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A firms ability to produce a good using fewer inputs than another firm.
Total revenue - total (explicit) costs = Accounting Profits
Ex: TR= $200 TC= $100 AP= $100
*Does not take in to account opportunity cost!*
Allocative Efficiency (Socially Efficient)
*Monopolies don't produce here*
laws that prohibit conspiracies between companies formed to minimize competition
*companies most commonly try to fix prices they sometimes do this by agreeing to reducing supply and this drives up the price*
Average Fixed Cost (AFC)
Fixed cost / Quantity sold
Ex: FC= $500 QS= 100 AFC= $5
Average Total Cost (ATC)
Total cost / quantity of output
Ex: TC= $600 QO= 300 ATC=2
Average Variable Cost (AVC)
Variable cost / quantity of output
Ex: VC= $100 QO= 100 AVC= $1
A limit on the Consumption Bundles that a consumer can afford.
A group of firms working together in unison
Ex: drug cartel
*firms usually try to cheat and not work in unison*
The equipment used to produce a good or service.
Ex: a tractor is a capital in produce production
Circular Flow Diagram
A model that shows the interactions that take place between firms and households.
A theory that says externality problem can be solved on there own if private parties can bargain with each other.
Ex: If a firm is polluting a river a river cleaning organization can clean it up thus the government would not need to get involved.
An agreement between firms in the same market about the quantiles to produce or prices to charge.
Ex: two airlines agree cut the number of flights sold by 20% each; this would raise the price of tickets and would raise revenue for each firm.
*this is illegal*
A good that is not excludable but is rival in consumption.
Ex: A congested road
A firms ability to produce a good at a lower opportunity cost than another producer
A difference in wage that arises because of the characteristics of differences in jobs
Ex: A garbage man will get payed more than a beach attender
- A market with many buyers and sellers
- sell the same product
- market can easily be entered
- buyers and sellers are price takers
Ex: Market for Apples
Two goods that if there is an increase in one than that will lead to a decrees in demand for the other
Ex: Ice cream and fudge
Amount a buyer is willing to pay for a good - Amount the buyer actually pays
Ex: ABWP= $50 ABAP= $20 CS= $30
Cost Benefit Analysis
A study that compares the cost and benefits providing a Public Good for society
The fall in Total Surplus that is a result of a Market Failure
Ex: A Tax on the good or service
Diminishing Marginal Product
When Marginal Product decreases as each extra good is produced
Diseconomies of Scale
In the long-run Average Total Cost (ATC) rises as the quantity of out put increases.
The strategy is best for a player in a game no matter what the other player does
*Connected to the prisoners dilemma*
Total Revenue - Total cost (including explicit & implicit cost)
Ex: TR= $600 TC= $200(explicit) $300(implicit) EP= $100
Economies of Scale
Long-run Average Total Cost (ATC) falls as the quantity of output increases.
Above Equilibrium wages paid by firms to increase worker productivity.
*workers work harder because they know plenty of other people are waiting to take their job*
The quantity that minimizes Average Total Cost (ATC)
* This is where most firms produce*
The measure of responsiveness of quantity demanded or quantity supplied to one of its detriments
The way of distributing economic prosperity fairly among the members of society
A good a person can be prevented from using
Ex: A ride at 6 flags
Input cost that require an actual outlay of money ignored to be obtained by a firm
Goods produced domestically and sold abroad.
*Entertainment is a major American Export*
Factors of Production
Inputs used to produce goods and services.
Ex: Cloth is a factor of production in producing shirts.
Cost that do not vary depending on the quantity being produced
Ex: If a firm rents a factory weather they make 2 cookies or 2000 cookies the price of rent will remain the same
Flat Rate Tax = a tax with a constant tax rate
A Person who receives the benefit of a good but does not pay for it
A good where an increase in price results in the increase of demand.
