Microecon notes.txt

ability-to-pay principle - the idea that taxes should be levied on a person according to how well that person can shoulder the burden

absolute advantage - the comparison among producers of a good according to their productivity

accounting profit - total revenue minus total explicit cost

average fixed cost - fixed costs divided by the quantity of output

average revenue - total revenue divided by the quantity sold

average tax rate - total taxes paid divided by total income

average total cost - total cost divided by the quantity of output

average variable cost - variable costs divided by the quantity of output

benefits principle - the idea that people should pay taxes based on the benefits they receive from government services

budget constraint - the limit on the consumption bundles that a consumer can afford

budget deficit - a shortfall of tax revenue from government spending

budget surplus - an excess of government receipts over government spending

capital - the equipment and structures used to produce goods and services

cartel - a group of firms acting in unison

ceteris paribus - a Latin phrase, translated as �other things being equal,�used as a reminder that all variables other than the ones being studied are assumed to be constant

circular-flow diagram - a visual model of the economy that shows how dollars flow through markets among households and firms

Coase theorem - the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own

collusion - an agreement among firms in a market about quantities to produce or prices to charge

common resources - goods that are rival but not excludable

comparable worth - a doctrine according to which jobs deemed comparable should be paid the same wage

comparative advantage - the comparison among producers of a good according to their opportunity cost

compensating differential - a difference in wages that arises to offset the nonmonetary characteristics of different jobs

competitive market - a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

complements - two goods for which an increase in the price of one leads to a decrease in the demand for the other

constant returns to scale - the property whereby long-run average total cost stays the same as the quantity of output changes

consumer surplus - a buyer�s willingness to pay minus the amount the buyer actually pays

cost - the value of everything a seller must give up to produce a good

cost-benefit analysis - a study that compares the costs and benefits to society of providing a public good

cross-price elasticity of demand - a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price

deadweight loss - the fall in total surplus that results from a market distortion, such as a tax

demand curve - a graph of the relationship between the price of a good and the quantity demanded

demand schedule - a table that shows the relationship between the price of a good and the quantity demanded

diminishing marginal product - the property whereby the marginal product of an input declines as the quantity of the input increases

discrimination - the offering of different opportunities to similar individuals who differ only by race, ethnic group, sex, age, or other personal characteristics

diseconomies of scale - the property whereby long-run average total cost rises as the quantity of output increases

dominant strategy - a strategy that is best for a player in a game regardless of the strategies chosen by the other players

economic profit - total revenue minus total cost, including both explicit and implicit costs

economics - the study of how society manages its scarce resources

economies of scale - the property whereby long-run average total cost falls as the quantity of output increases

efficiency - the property of society getting the most it can from its scarce resources

efficiency wages - above-equilibrium wages paid by firms in order to increase worker productivity

efficient scale - the quantity of output that minimizes average total cost

elasticity - a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants

equilibrium - a situation in which supply and demand have been brought into balance

equilibrium price - the price that balances supply and demand

equilibrium quantity - the quantity supplied and the quantity demanded when the price has adjusted to balance supply and demand

equity - the property of distributing economic prosperity fairly among the members of society

excludability - the property of a good whereby a person can be prevented from using it

explicit costs - input costs that require an outlay of money by the firm

exports - goods and services that are produced domestically and sold abroad

externality - the impact of one person�s actions on the well-being of a bystander

factors of production - the inputs used to produce goods and services

fixed costs - costs that do not vary with the quantity of output produced

free rider - a person who receives the benefit of a good but avoids paying for it

game theory - the study of how people behave in strategic situations

Giffen good - a good for which an increase in the price raises the quantity demanded

horizontal equity - the idea that taxpayers with similar abilities to pay taxes should pay the same amount

human capital - the accumulation of investments in people, such as education and on-the-job training

implicit costs - input costs that do not require an outlay of money by the firm

import quota - a limit on the quantity of a good that can be produced abroad and sold domestically

imports - goods and services that are produced abroad and sold domestically

in-kind transfers - transfers to the poor given in the form of goods and services rather than cash

income effect - the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve

income elasticity of demand - a measure of how much the quantity demanded of a good responds to a change in consumers� income, computed as the percentage change in quantity demanded divided by the percentage change in income

indifference curve - a curve that shows consumption bundles that give the consumer the same level of satisfaction

inferior good - a good for which, other things equal, an increase in income leads to a decrease in demand

inflation - an increase in the overall level of prices in the economy

internalizing an externality - altering incentives so that people take account of the external effects of their actions

law of demand - the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

law of supply - the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

law of supply and demand - the claim that the price of any good adjusts to bring the supply and demand for that good into balance

