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Glossary allocative efficiency: - the production of the combination of products that best satisfies consumers' demands. average fixed cost: - total fixed cost divided by the quantity of output. average product: - total product (or total output) divided by the quantity of inputs used to produce that total. average profit: - the profit per unit produced; that is, the total profit divided by the output. average revenue: - the amount of revenue received per unit sold. average total cost: - total cost divided by quantity of output. average variable cost: - total variable cost divided by total output. barriers to entry: - obstacles that make it difficult for new participants to enter a market. break-even output: - the level of output at which the sales revenue of the firm just covers fixed and variable costs, including normal profit. break-even price: - the price at which the firm makes only normal profits, that is, makes zero economic profits. capital: - human-made goods that are used to produce other products. cartel: - an association of sellers acting in unison. ceteris paribus: - other things being equal, or other things remaining the same. change in demand: - a change in the quantities demanded at every price, caused by a change in the determinants of demand. change in supply: - a change in the quantities supplied at every price, caused by a change in the determinants of supply. change in the quantity demanded: - the change in quantity that results from a price change. It is illustrated by a movement along a demand curve. change in the quantity supplied: - the change in the amounts that will be produced as a result of a price change. This is shown as a movement along a supply curve. collusion: - an agreement among suppliers to set the price of a product or the quantities each will produce. common property resource: - a resource not owned by an individual or a firm. comparative advantage: - the advantage that comes from producing something at a lower opportunity cost than others are able to do. complementary products: - products that tend to be purchased jointly and for which demand is, therefore, related. concentration ratio: - a measurement of the percentage of an industry's total sales that is controlled by the largest few firms. constant returns to scale: - a firm's output increases by the same percentage as the increase in its inputs. constant-cost industry: - an industry in which the prices of resources and products remain unchanged as the industry expands. consumer goods and services: - products that are used by consumers to satisfy their wants and needs. consumer surplus: - the difference between what a customer is willing to pay and the actual price of the product. cross-elasticity of demand: - how the quantity demanded of product A responds to a change in the price of product B. currency-exchange controls: - government restrictions imposed limiting the amount of foreign currencies that can be obtained. deadweight loss: - the total surplus lost relative to an efficient market due to market imperfections, taxes, or other factors. decreasing returns to scale: - the situation in which a firm's output increases by a smaller percentage than its inputs. decreasing-cost industry: - an industry in which the prices of resources and products both fall as the industry expands. demand schedule: - a table showing the various quantities demanded per period of time at different prices. demand: - the quantities that consumers are willing and able to buy per period of time at various prices. depreciation: - the annual cost of any asset that is expected to be in use for more than one year. diseconomies of scale: - bureaucratic inefficiencies in management that result in decreasing returns to scale. division of labour: - the dividing of the production process into a series of specialized tasks, each done by a different worker. dumping: - the sale of a product abroad for a lower price than is being charged in the domestic market or for a price below the cost of production. economic capacity: - that output at which average total cost is at a minimum. economic profit: - revenue over and above all costs, including normal profits. economic rent: - the return to any factor of production above what is required to keep the factor in its present use. economic surplus: - the summation of consumer surplus and producer surplus. economies of scale: - cost advantages achieved as a result of large-scale operations. elastic demand: - quantity demanded that is quite responsive to a change in price (coefficiency of elasticity is greater than 1). elasticity coefficient: - a number that measures the responsiveness of quantity demanded to a change in price. elasticity of supply: - the responsiveness of quantity supplied to a change in price. enterprise: - the human resource that innovates and takes risks. equilibrium price: - the price at which the quantity demanded equals the quantity supplied such that there is neither a surplus nor a shortage. equilibrium quantity: - the quantity that prevails at the equilibrium price. excess capacity: - the situation in which a firm's output is below economic capacity. excise tax: - a sales tax imposed on a particular product. explicit cost: - a cost that is actually paid out in money. external benefits: - benefits that are enjoyed by people other than the producers or consumers of a product. external costs: - costs that are incurred by people other than the producers or consumers of a product. externalities: - benefits or costs of a product experienced by people who neither produce nor consume that product. factor market: - the market for the factors of production. factor output effect: - rising total output leads to an increased demand for labour. factor substitution effect: - one factor replaces another factor as a result of technological change. factors of production: - the productive resources that are available to an economy, categorized as labour, capital, land, and enterprise; also resources. fair-return price: - a price that guarantees that the firm will earn normal profits only; that is, where P = AC. game