Ex: potatoes during the potato famine
*goes against the law of supply and demand*
Is a measure of statistical dispersion developed by the Italian statistician Corrado Gini
The accumulation of investments in people
Ex: Education and job training increases a persons human capital
Input costs that don't require an actual outlay of money by the firm
Goods produces abroad and sold domestically
The change in consumption as a result of a price change that moves the consumer to a higher or lower indifference curve
A curve that Shows consumption bundles that give a consumer the same level of satisfaction
A good where an increase in income will result in a decrease of demand
Transfers to the poor given in the form of goods and services rather than cash
- A theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation.
Policy where the government is not involved in businesses
The increase in output that arises from an additional unit of out put
Marginal rate of substitution
The rate at witch a consumer is willing to trade one good for another
The change in total revenue from an additional unit sold
Marginal Revenue Product
The extra revenue brought in by an extra output
When a market left on its own efficiently allocate resources
The ability for a firm or a small group of firms to have substantial influence on the market prices.
*Monopolies and collaborating Oligopolies can have market power*
The lowest hourly, daily or monthly wage that employers may legally pay to employees or workers
A firm where many firms sell products that are identical or very similar.
A firm that is the sole seller of a product without any close substitutes.
A situation where participants interacting with each-other choose their best strategy given the strategy that all the others have chosen.
An action of a product on consumers that imposes a negative side effect on a third party
A good where an increase in income results in an increase of demand.
Claims that attempt to say how the world should be.
A market structure where only a few sellers offer a similar or identical products
*Can obtain market power*
The Organization of the Petroleum Exporting Countries is an oil cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait,Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela
what ever must be given up in order to obtain something.
Pigovian (Corrective) Taxes
A tax designed to lead private decision makers to tale account of the social cost that arise from a negative externally
An action of a product on consumers that imposes a positive side effect on a third party
Claims that describe the world as it is
A legal maximum on the price at which a good can be sold.
A business practice of selling the same good at different prices to different customers
Price Elasticity of Supply
A measure of how much the quantity demanded of a good responds to a change in the price of that good.
* %change in quantity / %change in price*
Price Elasticity of Supply
A measure of how much the quantity supplyed of a good responds to a change in the price of that good
* %change in supply / %change in price*
A legal minimum on the price at which a good can be sold.
A "game" between two captured prisoners that illustrates why cooperation is difficult to matin even when it is mutually beneficial.
Amount seller is paid for a good - Sellers cost of producing it
Ex: ASP=$100 SCP=$10 PS=$90
Production Possibilities Frontier
A graph that shows the combinations of output that the economy can possibly produce given the available factors of production.
Total Revenue - Total cost
Ex: TR= $400 TC=$300 P= $100
A tax where high income taxpayers pay a larger fraction of their income than the low income payers do.
The ability of an individual to own and have control over a scares resource.
A tax in which high and low income taxpayers pay the same fraction of their income.
Goody that are not excludible or rival in consumption.
A tax in which high income taxpayers pay a smaller fraction that low income taxpayers.
All the money brought in by the selling of a good.
Rivalry in Consumption
One persons use of the good diminishes other people's use.
The Limited nature of Society's resources.
Quantity demanded is greater that quantity demanded.
A firm will Shut down when Marginal Revenue (MR) is lower than Average Total Cost (ATC).
A form of financial assistance paid to a business or economic sector.
Two goods where an increase in the price of one will result in an increase of demand for the other
The change in consumption that results when a price chance moves the consumer along a given indifference curve a point with a new marginal rate of substitution.
A Cost that has already been committed and cannot be recovered.
Quantity supplied is greater than quantity demanded.
a Tax on goods produced abroad and sold domestically
How the burden of a tax is shared among participants in a market.
The deviation from equilibrium price/quantity as a result of a taxation, which results in consumers paying more, and suppliers receiving less.
Tragedy of the Commons
A parable that illustrates why common resources get used more than is desirable from the standpoint of society as a whole.
The cost that parties get when agreeing to and following through with an agreement.
A measure of happiness or satisfaction.
Cost that do vary with the quantity of output produced
The rice of a good in the world market for that good.