Absoute advantage (page585)Situation in which coury I has an advantage over country 2in producinga good because the of producing the good than the co of producing it in2. Accounting cost (page 204)Actual expenses plus depreciation charges for capital equipment. Accounting profit(Page 273)The difference between a firm's revenues and its costs,including accounting depreciation but excluding any opportunity costs Actual r (page 168)Return that an ass earns Actuarially fair (page 163)Situation in which an insurance premium is equal to the expected payout. Adverse selection (page 598)Form of market failure resulting from asymmetric information:if insurance companies must charge a single premium because they cannot distinguish between high-risk and low-risk individuals,more high-isk individuals will insure,making it unprofitable Advertising elasticity of demand (page 405)Percentage change in quantity demanded resulting from a I-percent increase in advertising expenditures. Advertising-to-sales ratio(page 405)Ratio of a firm's advertising expenditures to its sales. )Rulesand regulations prohibiting actions that restrain,re likely to restrain,competition Arbitrage(page 8)Practice of buying at a low price at one location and selling at ahigher price in another Are elasticity of demand (Page 120)Price elasticity calculated over arange of prices 547A constant that measures the sensitivity ofan asset's retur to marke movements and,therefore,the asset's nondiversifiable risk. Asymmetric information (page 596)Situation in which a buyer and a seller possess different information about a transaction Auction markets (page 491)Markets in which products are bought and sold through formal Average cost(page 209)Production cost per unit of output. Average expenditure(page 352)Price paid per unit of a good. Average expenditure curve(Page 510)Supply curve representing the price per unit that a firm (pag e9)Fixed cost divided by the level of oupu Average produet (Page 182)Output per unit of a particular input Average revenue (page 329)Revenue divided by the number of units sold,i.e.price per unit. Average total cost(ATC)(Page 209)Firm's total cost divided by its level of output. Average variable cost(AVC)(page 210)Variable cost divided by the level of outpu Backward-bending labor supply ve(page 511)The portion of the labor supply curve at which the wage rate increases and the hours of work supplied decreases,giving the curve a negative slope. Bad (page 70)Good for which less is preferred rather than more. Bandwagon effect(攀比效应)Page127)Positive network externality in which a consumer
Absolute advantage (page 585) Situation in which country 1 has an advantage over country 2 in producing a good because the cost of producing the good in 1 is lower than the cost of producing it in 2. Accounting cost (page 204) Actual expenses plus depreciation charges for capita1 equipment. Accounting profit (Page 273) The difference between a firm’s revenues and its costs, including accounting depreciation but excluding any opportunity costs. Actual return (page 168) Return that an asset earns. Actuarially fair (page 163) Situation in which an insurance premium is equal to the expected payout. Adverse selection (page 598) Form of market failure resu1ting from asymmetric information: if insurance companies must charge a single premium because they cannot distinguish between high-risk and low-risk individuals, more high-risk individuals will insure, making it unprofitable to sell insurance. Advertising elasticity of demand (page 405) Percentage change in quantity demanded resulting from a 1-percent increase in advertising expenditures. Advertising-to-sales ratio (page 405) Ratio of a firm's advertising expenditures to its sales. Agent (page 609) Individual employed by a principal to achieve the principal's objective. Antitrust laws (Page 360) Rules and regulations prohibiting actions that restrain, or are likely to restrain, competition. Arbitrage (page 8) Practice of buying at a low price at one location and selling at a higher price in another Arc elasticity of demand (Page 120) Price elasticity calculated over a range of prices. Asset (page 166) Something that provides a flow of money or services to its owner. Asset beta (page 547) A constant that measures the sensitivity of an asset's return to market movements and, therefore, the asset's nondiversifiable risk. Asymmetric information (page 596) Situation in which a buyer and a seller possess different information about a transaction. Auction markets (page 491) Markets in which products are bought and sold through formal bidding processes. Average cost (page 209) Production cost per unit of output. Average expenditure (page 352) Price paid per unit of a good. Average expenditure curve (Page 510) Supply curve representing the price per unit that a firm pays for a good. Average fixed cost (AFC) (page 209) Fixed cost divided by the level of output. Average product (Page 182) Output per unit of a particu1ar input. Average revenue (page 329) Revenue divided by the number of units sold, i.e., price per unit. Average total cost (ATC) (Page 209) Firm’s tota1 cost divided by its level of output. Average variable cost (AVC) (page 210) Variable cost divided by the level of output. Backward-bending labor supply curve (page 511) The portion of the labor supply curve at which the wage rate increases and the hours of work supplied decreases, giving the curve a negative slope. Bad (page 70) Good for which less is preferred rather than more. Bandwagon effect(攀比效应) (Page 127) Positive network externality in which a consumer
