Economics Key Terms PDF

ECONOMICS KEY TERM CHAPTER 6: CONSUMER CHOICES 1. BEHAVIORAL ECONOMICS – a branch of CHAPTER 7: PRODUCTION COST economics that seeks to enrich the 1. ACCOUNTING PROFIT – TR–EC, including understanding of decision-...

ECONOMICS KEY TERM CHAPTER 6: CONSUMER CHOICES 1. BEHAVIORAL ECONOMICS – a branch of CHAPTER 7: PRODUCTION COST economics that seeks to enrich the 1. ACCOUNTING PROFIT – TR–EC, including understanding of decision-making by depreciation. integrating the insights of psychology and 2. AVERAGE PROFIT – P/Q of output by investigating how given dollar amounts can produced; A.K.A profit margin. mean different things to individuals depending 3. AVERAGE TOTAL COST – TC/Q of output. on the situation. 4. AVERAGE VARIABLE COST – VC/Q of 2. BUDGET CONSTRAINT (OR BUDGET output. LINE) – shows the possible combinations of 5. CONSTANT RETURNS TO SCALE – two goods that are affordable given a expanding all inputs proportionately does not consumer's limited income. change the average cost of production. 3. CONSUMER EQUILIBRIUM – point on the 6. DIMINISHING_MARGINAL budget line where the consumer gets the PRODUCTIVITY – general rule that as a firm most satisfaction; this occurs when the ratio employs more labor, eventually the amount of of the prices of goods is equal to the ratio of additional output produced declines. the marginal utilities. 7. DISECONOMIES OF SCALE – the long-run 4. DIMINISHING MARGINAL UTILITY – the average cost of producing output increases as common pattern that each marginal unit of a total output increases. good consumed provides less of an addition to 8. ECONOMIC PROFIT – TR–TC (explicit plus utility than the previous unit. implicit costs). 5. FUNGIBLE – the idea that units of a good, 9. ECONOMIES OF SCALE – the long-run such as dollars, ounces of gold, or barrels of oil average cost of producing output decreases are capable of mutual substitution with each as total output increases. other and carry equal value to the individual. 10. EXPLICIT COSTS – out-of-pocket costs for a 6. INCOME EFFECT – a higher price means, in firm, for example, payments for wages and effect, the buying power of income has been salaries, rent, or materials. reduced, even though actual income has not 11. FACTORS OF PRODUCTION (OR INPUTS) changed; always happens simultaneously with – resources that firms use to produce their a substitution effect. products, for example, labor and capital. 7. MARGINAL UTILITY – the additional utility 12. FIRM – an organization that combines provided by one additional unit of consumption. inputs of labor, capital, land, and raw or 8. MARGINAL UTILITY PER DOLLAR – the fixed component materials to produce outputs. additional satisfaction gained from purchasing 13. FIXED COST – cost of the fixed inputs; a good given the price of the product; MU/ expenditure that a firm must make before Price. production starts and that does not change 9. SUBSTITUTION EFFECT – when a price regardless of the production level. changes, consumers have an incentive to 14. FIXED INPUTS – factors of production that consume less of the good with a relatively can't be easily increased or decreased in higher price and more of the good with a a short period of time. relatively lower price; always happens 15. IMPLICIT COSTS – opportunity cost of simultaneously with an income effect. resources already owned by the firm and 10. TOTAL UTILITY – satisfaction derived from used in business. for example, expanding a consumer choices. factory onto land already owned.  16. LONG RUN – period of time during which all easy or difficult it is for a new firm to enter, of a firm's inputs are variable. and the type of products that are sold. 17. LONG-RUN AVERAGE COST (LRAC) – 7. PERFECT COMPETITION – each firm shows the lowest possible average cost of faces many competitors that sell production, allowing all the inputs to identical products. production to vary so that the firm is choosing 8. PRICE TAKER – a firm in a perfectly its production technology. competitive market that must take the 18. REVENUE – income from selling a firm’s prevailing market price as given. product; defined as Price x Quantity sold. 9. SHUTDOWN POINT – level of output 19. SHORT RUN – period of time during which at where the marginal cost curve intersects the least one or more of the firm's inputs fixed. average variable cost curve at the minimum. 