long run average total costs |
| Transaction costs | any costs of going through with an exchange transaction, other than the price of the good itself |
| Coercive barrier to entry | the use or threat of force to prevent other from offering product for sale to the same customers |
| Total Revenue | the amount of money a seller receives in exchange for their products |
| Marginal Revenue | the additional revenue a seller gets from selling one more unit of a good |
| Profit | the difference between a firm's total revenue and total cost |
| Accounting Profit | total revenue minus explicit cost |
| Explicit cost | the amount of money spent on all inputs to a production process |
| Economic Profit | Total revenue minus explicit cost and implicit cost |
| Implicit cost | the opportunity cost of the money spent on all inputs to a production process |
| Transaction costs | any costs of going through with an exchange transaction, other than the price of the good itself |
| intermediary | a person who facilitates an exchange |
| Externality | when an economic activity confers a benefit or imposes a cost on an unrelated third party |
| positive externality | a benefit gained by an unrelated third party |
| negative externality | cost imposed on an unrelated their party |
| Private marginal cost | the cost that the supplier bears when it produces one more unit of a good |
| social marginal cost | the cost that everyone in society bears when the supplier produces one more unit of a good |
| Private marginal benefit | the benefit that the supplier receives when it produces on more unit of a good |
| Social marginal benefit | the benefit that everyone in society receives when the supplier produces one more unit of a good |
| Non-excludable good | a good that people can consume even without paying for it |
| Free rider problem | the problem that when a good is non-excludable people have an incentive to consume it but not pay for it, which results in underproduction |
| Pigovian Tax/Subsidy | a tax/subsidy intended to correct an externality problem |
| Internalize | to make producers experience the external costs and benefits of their behavior |
| Coase Theorem | with clearly defined and enforced property rights in the absence of transaction costs all externalities will be internalized through negotiations |
| Cosian bargain | when people solve an externality problem through private negotiation rather than active government regulation |
| Market failure | observed inefficiency (dead weight losses) in a free market system represents a failure of the market to achieve an efficient outcome |
| Market Process | a free market system is best understood as an ongoing process in which entrepreneurs seek profits by eliminating inefficiency (dead weight losses) |
| The economic function of profits | the profit and loss system connects the values of consumers to the incentives faced by producers |
| consumer sovereignty | the power of consumers to decide what gets produced |
| Marginal revenue productivity theory of wages | the theory that in a competitive market a worker's wage is determined by that worker's marginal revenue product |
| Marginal revenue product | the marginal product of labor multiplied by the marginal revenue |
| Capital accumulation | increasing the amount of tools, machines, education, and other goods that make workers more productive |
| Public choice economics | economic analysis of the political process |
| Condorcet's paradox (the voting paradox) | the theory that even if all individual preferences are transitive, the social preference ordering may still be intransitive |
| plurality rule | a voting rule under which the candidate with the most votes wins |
| Majority Rule with a runoff election | a voting rule in which if there is no majority winner, the top two candidates have a second election |
| Borda Rule | a voting rule in which voters list the candidates in order of their preference, point values are assigned, and the candidate with the most points wins |
| Probability of decisiveness (P) | the probability that one individual's vote will affect the outcome of the election |
| Net Candidate Differential (NCD) | the net benefits of one candidate over the other fro the perspective of the individual voter |
| Civic Duty (D) | the satisfaction that the voter gets from the act of voting itself |
| Cost of voting (C) | all costs involved in voting |
| Voter incentives (a person will vote if) | (P x NCD +D) > C |
| Rational Ignorance | when a person is ignorant because the cost of gaining additional information would outweigh the benefit |
| Special Interest Groups (3) | 1. reduce the information costs of their members to overcome the problem of rational ignorance 2. incentivize their members to vote 3. spend members' money to affect elections or influence politicians |
| Laws that get passed tend to have... (2) | concentrated benefits and diffuse costs |
| Rent-seeking | using government coercion to seek benefits at the expense of other people |
| What are the key differences between government agencies and private businesses | 1. government agencies get their money through taxation, not through voluntary trade 2. government agencies do not have residual claimants (someone who keeps the profits or bears the losses of a project) |
Created by:
grace.gleason
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