wishes to possess a good in part because others do. Barrier to(page 6)Condition that impedes entry by new competitor Bertrand model (page 437)Oligopoly model in which firms produce a homogeneous goodea firm treats the price of its competitors as fixed,and all firms decide simultaneously what price to charge. Bilateral monopoly (page 358)Market with only one seller and one buyer block pricing (page Bond(page538)Contract in whicha borrower agrees topay the bondholder (the lender)astream of money Budget constraint (page 75)Constraints that consumers face as a result of limited incomes. Budget line(Page 75)All combinations of goods for which the total amount of money spent is equal to income. Bunding(Page 39)Practice of selling twoor more products as a package Capital (Page 178)Buildings,equipment,and inventories which can be utilized(along with labor and raw materials)to produce output. Capital Asset Pricing Model (CAPM)(p ge 547)Model in which the risk prer mium for a capital tment deper on the the investment's retu with the the entire market. Cardinal utility function(page 74)Utility function describing by how much one market basket is preferred to another. Cartel (Page 424)Market in which s omeor all firms explicitly collude coordinating pices and Jont profits. Cash flow (page 204)The actual outlays by a firm,including wages,salaries,costs of materials, and property rentals. Ceiling price (page 54)A maximum price that firms are allowed by the government to charge for a good. Chain-weighted price index(连锁加权平均指数(Page96)Cost-of-living index that for changes in quantities of goods and services Clayton Act (Page 360)As amended by the Robinson-Patman Act,a law that makes it illegal to discriminate by charging buyers of essentially the same product different prices. Coase theorem (page 640)Principle that when parties can bargain without cost and to their mutual advantage.the resulting outcome will be efficient regardless of how property rights are Cobb-Douglas production function (Page 248)Production function of the formQ-AKL whereQ is the rate of output,K is the quantity of capital,and Lis the quantity of labor,and where a and b are constants Cobb-Douglas utility function (page 143)Utility function U(X.Y)X where X and Y are two goods and a is constant Common property resource(共有资a源)(page642)Resource to which anyone has free acces Common-value auction (Page 492)Auction in which the item has the same value to all bidders but bidders do not know that value precisely and their estimates of it vary. Company cost of capital (page 548)Weighted average of the expected return on a company's
wishes to possess a good in part because others do. Barrier to entry (page 346) Condition that impedes entry by new competitors. Bertrand model (page 437) Oligopoly model in which firms produce a homogeneous good, each firm treats the price of its competitors as fixed, and all firms decide simultaneously what price to charge. Bilateral monopoly (page 358) Market with only one sel1er and one buyer block pricing (page 375) Practice of charging different prices for different quantities or “blocks” of a good. Bond (page 538) Contract in which a borrower agrees to pay the bondholder (the lender) a stream of money. Budget constraint (page 75) Constraints that consumers face as a result of limited incomes. Budget line (Page 75) All combinations of goods for which the total amount of money spent is equal to income. Bundling (Page 392) Practice of selling two or more products as a package. c Capital (Page 178) Buildings, equipment, and inventories which can be utilized (along with labor and raw materials) to produce output. Capital Asset Pricing Model (CAPM) (page 547) Model in which the risk premium for a capital investment depends on the correlation of the investment's return with the return on the entire stock market. Cardinal utility function (page 74) Utility function describing by how much one market basket is preferred to another. Cartel (Page 424) Market in which some or all firms explicitly collude, coordinating prices and output levels to maximize joint profits. Cash flow (page 204) The actual outlays by a firm, including wages, salaries, costs of materials, and property rentals. Ceiling price (page 54) A maximum price that firms are allowed by the government to charge for a good. Chain-weighted price index(连锁加权平均指数)(Page 96) Cost-of-living index that accounts for changes in quantities of goods and services. Clayton Act (Page 360) As amended by the Robinson-Patman Act, a law that makes it illegal to discriminate by charging buyers of essentially the same product different prices. Coase theorem (page 640) Principle that when parties can bargain without cost and to their mutual advantage, the resulting outcome will be efficient regardless of how property rights are specified. Cobb-Douglas production function (Page 248) Production function of the form Q = AKaL b , where Q is the rate of output, K is the quantity of capital, and L is the quantity of labor, and where a and b are constants. Cobb-Douglas utility function (page 143) Utility function U(X,Y) = Xay 1-a , where X and Y are two goods and a is a constant. Common property resource(共有资源) (page 642) Resource to which anyone has free access. Common-value auction (Page 492) Auction in which the item has the same value to all bidders, but bidders do not know that value precisely and their estimates of it vary. Company cost of capital (page 548) Weighted average of the expected return on a company’s