theory: - a method of analyzing firm behaviour that highlights mutual interdependence among firms. human capital: - the accumulation of all skills and knowledge acquired by individuals. imperfect competition: - a market structure in which producers are identifiable and have some control over price. implicit cost: - a cost that does not require an actual expenditure of money. income effect: - the effect that a price change has on real income and therefore on the quantity demanded of a product. income elasticity: - the responsiveness of quantity demanded to a change in income. increasing returns to scale: - a firm's output increases by a greater percentage than the increase in its inputs. increasing-cost industry: - an industry in which the prices of resources and products both rise as the industry expands. indifference curve: - shows the combinations of goods that would give the same satisfaction (or total utility) to an individual (or household). inelastic demand: - quantity demanded that is not very responsive to a change in price (coefficiency of elasticity is less than 1). inferior products: - products for which demands will decrease as a result of an increase in income and increase as a result of a decrease in income. inputs: - See resources. interest: - the payment made and the income received for the use of capital. labour force supply: - the total hours that those in the labour force are willing to work. labour force: - the total number of people over the age of 15 who are willing and able to work. labour: - human physical and mental effort that can be used to produce goods and services. laissez-faire: - the economic doctrine asserting that an economy works best with the minimum amount of government intervention. land: - any natural resource that can be used to produce goods and services. law of diminishing marginal rate of substitution: - the more of one good a person has, the less of another good he will be willing to give up to gain an additional unit of the first good. law of diminishing marginal utility: - the amount of additional utility decreases as successive units of a product are consumed. law of diminishing returns: - as more of a variable input is added to a fixed input in the production process, the resulting increase in output will, at some point, begin to diminish. law of increasing costs: - as an economy's production level of any particular item increases, its per-unit cost of production rises. long run: - the period during in which all inputs are variable. long-run average cost curve: - a graphical representation of the per-unit costs of production in the long run. macroeconomics: - the study of how the major components of an economy interact; it includes the topics of unemployment, inflation, interest rate policy, and the spending and taxation policies of government. margin: - the extra or additional unit (also “marginal”). marginal cost: - the increase in total variable costs as a result of producing one more unit of output. marginal private benefits: - the extra benefits that the buyer derives from consuming additional quantities of a product. marginal private costs: - the extra internal (or private) costs to the producer of increasing production by one additional unit. marginal product: - the increase in total product as a result of adding one more unit of input. marginal profit: - the additional economic profit from the production and sale of an extra unit of output. marginal rate of substitution: - the amount of one good a consumer is willing to give up to get one more unit of another good and still maintain the same level of satisfaction. marginal revenue product: - the increase in a firm's total revenue that results from the use of one more unit of input. marginal revenue: - the extra revenue derived from the sale of one more unit. marginal social benefits: - the additional benefits to both the consumer (internal benefits) and to society (external benefits) of additional quantities of a product. marginal social costs: - the additional costs to both the producer (internal costs) and to society (external costs) of producing additional quantities of a product. marginal utility: - the amount of additional utility derived from the consumption of an extra unit of a product. marginal wage cost: - the extra cost of hiring an additional worker. market demand: - the total demand for a product by all consumers. market failures: - the defects in competitive markets that prevent them from achieving an efficient or equitable allocation of resources. market supply: - the total supply of a product offered by all producers. market: - a mechanism that brings buyers and sellers together and assists them in negotiating the exchange of products. microeconomics: - the study of the outcomes of decisions by people and firms; it focuses on the supply and demand of goods, the costs of production, and market structures. minimum efficient scale: - the smallest-size plant capable of achieving the lowest long-run average cost of production. minimum wage: - the lowest rate of pay per hour for workers, as set by government. monopolistic competition: - a market in which there are many firms that sell a differentiated product and have some control over the price of the products they sell. monopoly: - a market in which a single firm (the monopolist) is the sole producer. monopsony: - a market structure in which there is only one buyer. mutual interdependence: - the condition in which a firm's actions depend, in part, on the reactions of rival firms. Nash equilibrium: - a situation where each rival chooses the best actions given the (anticipated) actions of the other(s). natural monopoly: - a single producer in a market (usually with large economies of scale) in which it is able to produce at a lower cost than competing firms could. nominal wage: - the wage rate expressed as a dollar-and-cents figure. non-excludable: - a feature of certain goods that means that it is impossible (or extremely costly) to prevent nonbuyers from enjoying the benefits. nonrival goods: - one person's consumption does not reduce the amount available for others. normal products: - products for