Econ Final

Cost-Benefit Principal

the analysis of something's cost versus what it cost. Assuming people are rational, this means that if the benefit of the decision is greater than the cost, the person will make a decision in favor of the benefit. If the cost is greater than the benefit,

Marginal Cost

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

Absolute Advantage

the ability to produce a good using fewer inputs than another producer

Opportunity Cost

whatever must be given up to obtain some item

Comparative Advantage

the ability to produce a good at a lower opportunity cost than another producer

Imports

goods produced abroad and sold domestically

Exports

goods produced domestically and sold abroad

Market

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

Competitive Market

a market in which there are many and many sellers so that each has a negligible impact on the market price

Quantity Demanded

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

Law of Demand

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

Demand Schedule

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

Price Floor

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

Price Ceiling

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

Substitutes

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

Compliments

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

Equilibrium Price

the price that balences quantity supplied and quantity demanded

Equilibrium Quantity

the quantity supplied and the quantity demanded at the equilibrium price

Production Possibilities Frontier

a graph that shows the combination of output that the economy can possibly produce given the availiable factors of production and the available production technology

Elasticity

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

Explicit Costs

input costs that require an outlay of money by the firm(monetary costs)

Implicit Costs

input costs that do not require an outlay of money by the firm(non-monetary costs; opportunity costs)

Fixed Costs

costs that do not vary with the quantity of output produced

Economic Profit

toal revenue - total cost(both implicit and explicit)

Incentive

Something that induces a person to act

Law of Supply

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

Law of Supply and Demand

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

Inferior Good

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

Normal Good

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

Indifference Curve

a curve that shows consumption bundles that give the consumer the same level as satisfaction

Marginal Revenue

the change in total revenue from an additional unit sold

Monopoly

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

Price Discrimination

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

Producer Surplus

the amount a seller is paid for a good minus the seller's cost of providing it

Rational People

people who systematically and purposefully do the best they can to achieve their objectives

Scarcity

the limited nature of society's resources

Total Cost

the market value of the imputs a firm uses in production

Utility

a measure of happiness or satisfaction

Variable Costs

costs that vary with the quantity of output produced

Willingness to Pay

the maximum amount that a buyer will pay for a good

Sunk Cost

a cost that has already been committed and cannot be recovered

Average Fixed Cost

fixed cost divided by the quantity of output

Average Variable Cost

variable cost divided by the quantity of output

Average Total Cost

total cost divided by the quantity of output

What you give up for taking some action is called ______?

Opportunity Cost

____ is falling when marginal cost is below it

and rising when marginal cost is above it.",Average Total Cost

A cost the does not depend on the quantity produced is a ____?

Fixed Cost

In the ice cream industry in the short run

____ includes the cost of cream and sugar but not the cost of the factory.",

Profits equal total revenue less ____ ?

Total Cost

The cost of producing an extra unit of output is the ____.

Marginal Cost

Your aunt is thinking about opening a hardware store. She estimates that it would cost $500

000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. What is your aunts opportunity cost of running a hardware store for a year? If she thinks she could sel $510,000 worth of m

A firm maximizes profit when the ____ is equal to the ____.

Marginal Revenue; Marginal Cost

If marginal revenue is greater than marginal cost

the firm should ____ its output.",increase

If marginal revenue is less than marginal cost

the firm should ____ its output.",

In the short run

the firm should shut down if the ____ of goods is less than the ____.",Price; Average Variable Cost

In the short run

the firm wants to produce on the marginal cost curve as long as the price of the good is ____ than the average variable cost.",greater

In the long run

the firm should exit the market if the ____ of its good is less than the ____.",Price; Average Total Cost

Price elasticity of demand is the percent change in ____

divided by the percent change in ____.",Quantity Demanded; Price

Income elasticity of demand is the percent change in ____

divided by the percent change in ____.",Quantity Demanded; Income

Cross Price elasticity of demand is the percent change in the ____

divided by the percent change in the ____?",Quantity demanded for good 1;Price of good 2

Price elasticity of supply is the percent change in ____

divided by the percent change in ____.",Quantity supplied; Price