stock and the interest rate that it pays for debt 2 in producing a good because the cost of producing the good in 1,relative to the cost of producing other goods in 1,is lower than the cost of producing the good in 2 relative to the cost of producing other goods in 2. Competitive markets(Page 8)Markets in which buvers and sellers individually have little or no abilityto affect pric Complements(page 23)Two goods for which an increase in the price of one leads to a decrease in the quantity demanded of the other. Completely inelastic demand (Page 32)Consumers will buy a fixed quantity of a good regardless of its price. Constant returns toseale (Page 198)Output doubles when all inputs are doubled. Constant-cost indu ry(Page 277)Industry whose long-run supply curve is horizontal Consumer Price Index(Page 11)Measure of the aggregate price level Consumer surplus (individual)(page 123)Difference between what a consumer is willing to pay for a good and the amount actually paid. Consumer surplus(market)(Page 124)Net benefit to all consumers purchasing a good.Equal to area under the e the Contract curve (Page 571)Curve showing all efficient allocations of goods between two consumers,or of two inputs between two production functions. Cooperative game(Page 462)Game in which participants can negotiate binding contracts that allow them to plan joint strategies. Comer solution (Page8)Situation in which the al rate of substitution for one good in a osen market basket Cost function (Page 237)Function relating cost of production to level of output and other variables that the firm can control Cost-of-living index (page 93)Ratio of the present cost of a typical bundle of consumer goods nd services npared with the cs duringa base period. Coumot equili此 m(Page 433)Equilit ium in the Co ourot model,in which each firm assumes how much its competitor will produce and sets its own production level accordingly. Coumot model (page 431)Oligopoly model in which firms produce a homogeneous good.each firm treats the output of its competitors as fixed,and all firms decide simultaneously how much to produce. Cross-price elasticity of demand (Page 32)Percentage change in the quantity demanded ofone good resul ting from a I-percent increase in the price of anothe Cyclical industries(Page 38)Industries in which sales tend to magnify cyclical changes in gross national product and national income. D Decreasing return Decreasing-cost industry (page 280)Industry whose long-run supply curve is downward sloping Degree of economies of scope(SC)(Page 231)Percentage of cost savings resulting when two or more products are produced jointly rather than individually Demand crve (page21)Relationship between the quantity of a good that consumers are willing
stock and the interest rate that it pays for debt. Comparative advantage (page 585) Situation in which country 1 has an advantage over country 2 in producing a good because the cost of producing the good in 1, relative to the cost of producing other goods in 1, is lower than the cost of producing the good in 2, relative to the cost of producing other goods in 2. Competitive markets (Page 8) Markets in which buyers and sellers individually have little or no ability to affect prices. Complements (page 23) Two goods for which an increase in the price of one leads to a decrease in the quantity demanded of the other. Completely inelastic demand (Page 32) Consumers will buy a fixed quantity of a good regardless of its price. Constant returns to scale (Page 198) Output doubles when all inputs are doubled. Constant-cost industry (Page 277) Industry whose long-run supply curve is horizontal. Consumer Price Index (Page 11) Measure of the aggregate price level. Consumer surplus (individual) (page 123) Difference between what a consumer is willing to pay for a good and the amount actually paid. Consumer surplus (market) (Page 124) Net benefit to all consumers purchasing a good. Equa1 to area under the demand curve above the price. Contract curve (Page 571) Curve showing all efficient allocations of goods between two consumers, or of two inputs between two production functions. Cooperative game (Page 462) Game in which participants can negotiate binding contracts that allow them to plan joint strategies. Comer solution (Page 84) Situation in which the marginal rate of substitution for one good in a chosen market basket is not equal to the slope of the budget line. Cost function (Page 237) Function relating cost of production to level of output and other variables that the firm can control. Cost-of-living index (page 93) Ratio of the present cost of a typical bundle of consumer goods and services compared with the cost during a base period. Coumot equilibrium (Page 433) Equilibrium in the Cournot model, in which each firm correctly assumes how much its competitor will produce and sets its own production level accordingly. Coumot model (page 431) Oligopoly mode1 in which firms produce a homogeneous good, each firm treats the output of its competitors as fixed, and all firms decide simultaneously how much to produce. Cross-price elasticity of demand (Page 32) Percentage change in the quantity demanded of one good resulting from a 1-percent increase in the price of another. Cyclical industries (Page 38) Industries in which sales tend to magnify cyclical changes in gross national product and national income. D Deadweight loss (page 292) Net loss of total (consumer plus producer) surplus. Decreasing returns to scale (page 198) Output less than doubles when all inputs are doubled. Decreasing-cost industry (page 280) Industry whose long-run supply curve is downward sloping. Degree of economies of scope (SC) (Page 231) Percentage of cost savings resulting when two or more products are produced jointly rather than individually Demand curve (page 21) Relationship between the quantity of a good that consumers are willing