20. SHORT-RUN AVERAGE COST (SRAC) – point of AVC; if the price is below this point. the average total cost curve in the short term; the firm should shut down immediately. shows the total of the average fixed costs and CHAPTER 9: MONOPOLY the average variable costs. 21. TOTAL COST – the sum of fixed and variable 1. ALLOCATIVE EFFICIENCY – producing the costs of production. optimal quantity of some output; the 22. TOTAL PRODUCT – synonym for a firm's quantity where the marginal benefit to society output. of one more unit just equals the marginal cost. 23. VARIABLE COST – cost of production that 2. BARRIERS TO ENTRY – the legal, increases with the quantity produced; the technological, or market forces that may cost of the variable inputs. discourage or prevent potential competitors 24. VARIABLE INPUTS – factors of production from entering a market. that can easily increase or decrease in a 3. COPYRIGHT – a form of legal protection to short period of time. prevent copying, for commercial purposes, original works of authorship, including books CHAPTER 8: PERFECT COMPETITION and music. 1. BREAK-EVEN POINT – level of output 4. DEREGULATION – removing government where the marginal cost curve intersects the controls over setting prices and quantities in average cost curve at the minimum point of certain industries. AC; if the price is at this point, the firm is 5. INTELLECTUAL PROPERTY – the body of earning zero economic profits. law including patents, trademarks, copyrights, 2. ENTRY – the long-run process of firms and trade secret law that protect the right of entering an industry in response to industry inventors to produce and sell their inventions. profits. 6. LEGAL MONOPOLY – legal prohibitions 3. EXIT – the long-run process of firms against competition, such as regulated reducing production and shutting down in monopolies and intellectual property response to industry losses. protection. 4. LONG-RUN EQUILIBRIUM – where all 7. MARGINAL PROFIT – profit of one more unit firms earn zero economic profits producing of output, computed as MR–MC. the output level where: 8. MONOPOLY – a situation in which one firm P = MR = MC produces all of the output in a market. P = AC 9. NATURAL MONOPOLY – economic 5. MARGINAL REVENUE – the additional conditions in the industry. For example, revenue gained from selling one more unit. economies of scale or control of a critical 6. MARKET STRUCTURE – the conditions in resource, that limit effective competition. an industry, such as number of sellers, how 10. PATENT – a government rule that gives the 10. PRISONER'S DILEMMA – a game in inventor the exclusive legal right to make, use, which the gains from cooperation are larger or sell the invention for a limited time. than the rewards from pursuing self-interest. 11. PREDATORY PRICING – when an existing 11. PRODUCT DIFFERENTIATION – any firm uses sharp but temporary price cuts action that firms do to make consumers think to discourage new competition. their products are different from their 12. TRADE SECRETS – methods of production competitors. kept secret by the producing firm. 13. TRADEMARK – an identifying symbol or name for a particular good and can only be used by the firm that registered that trademark. CHAPTER 10: MONOPOLISTIC AND OLIGOPOLY COMPETITION 1. CARTEL – a group of firms that collude to produce the monopoly output and sell at the monopoly price. 2. COLLUSION – when firms act together to reduce output and keep prices high. 3. DIFFERENTIATED PRODUCT – a product that is consumers perceive as distinctive in some way. 4. DUOPOLY – an oligopoly with only two firms. 5. GAME THEORY – a branch of mathematics that economists use to analyze situations in which players must make decisions and then receive payoffs based on what decisions the other players make. 6. IMPERFECTLY COMPETITIVE – firms and organizations that fall between the extremes of monopoly and perfect competition. 7. KINKED DEMAND CURVE – a perceived demand curve that arises when competing oligopoly firms commit to match price cuts, but not price increases. 8. MONOPOLISTIC COMPETITION – many firms competing to sell similar but differentiated products. 9. OLIGOPOLY – when a few large firms have all or most of the sales in an industry.