liberalism - the political philosophy according to which the government should choose policies deemed to be just, as evaluated by an impartial observer behind a �veil of ignorance�

libertarianism - the political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income

life cycle - the regular pattern of income variation over a person�s life

lump-sum tax - a tax that is the same amount for every person

macroeconomics - the study of economy wide phenomena, including inflation, unemployment, and economic growth

marginal changes - small incremental adjustments to a plan of action

marginal cost - the increase in total cost that arises from an extra unit of production

marginal product - the increase in output that arises from an additional unit of input

marginal product of labor - the increase in the amount of output from an additional unit of labor

marginal rate of substitution - the rate at which a consumer is willing to trade one good for another

marginal revenue - the change in total revenue from an additional unit sold

marginal tax rate - the extra taxes paid on an additional dollar of income

market - a group of buyers and sellers of a particular good or service

market economy - an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

market failure - a situation in which a market left on its own fails to allocate resources efficiently

market power - the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

maximin criterion - the claim that the government should aim to maximize the well-being of the worst-off person in society

microeconomics - the study of how households and firms make decisions and how they interact in markets

monopolistic competition - a market structure in which many firms sell products that are similar but not identical

monopoly - a firm that is the sole seller of a product without close substitutes

Nash equilibrium - a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen

natural monopoly - a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

negative income tax - a tax system that collects revenue from high income households and gives transfers to low income households

normal good - a good for which, other things equal, an increase in income leads to an increase in demand

normative statements - claims that attempt to prescribe how the world should be

oligopoly - a market structure in which only a few sellers offer similar or identical products

opportunity cost - whatever must be given up to obtain some item

perfect complements - two goods with right-angle indifference curves

perfect substitutes - two goods with straight-line indifference curves

permanent income - a person�s normal income

Phillips curve - a curve that shows the short-run tradeoff between inflation and unemployment

Pigovian tax - a tax enacted to correct the effects of a negative externality

positive statements - claims that attempt to describe the world as it is

poverty line - an absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty

poverty rate - the percentage of the population whose family income falls below an absolute level called the poverty line

price ceiling - a legal maximum on the price at which a good can be sold

price discrimination - the business practice of selling the same good at different prices to different customers

price elasticity of demand - a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

price elasticity of supply - a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

price floor - a legal minimum on the price at which a good can be sold

prisoners�dilemma - a particular �game� between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

private goods - goods that are both excludable and rival

producer surplus - the amount a seller is paid for a good minus the seller�s cost

production function - the relationship between quantity of inputs used to make a good and the quantity of output of that good

production possibilities frontier - a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

productivity - the amount of goods and services produced from each hour of a worker�s time

profit - total revenue minus total cost

progressive tax - a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers

proportional tax - a tax for which high-income and low-income taxpayers pay the same fraction of income

public goods - goods that are neither excludable nor rival

quantity demanded - the amount of a good that buyers are willing and able to purchase

quantity supplied - the amount of a good that sellers are willing and able to sell

regressive tax - a tax for which highincome taxpayers pay a smaller fraction of their income than do low-income taxpayers

rivalry - the property of a good whereby one person�s use diminishes other people�s use

scarcity - the limited nature of society�s resources

shortage - a situation in which quantity demanded is greater than quantity supplied

strike - the organized withdrawal of labor from a firm by a union

substitutes - two goods for which an increase in the price of one leads to an increase in the demand for the other

substitution effect - the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution

sunk cost - a cost that has already been committed and cannot be recovered

supply curve - a graph of the relationship between the price of a good and the quantity supplied

supply schedule - a table that shows the relationship between the price of a good and the quantity supplied

surplus - a situation in which quantity supplied is greater than quantity demanded

tariff - a tax on goods produced abroad and sold domestically

tax incidence - the study of who bears the burden of taxation

total cost - the market value of the inputs a firm uses in production

total revenue (for a firm) - the amount a firm receives for the sale of its output

total revenue (in a market) - the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold

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

transaction costs - the costs that parties incur in the process of agreeing and following through on a bargain

union - a worker association that bargains with employers over wages and working conditions

utilitarianism - the political philosophy according to which the government should choose policies to maximize the total utility of everyone in society

utility - a measure of happiness or satisfaction

value of the marginal product - the marginal product of an input times the price of the output

variable costs - costs that do vary with the quantity of output produced

vertical equity - the idea that taxpayers with a greater ability to pay taxes should pay larger amounts

welfare - government programs that supplement the incomes of the needy

welfare economics - the study of how the allocation of resources affects economic well-being

willingness to pay - the maximum amount that a buyer will pay for a good

world price - the price of a good that prevails in the world market for that good