to buy and the price of the good. Depletablee(page 552).such which if produced today Depreciation (page 204)The decline in value of a capital asset as it is used over time Derived demand (Page 502)Demand for an input that depends on.and is derived from.both the firm's level of output and the cost of inputs. Deviation(page 151)Difference betwee expected payoff and actual payoff. Diminishingmar utility (page 9) Principle that t as more of a good is consumed,the consumption of additional amounts will yield smaller additions to utility. Discount rate (page 542)Rate used to compare the value of a dollar received in the future to the value of a dollar received today. Diseconomies of scale (Page 227)A doubling of output requires more than a doubling of cost scope(Page23)of a single frm is ss than cou be achieved by separate firms when each produ ces a single product Diversifiable risk (page 546)Risk that can be eliminated either by investing in many projects or by holding the stocks of many companies. Diversification(page 161)Reducing risk by allocating resources to a variety of activities whose outcomes are not c sely related (page 450)Firm with a large share of total sales that sets price to maximize profits,taking into account the supply response of smaller firms Dominant strategy (page 464)Strategy that is optimal no matter what an opponent does. Duality (page 144)Alternative way of looking at the consumer's utility maximization decision Rather than choosing the highest indiffere curve.givena budget consraint,the chooses the lowe bud hes a given indiffer Duopoly (Page 430)Market in which two firmscompete with each other Durable good (page 36)A consumption or capital good bought to provide services for a long time Dutch auction (Page 492)auction in which a seller begins by offering an item at a relatively high price,then red uces it by fixed amounts until the item issold Economic cost (Page 204)Cost to a firm of utilizing economic resources in production,including opportunity cost. Economie efficiency (page 294)Maximization of agg regate consumer and nroducer surnlus Economic profit(Page 273)The difference between a firm's revenues and its costs,including any opportunityc Economic rent(page 275)Amount that firms are willing to pay for an input less the minimum amount necessary to obtain it Economies of scale (page 227)Output can be doubled for less than a doubling of cost Economies of scope (Page 231)Joint output of a single fimm is greater than output that could be achieved by two differ firm s when ch producesa nge product. (Page569)Diagram showing all possible alocations of either two goods between two people or of two inputs between two production processes. Effective yield(or rate of retum)(Page 539)Percentage return that one receives by investing in a hond
to buy and the price of the good. Depletable resource (page 552) A natural resource, such as oil or copper, which if produced today is unavailable for future production. Depreciation (page 204) The decline in value of a capital asset as it is used over time. Derived demand (Page 502) Demand for an input that depends on, and is derived from, both the firm’s level of output and the cost of inputs. Deviation (page 151) Difference between expected payoff and actual payoff. Diminishing marginal utility (page 90) Principle that as more of a good is consumed, the consumption of additional amounts will yield smaller additions to utility. Discount rate (page 542) Rate used to compare the value of a dollar received in the future to the value of a dollar received today. Diseconomies of scale (Page 227) A doubling of output requires more than a doubling of cost. Diseconomies of scope (Page 23l) Joint output of a single firm is less than could be achieved by separate firms when each produces a single product. Diversifiable risk (page 546) Risk that can be eliminated either by investing in many projects or by holding the stocks of many companies. Diversification (page 161) Reducing risk by allocating resources to a variety of activities whose outcomes are not closely related. Dominant firm (page 450) Firm with a large share of total sales that sets price to maximize profits, taking into account the supply response of smaller firms. Dominant strategy (page 464) Strategy that is optimal no matter what an opponent does. Duality (page 144) Alternative way of looking at the consumer’s utility maximization decision: Rather than choosing the highest indifference curve, given a budget constraint, the consumer chooses the lowest budget line that touches a given indifference curve. Duopoly (Page 430) Market in which two firms compete with each other. Durable good (page 36) A consumption or capital good bought to provide services for a long time. Dutch auction (Page 492) Auction in which a sel1er begins by offering an item at a relatively high price, then reduces it by fixed amounts until the item is sold. E Economic cost (Page 204) Cost to a firm of utilizing economic resources in production, including opportunity cost. Economic efficiency (page 294) Maximization of aggregate consumer and producer surplus. Economic profit (Page 273) The difference between a firm’s revenues and its costs, including any opportunity costs. Economic rent (page 275) Amount that firms are willing to pay for an input less the minimum amount necessary to obtain it. Economies of scale (page 227) Output can be doubled for less than a doubling of cost. Economies of scope (Page 231) Joint output of a single firm is greater than output that could be achieved by two different firms when each produces a single product. Edgeworth box (Page 569) Diagram showing all possible allocations of either two goods between two people or of two inputs between two production processes. Effective yield (or rate of retum) (Page 539) Percentage return that one receives by investing in a bond