which demand will increase as a result of an increase in income and decrease as a result of a decrease in income. normal profit: - the minimum profit that must be earned to keep the entrepreneur in that type of business. normative statement: - a statement of opinion or belief that cannot be verified. oligopoly: - a market dominated by a few large firms. opportunity cost: - the value of the next-best alternative that is given up as a result of making a particular choice. optimal purchasing rule: - in order to maximize utility, consumers should allocate their budgets so that marginal utility per dollar spent on all products is equal. perfect competition: - a market in which all buyers and sellers are price takers. perfect price discrimination: - a situation where customers are charged the highest price they are willing to pay for each unit of a product bought. positive statement: - a statement of fact that can be verified. price ceiling: - a government regulation stipulating the maximum price that can be charged for a product. price controls: - government regulations to set either a maximum or minimum price for a product. price discrimination: - the selling of an identical product at a different price to different customers for reasons other than differences in the cost of production. price elasticity of demand: - a measure of the percentage change of quantity demanded relative to a change in price. price floor: - a government regulation stipulating the minimum price that can be charged for a product. private goods: - goods or services whose benefits can be denied to nonbuyers and whose consumption by one person reduces the amount available for others. producer surplus: - the difference between the amount that producers would be willing to accept for each unit of output and the price they receive when the output is sold. producers' preference: - an allocation system in which sellers are allowed to determine the method of allocation on the basis of their own preferences. product differentiation: - the attempt by a firm to distinguish its product from that of its competitors. product market: - the market for consumer goods and services. production possibilities curve: - a graphical representation of the various combinations of maximum output that can be produced from the available resources and technology. productive efficiency: - production of an output at the lowest possible average cost. profit: - the income received from the activity of enterprise. protectionism: - the economic policy of protecting domestic producers by restricting the importation of foreign products. public goods: - goods or services whose benefits are not affected by the number of users and from which no one can be excluded. public utilities: - goods or services regarded as essential and, therefore, usually provided by government. quasi-public goods: - private goods that are often provided by government because they involve extensive benefits for the general public. quota: - a limit imposed on the production or sale of a product. rationing: - allocating products that are in short supply using ration coupons issued by government, guaranteeing a certain quantity of something per family. real income: - income measured in terms of the amount of goods and services that it will buy. Real income will increase if either actual income increases or prices fall. real wage: - the purchasing power of the nominal wage; that is, nominal wage divided by the price level. rent control: - a government regulation making it illegal to rent accommodation above a stipulated level. rent: - the payment made and the income received for the use of land. resources: - physical or virtual entities that can be used to produce goods and services. short run: - any period of time in which at least one input in the production process is fixed (cannot be increased or decreased). shortage: - at the prevailing price, the quantity supplied is smaller than the quantity demanded. shutdown price: - the price that is just sufficient to cover a firm's variable costs . socially optimum price: - the price that produces the best allocation of products (and, therefore, resources) from society's point of view, that is, P = MC. substitute products: - any products for which demand varies directly in relation to a change in the price of a similar product. substitution effect: - the substitution of one product for another as a result of a change in their relative prices. sunk costs: - costs that are unrecoverable. supply schedule: - a table showing the various quantities supplied per period of time at different prices. supply: - the quantities that producers are willing and able to sell per period of time at various prices. surplus: - at the prevailing price, the quantity demanded is smaller than the quantity supplied. tariff: - a tax (or duty) levied on imports. technological improvement: - changes in production techniques that reduce the costs of production. technology: - a method of production; the way in which resources are combined to produce goods and services. terms of trade: - the average price of a country's exports compared with the price of its imports. total cost: - the sum of both total variable cost and total fixed cost. total fixed costs: - costs that do not vary with the level of output. total product: - the total output of any productive process. total revenue: - the total receipts of a firm from its sales; formally, it is price multiplied by the quantity of the product sold. total variable cost: - the total of all costs that vary with the level of output. transfer earnings: - a necessary payment that a factor of production must earn in order for it to remain in its present use. unitary elasticity: - the point where the percentage change in quantity is exactly equal to the percentage change in price, that is, where the elasticity coefficient is equal to 1. utility: - the satisfaction or pleasure derived from the consumption of a product. voluntary export restriction (VER): - an agreement by an exporting country to restrict the amount of its exports to another country. wages: - the payment made and the income received for the use of labour.