Definitions Essay Research Paper Utility satisfaction derived

Definitions Essay, Research Paper

Utility: satisfaction derived from consuming a good. Profit: Profit = TR — TC = Q(AR-AC). Normal Profit: profit that the firm could make by using its resources in their next best use (opportunity cost) Supernormal profit: profit above normal profit. Welfare maximization: Adaptive Expectations: where decisions are based upon past information. Rational Expectations: where decisions are based on current information and anticipated future events. Rational economic behavior: Positive: scientific or objective study of the allocation of resources Normative: study and presentation of policy prescriptions involving value judgements about the way in which scarce resources are allocated. (subjective approach to economics) Free Good: goods which are unlimited in supply and which therefore have no opportunity cost. Economic Good: goods which are scarce because their use has an opportunity cost. Scarcity: economic agents (firms, governments,…) can only obtain a limited amount of resources at any moment in time. Choice: economic choices involve the alternative uses of scarce resources Opportunity cost: economic cost of production, benefit lost from the next best alternative. Production possibility frontier: curve which shows the maximum potential level of output of one good given a level of output for all other goods in the economy. Short Run: period of time when at least one factor input cannot be varied. Long Run: period of time when all factor inputs can be varied, but the state of tech. remains constant. Very Long Run: the period of time when the state of technology may change. Factors of Production: Land: all natural resources Labor: workforce Capital: manufactured stock of tools, machines, factories, offices, roads and other resources used in the production of goods and services. Enterpreneurship: those who organize production, and take risks. Market: occurs whenever buyers and sellers are in contact with each other. Ceteris Paribus: ‘all other things remaining the same’, the assumption that all other variables within an economic model remain constant whilst one change is being considered. Externalities: Merit Good: good which is under-provided by the market mechanism. // has positive externalities. Public Good: good where consumption by one person does not reduce the amount available for consumption by another person, (non-excluding / non-rivalrous) leads to the concept of the free rider. i.e.: defense, streetlights. Private Good: Goods which are excludable, rivalrous. Centrally Planned Economy: economic system where the government, through a planning process, allocates resources in society. Free Market Economy: economic system which resolves the basic economic problem through the market mechanism. Normal Good: good where demand increases when income increases (YED > 0) Inferior Good: good where demand falls when income increases (YED <0) Giffen Good: special type of inferior good where demand increases when price increases Veblen Good: (snob goods) goods bought in order to gain status, often sell better at high prices. Speculative goods: a fall in price will discourage people from buying (sometimes) b/c they are afraid of further falls in price. Substitution Effect: if price rises, demand will switch to substitute products. Income Effect: if prices rises, real income will diminish, and demand will change according to whether the good is normal or inferior. Law of Diminishing Returns: if increasing quantities of a variable input are combined with a fixed input, eventually the marginal product and the average product of that variable input will decline. Returns to scale: when the change of percentage output is the same as the percentage change in input. Economies of Scale: a fall in the long run average costs of production as output rises. Internal: resulting b/c of growth in the scale of production within a firm. External: resulting from a growth in the size of the industry in which a firm operates. Types: Technical: automation, specialized equipment, increased dimensions. Financial: easier credit, lower rate of interest. Managerial: specialized departments. Marketing: advertising (brand name, sponsorship, …), packaging. Risk-bearing: diversify. Monopolistic Competition: market structure where a large number of small firms produces non-homogeneous products and where there are no barriers to entry or exit. Oligopoly: market structure where there is a small number of firms in the industry and where each firm is interdependent with other firms. Monopoly: market structure where one firm supplies all output in the industry without facing competition because of high barriers to entry to the industry. Natural Monopoly: where economies of scale are so large relative to demand that the dominant producer in the industry will always enjoy lower costs of production than any other potential competitor. Perfect Competition: market structure where there are many buyers and sellers, where there is freedom of entry and exit to the market, perfect knowledge, and where all firms produce a homogeneous product. Imperfect Competition: market structure where there are several firms in industry, each of which has some ability to control the price they set for their product. Horizontal Merger: merger between two firms in the same industry at the same stage of production. Vertical Merger: merger between two firms at different production stages in the same industry. Consumer Sove