Efficieney wage(Page 617)Wage that a firm will pay to an employee as an incentive not to shirk. discrimination which recognizes that labor productivity may be affected by the wage rate. Efficient allocation (Page 567)Allocation of goods in which no one can be made better off unless someone else is made worse off. Elastie demand (page 31)When the percentage change in quantity demanded of a good in ool0Egeneeomaaee another. Emissions fee (Page 626)Charge levied on each unit of a firm's emissions Emissions standard(page 626)Legal limit on the amount of pollutant that a firm can emit. Engel urve(page 106)Curve relating the quantity of agood consumed to income English(rral)(page 491)Auction in which a sller actively solicits progressively higher bids from a group of potential buyers. Equal marginal prineiple(page 91)Principle that utility is maximized when the consumer has equalized the marginal utility per dollar of expenditure across all goods equilibrium(ormarket-cearing)price(page 23)Price that equates the quantity supplied to the i domit Oome f which Sh fim is oine ad the best it can regardless of what its competitors are doing. Excess demand (page 573)When the quantity demanded of a good exceeds quantity supplied. Excess supply (page 573)When the quantity supplied of a good exceeds quantity demanded. Exchange y(交换经济)(Pag 56)M rket in which two or more sumers trade two goods among themselve Expansion path (page 222)Curve passing through points of tangency between a firm's isocost lines and its isoquants Expected return(page 168)Return that an asset should earn on average Expe age 56)Sum of associated with all possible outcomes weighted iyhatcach ut ill oce Expected value (page 150)Probability-weighted average of the values associated with all possible outcomes Extensive form of a game(page 477)Representation of possible moves in a game in the form of a decision tree (PageBoundaries of a market,both geographical and in terms of range of products produced an od withinit externality (page 294.622)Action taken by either a producer o a consumer which affects other producers or consumers but is not accounted for by the market price. (page 178)Inputs into the poduction process (,capital,an materials) Feedback effect(page 564)A price or quantity adjustment in one market that is caused by price and quantity adjustments in related markets First-degree price discrimination (Page 371)Practice of charging each customer her reservation
Efficiency wage (Page 617) Wage that a firm will pay to an employee as an incentive not to shirk. Efficiency wage theory (Page 616) Explanation for the presence of unemployment and wage discrimination which recognizes that labor productivity may be affected by the wage rate. Efficient allocation (Page 567) Allocation of goods in which no one can be made better off unless someone else is made worse off. Elastic demand (page 31) When the percentage change in quantity demanded of a good in response to a 1-percent change in price is greater than 1 in magnitude. Elasticity (Page 30) Percentage change in one variable resulting from a 1-percent increase in another. Emissions fee (Page 626) Charge levied on each unit of a firm’s emissions. Emissions standard (page 626) Legal limit on the amount of pollutant that a firm can emit. Engel curve (page 106) Curve relating the quantity of a good consumed to income. English (or oral) auction (page 491) Auction in which a seller actively solicits progressively higher bids from a group of potential buyers. Equal marginal principle (page 91) Principle that utility is maximized when the consumer has equalized the marginal utility per dollar of expenditure across all goods. equilibrium (or market-clearing) price (page 23) Price that equates the quantity supplied to the quantity demanded. Equilibrium in dominant strategies (page 465) Outcome of a game in which each firm is doing the best it can regardless of what its competitors are doing. Excess demand (page 573) When the quantity demanded of a good exceeds quantity supplied. Excess supply (page 573) When the quantity supplied of a good exceeds quantity demanded. Exchange economy(交换经济) (Page 567) Market in which two or more consumers trade two goods among themselves. Expansion path (page 222) Curve passing through points of tangency between a firm's isocost lines and its isoquants. Expected return (page 168) Return that an asset should earn on average. Expected utility (page l56) Sum of the utilities associated with all possible outcomes, weighted by the probability that each outcome will occur. Expected value (page 150) Probability-weighted average of the values associated with all possible outcomes. Extensive form of a game (page 477) Representation of possible moves in a game in the form of a decision tree. Extent of a market (Page 9) Boundaries of a market, both geographical and in terms of range of products produced and sold within it. externality (page 294, 622) Action taken by either a producer or a consumer which affects other producers or consumers but is not accounted for by the market price. F Factors of production (page 178) Inputs into the production process (e.g., labor, capital, and materials). Feedback effect (page 564) A price or quantity adjustment in one market that is caused by price and quantity adjustments in related markets' First-degree price discrimination (Page 371) Practice of charging each customer her reservation
