Card Set Information
What is Microeconomics
the study of individual choice, and how that choice is influenced by economic forces
What is Macroeconomics
the study of the economy as a whole
What is the problems with equal income distribution
it steal from people against their will (taxes) for no intrinsic benefit
provides no incentives for people to work hard and improve their skills
leads to inefficient government policies
What the invisible hand is
The invisible hand is the price mechanism, the rise and fall of prices that guides our actions in a market.
Define market force
A market force is an economic force that is given relatively free rein by society to work through the market.
What are market forces
Market forces ration by changing prices. When there’s a shortage, the price goes up. When there’s a surplus, the price goes down.
What decide market forces
Social, cultural, and political forces play a major role in deciding whether to let market forces operate
What is socialism
an economic system based on individuals’ goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce.
What is Capitalism
An economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists.
What is Feudalism
An economic system in which traditions rule.
What is Economic Policy
An action (or inaction) taken by government to influence economic actions.
Name two economic policies
behavioral economic policy
is an economic policy of leaving coordination of individuals’ actions to the market
What is behavioral economic policy
economic policy based upon models using behavioral economic building blocks that take into account people’s predictable irrational behavior
Who determine economic policies?
What three things comprise our market economy
Businesses, households, and government
What are the three taxes
personal income tax,
the corporate income tax,
the Social Security tax.
Three causes of market failures
what is an entrepreneur
An entrepreneur is an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it.
What is profit
What’s left over from total revenues after all the appropriate costs have been subtracted. That is, Total revenue 2 Total cost. Also, a return on entrepreneurial activity and risk taking.
what are monitoring costs
Monitoring costs are the costs incurred by the organizer of production in seeing to it that the employees do what they’re supposed to do.
What are the different tax structures
what is social security
a social insurance program that provides financial benefits to the elderly and disabled and to their eligible dependents and/or survivors.
What is a Surplus
An excess of revenues over payments
A good that can be used in place of another good.
What is a Market structure
refers to the physical characteristics of the market within which
what is a monopolistic competition
a market structure in which there are many firms selling differentiated products and few barriers to entry
a market structure in which there are only a few firms and firms explicitly take other firms’ likely response into account
Perfectly competitive market
a market in which economic forces operate unimpeded.
A market structure in which one firm makes up the entire market.
A labor market
a factor market in which individuals supply labor services for wages to other individuals and to firms that need (demand) labor services
The combining of two companies in the same industry
A combination of two companies that are involved in different phases of producing a product
A transaction in which a company buys another company and the purchaser has the right of direct control over the resulting operation
A contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking
what is production
The transformation of factors into goods and services.
Costs that are spent and cannot be changed in the period of time under consideration.
Costs that change as output changes
Economies of scale
economies that occur because of increases in the amount of one good a firm is producing.
Economies of scope
occur when producing different types of goods lowers the cost of each of those goods.
is a firm or individual who takes the price determined by market supply and demand as given
Who are price takers.
Both buyers and seller
set the price
Who are price makers
These are Barriers to entry
social, political, or economic impediments that prevent firms from entering a market.
what is a duopoly
an oligopoly with only two firms
A type of collusion in which multiple firms make the same pricing decisions even though they have not explicitly consulted with one another.
To prove a collusion is Difficult
Difficult to prove
Monopolistic competition makes collusion
difficult to prove
easier to prove
characteristic of informal collusive behavior is
that prices tend to be sticky—they don’t change frequently.
what is a patent
Legal protection of a technological innovation that gives the owner of the patent sole rights to its use and distribution for a limited time.
taxes governments place on internationally traded goods —generally imports.
is a total restriction on the import or export of a good.
The Clayton Antitrust Act
a law that made four specific monopolistic practices illegal when their effect was to lessen competition
The Federal Trade Commission Act
a law that made it illegal for firms to use “unfair methods of competition” and to engage in “unfair or deceptive acts or practices,”
A public good
is a good that is nonexclusive and nonrival. (education, defense, roads, and legal systems) government provided
only benefit to the person buying the good
private goods you sum demand curves
demand curves are sum horizontally;
public goods you sum
sum demand curves
is the government’s policy toward the competitive process.
Sherman Antitrust Act
is a U.S law designed to regulate the competitive process.
is selling identical goods to different customers at different prices.
Example of Price Discrimination
Ex. Movie theaters give discounts to senior citizens and children
Ex. Airline Super Saver fares include Saturday-night stay overs.
Ex. Automobiles are seldom sold at list price.
Law of supply
states that quantity supplied is positively related to price, the slope of an equation specifying a supply curve is positive
The law of demand
states that as price rises, quantity demanded declines
Price and quantity are negatively
so a demand curve has a negative slope.
The laws of supply and demand affect
prices. are affected
income or price of another good, shift the entire demand curve.
Five important shift factors of aggregate demand
exchange rate fluctuations
the distribution of income,
Anything that changes factor costs will be a shift factor of supply.
What changes shift factors?
Changes in input prices.
Excise and sales taxes.
What is a price ceiling
is a government-set price below the market equilibrium price.
Surplus An excess of revenues over payments.
An excess of revenues over payments.
A graphical representation of the relationshipbetween price and quantity supplied.
A concept in which opposing dynamic forcescancel each other out.
Equilibrium Price The price toward which the invisiblehand drives the market.
The price toward which the invisiblehand drives the market.
A business with two or more owners.
Sole Proprietorship A business that has only one owner
A business that has only one owner
Business A private producing unit in our society.
A private producing unit in our society.
Example of opprtunity cost
Cost of capitol
Define the concept of
this concept applies to all aspects of life and is fundamental to understanding how society reacts to scarcity.
Is expressed in relative price, the price of one choice is relative to another
The law of diminishing control
is the observation thatafter a regulation is implemented, as time progresses, itbecomes less and less effective because firms find waysaround the regulations.