| A | B |
|---|
| Absolute Advantage | Ability to produce a good at a lower cost, in units of labor or resource input |
| Comparitive advantage | ability to produce goods at a lower opportunity cost |
| Economic good | any good or service that is scarce |
| efficiency | output is produced at minimum cost |
| land | paid for use-rent |
| labor | paid for use-wages |
| capital | paid for use-interest |
| entrepreneurship | paid for use-profit |
| Complement | used together for consumption or enjoyment. More you buy of one, more you buy of other |
| inferior good | as income rises, demand falls |
| law of supply | the higher price of a good, the larger the quantity sellers wil make available |
| money price | absoulte/current price. dollar amount we observe today |
| normal good | income rises, demand rises |
| relative price | price of a comodity expressed in terms of the price of another comodity |
| shortage | qty demanded is greater than qty. supplied |
| subsidy | negative tax, payment to a producer from govt. |
| substitute | one product can be used inplace of the other. The change in one price causes a shift in demand for the other in the same direction as price change |
| surplus | qty supplied is greater than qty demanded |
| black market | goods are traded at prices above their legal max. price |
| import quota | govt set supply restriction on imports (qty) |
| minimum wage | price floor example |
| price ceiling | a legal maximum price that can be charged for a good or service |
| price floor | legal minimum price below which a good/service can not be sold |
| rent control | price ceilings placed on rents |
| anti trust legislation | enactment of laws that restrict the formation of monopolies |
| avg. tax rate | total tax payment/total income |
| marginal tax rate | change in tax payment/ change in income |
| market failure | leads to an over or under allocation of resources (externalities) |
| progressive taxation | as income rises, tax % rises |
| proportional taxes | as income rises, tax bill goes up in exactly the same proportion |
| regressive taxation | as income rises, % of taxes paid decreases |
| externality | a benefit or cost associated with an economic spillover to a third party |
| subsidy | negative tax, payment to producers or consumers of a good or service |
| command socialism | no priv. property, central auth. control |
| communism | state withers away and we observe |
| laizez faire | govt. minimizes its activity with in the economy |
| mixed economy | decision about how resources should be used is made partially by the private and partially by the public sectors |
| privatization | sale or transfer of state owned property and businesses to the private sector |
| socialism | state owns major share of productive resources except labor. Also redistributes income |
| Diminishing marginal utility | as more of any good or service is consumed, its extra benefit declines |
| marginal utility | change in total utility due to a one unit change in qty. |
| principle of substitution | as price increases, people shift away from higher purchases to relatively lower priced similar items |
| real-income effect | change in purchasing power that occurs when the price of one of the goods they purchace changes |
| util | representative unit by which we measure utility |
| utility | the want satisfying power that a good or service possesses |
| utility analysis | the analysis of consumer decision making based on utility maximization |
| price is used to ration or allocate scarce goods to those who place the highest value on them. Price is a function of relative scarcity and the intensity of desire | How is scarcity related to price? |