nrice First-price(page 49)Auction in which the saes price highest bid First theorem of welfare ccono (page 574)If everyone trades in the competitive marketplace,all mutually beneficial trades will be completed and the resulting equilibrium allocation of resources will be economically efficient. Fixed eost(FC)(page 206)Cost that does not vary with the level of output. Fixed input(page )Production factor that be varied. Fixed-propiopro(page 195)Production ith so that only one combination of labor and capital can be used to produce each level of output Fixed-weight index (Page 96)Cost-of living index in which the quantities of goods and services remain unchanged. Free entry (exit)(page 253)When there are no special costs that make it difficult for a firm to Free rider(page 647)C nsumer r producer who does not pay for a nonexclusive good in the expectation that others will. G Game (Page 462)Situation in which plavers (participants)make strategic decisions that take into alysis (Page 564)Simultaneous determination of the prices and quantities in all relevaflt markets,taking feedback effects into account Giffen good (page 113)Good whose demand curve slopes upward because the (positive)income effect is larger than the(negative)substitution effect. Hicksian substitution effect(Page 147)Alternative to the Slutsky equation for decomposing price changes without recourse to indifference curves Horizontal integration (page 613)Organizational form in which several plants produce the same or related products for a firm. Ideal cost-of-living index(page 94)Cost of attaining a given level of utility at current prices relative to the cost of attainin esame utility at base (page 309)Limit on the quantity of a good that can be imported Income effeet (Page 112)Change in consumption of a good resulting from an increase in ourchasing power.with relative price held constant Income elasticity of demand(Page 32)Percentage change in the quantity demanded resulting from a l-percent increase in income Income-consumption curve(page 105)Curve tracing the uility-maximizing combinations of two goods as aconsumer's income changes. Inereasing returns to scale (page 198)Output more than doubles when all inputs are doubled. Increasing-cost industry (page 279)Industry whose long-run supply curve is upward sloping. Indifference curve(Page 64)Curve representing all combinations pf market baskets that provide sumer with the same level of satisfaction ndiffere map(page6)Graph containing as of indifference curves showing the market baskets among which a consumer is indifferent. Individual demand curve (Page 103)Curve relating the quantity of a good that a single consumer will buy to its price
price. First-price auction (page 492) Auction in which the sales price is equal to the highest bid. First theorem of welfare economics (page 574) If everyone trades in the competitive marketplace, all mutually beneficial trades will be completed and the resulting equilibrium allocation of resources will be economically efficient. Fixed cost (FC) (page 206) Cost that does not vary with the level of output. Fixed input (page l8l) Production factor that cannot be varied. Fixed-proportions production function (page 195) Production function with L-shaped isoquants, so that only one combination of labor and capital can be used to produce each level of output. Fixed-weight index (Page 96) Cost-of living index in which the quantities of goods and services remain unchanged. Free entry (exit) (page 253) When there are no special costs that make it difficult for a firm to enter (or exit) an industry Free rider (page 647) Consumer or producer who does not pay for a nonexclusive good in the expectation that others will. G Game (Page 462) Situation in which players (participants) make strategic decisions that take into account each other’s actions and responses. General equilibrium analysis (Page 564) Simultaneous determination of the prices and quantities in all relevaflt markets, taking feedback effects into account. Giffen good (page 113) Good whose demand curve slopes upward because the (positive) income effect is larger than the (negative) substitution effect. H Hicksian substitution effect (Page 147) Alternative to the Slutsky equation for decomposing price changes without recourse to indifference curves. Horizontal integration (page 613) Organizational form in which several plants produce the same or related products for a firm. Ideal cost-of-living index (page 94) Cost of attaining a given level of utility at current prices relative to the cost of attaining the same utility at base-year prices. Import quota (page 309) Limit on the quantity of a good that can be imported. Income effect (Page 112) Change in consumption of a good resulting from an increase in purchasing power, with relative price held constant. Income elasticity of demand (Page 32) Percentage change in the quantity demanded resulting from a 1-percent increase in income. Income-consumption curve (page 105) Curve tracing the utility-maximizing combinations of two goods as a consumer’s income changes. Increasing returns to scale (page 198) Output more than doubles when all inputs are doubled. Increasing-cost industry (page 279) Industry whose long-run supply curve is upward sloping. Indifference curve (Page 64) Curve representing all combinations pf market baskets that provide a consumer with the same level of satisfaction. Indifference map (page 66) Graph containing a set of indifference curves showing the market baskets among which a consumer is indifferent. Individual demand curve (Page 103) Curve relating the quantity of a good that a single consumer will buy to its price
