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