Industry (page 8)Acollection of firms that sell the same or closely related products. Infinitely elastie demand (page 32)Consumers will buy as much of a good as they can get at a single price,but for any higher price the quantity demanded drops to zero,while for any lower price the quantity demanded increases without limit. Interest rate (page 534)Rate at which one can borrow or lend money demand different groupsby charging different pricesat different points intime Isoeost line(page 217)Graph showing all possible combinations of labor and capital that can be ourchased for a given total cost. Isoelastic demand curve(Page 118)Demand curve with a constant price elasticity. soquant(Page 179)Curve showing all possible combinations of inputs that yield the same output Isoquant map (page 180)Graph combining several isoquants,used to describe a productior function. K kinked demand curve model (page 446)Oligopoly model in which each firm faces a demand curve kinked at th rently prevailing price at higher prices demand is very elastic whereas at ower prices itisinelasti Labor productivity (page 188)Average product of labor for an entire industry or for the economy as a whole. Lagrangian (Page 140)Function to be maximized or minimized,plus a variable(the Lagrang Laspeyres price index (page 94)Amount of money at current-year prices that an individua requires to purchase a bundle of goods and services chosen in a base year divided by the cost of purchasing the same bundle at base-vear prices. aw of diminishing marginal ret rs(page 185)Principle that as the use of an input increases with othe rinputs fix resulting itions toouput will event Learning curve (page 233)Graph relating amount of inputs needed by a firm to produce each unit of output to its cumulative output Least-squares criterion (Page 656)Criterion of "best fit"used to choose values for regression parameters,usually by minimizing the sum of squared residuals between the actual values of the dependent variable d the fitted values opoly Power(page 341)Measure of monopoly power calculated as excess of price over marginal cost as a fraction of price. Linear demand curve (page 31)Demand curve that is a straight line. Linear regression (Page 655)Model specifving a linear relationship between a dependent variableand several independent (o expanatory)variables ng(page )Amout of tme needed to make all produ Long-run average cost curve (LAC)(page 226)Curve relating average cost of production to output when all inputs.including capital.are variable Long-run competitive equilibrium (page 274)All firms in an industry are maximizing profit no firm has an incentive to enter or exit,and price is such that quantity supplied equals quantity
Industry (page 8) A collection of firms that sell the same or closely related products. Inferior good (Page 106) A good for which consumption falls as an individual’s income rises. Infinitely elastic demand (page 32) Consumers will buy as much of a good as they can get at a single price, but for any higher price the quantity demanded drops to zero, whi1e for any lower price the quantity demanded increases without limit. Interest rate (page 534) Rate at which one can borrow or lend money. Intertemporal price discrimination (page 382) Practice of separating consumers with different demand functions into different groups by charging different prices at different points in time. Isocost line (page 217) Graph showing all possible combinations of labor and capital that can be purchased for a given total cost. Isoelastic demand curve (Page 118) Demand curve with a constant price elasticity. Isoquant (Page 179) Curve showing all possible combinations of inputs that yield the same output. Isoquant map (page 180) Graph combining several isoquants, used to describe a production function. K kinked demand curve model (page 446) Oligopoly model in which each firm faces a demand curve kinked at the currently prevailing price: at higher prices demand is very elastic, whereas at lower prices it is inelastic. L Labor productivity (page 188) Average product of labor for an entire industry or for the economy as a whole. Lagrangian (Page 140) Function to be maximized or minimized, plus a variable (the Lagrange multiplier) multiplied by the constraint. Laspeyres price index (page 94) Amount of money at current-year prices that an individual requires to purchase a bundle of goods and services chosen in a base year divided by the cost of purchasing the same bundle at base-year prices. Law of diminishing marginal returns (page 185) Principle that as the use of an input increases with other inputs fixed, the resulting additions to output will eventually decrease. Learning curve (page 233) Graph relating amount of inputs needed by a firm to produce each unit of output to its cumulative output. Least-squares criterion (Page 656) Criterion of "best fit" used to choose values for regression parameters, usually by minimizing the sum of squared residuals between the actua1 values of the dependent variable and the fitted values. Lerner Index of Monopoly Power (page 341) Measure of monopoly power calculated as excess of price over marginal cost as a fraction of price. Linear demand curve (page 31) Demand curve that is a straight line. Linear regression (Page 655) Model specifying a linear relationship between a dependent variable and several independent (or exp1anatory) variables and an error term. Long run (page l81) Amount of time needed to make all production inputs variable. Long-run average cost curve (LAC) (page 226) Curve relating average cost of production to output when all inputs, including capital, are variable. Long-run competitive equilibrium (page 274) All firms in an industry are maximizing profit, no firm has an incentive to enter or exit, and price is such that quantity supplied equals quantity
demanded. Long-rn marginal cost eurve(LMC)(page 226)Change in long-run total cost as output is Macroeconomics (page 4)Branch of economics that deals with aggregate economic variables such as the level and growth rate of national output,interest rates,unemployment,and inflation. Marginal benefit(page8)Benefit from the consumption of one additional unit of a good Ma arginal cst(page 8)Cos ofa good. Marginal expenditure curve(page 510)Curve describing the incremental cost of purchasing one additional unit of a good. Marginal external benefit (page 624)Increased benefit that accrues to other parties as a firm output by one unit. Marginal external cost (page 622)Increase in cost timposed externally as one or more firms increase output by one unit. Marginal product(page 182)Additional output produced as an input is increased by one unit. Marginal rate of substitution(MRS)(page 68)Amount of a good that a consumer is willing to al rate of technical substitutio(MRTS)(page 19)Amount by which the quantity of one input can be reduced when one extra unit of another input is used,so that output remains constant Marginal rate of transformation (page 582)Amount of one good that must be given up to produce one additional unit Marginal reveue (pa 56)Ch. Marginal revenue product (page 502)Additional revenue resulting from the sale of output created by the use of one additional unit of an input. Marginal social benefit (Page 624)Sum of the marginal private benefit plus the marginal external benefit. Marginal social cost (Page 622)Sum of the marginal cost of production and the marginal exteral Marginal utility (MU)(Page 90)Additional satisfaction obtained from consuming one additional unit of a good. Marginal value (page 352)Additional benefit derived from purchasing one more unit of a good. Market(page 7)Collection of buyersand sellers that,through their actual or potential ineraction of products Market definition (Page 8)Determination of the buvers.sellers.and range of products that should be included in a particular market. Market demand curve (Page 116)Curve relating the quantity of a good that all consumers in a market will buy to pric Market failure(Page 29)Sitation in which an competitive market is inefficien because prices fail to provide proper signals to consumers and producers. Market mechanism (page 23)Tendency in a free market for price to change until the market clears
demanded. Long-run marginal cost curve (LMC) (page 226) Change in long-run total cost as output is increased incrementally by 1 unit. M Macroeconomics (page 4) Branch of economics that deals with aggregate economic variables, such as the level and growth rate of national output, interest rates, unemployment, and inflation. Marginal benefit (page 80) Benefit from the consumption of one additional unit of a good. Marginal cost (page 80) Cost of one additional unit of a good. Marginal expenditure (page 352) Additional cost of buying one more unit of a good. Marginal expenditure curve (page 510) Curve describing the incremental cost of purchasing one additional unit of a good. Marginal external benefit (page 624) Increased benefit that accrues to other parties as a firm increases output by one unit. Marginal external cost (page 622) Increase in cost imposed externally as one or more firms increase output by one unit. Marginal product (page 182) Additional output produced as an input is increased by one unit. Marginal rate of substitution (MRS) (page 68) Amount of a good that a consumer is willing to give up in order to obtain one additional unit of another good. Marginal rate of technical substitution (MRTS) (page 192) Amount by which the quantity of one input can be reduced when one extra unit of another input is used, so that output remains constant. Marginal rate of transformation (page 582) Amount of one good that must be given up to produce one additional unit of a second good. Marginal revenue (page 256) Change in revenue resulting from a 1 unit increase in output. Marginal revenue product (page 502) Additional revenue resulting from the sale of output created by the use of one additional unit of an input. Marginal social benefit (Page 624) Sum of the marginal private benefit plus the marginal external benefit. Marginal social cost (Page 622) Sum of the marginal cost of production and the marginal external cost. Marginal utility (MU) (Page 90) Additional satisfaction obtained from consuming one additional unit of a good. Marginal value (page 352) Additional benefit derived from purchasing one more unit of a good. Market (page 7) Collection of buyers and sellers that, through their actual or potential interactions, determine the price of a product or set of products. Market basket (or bundle) (page 62) List with specific quantities of one or more goods. Market definition (Page 8) Determination of the buyers, sellers, and range of products that should be included in a particular market. Market demand curve (Page 116) Curve relating the quantity of a good that all consumers in a market will buy to price. Market failure (Page 294) Situation in which an unregulated competitive market is inefficient because prices fail to provide proper signals to consumers and producers. Market mechanism (page 23) Tendency in a free market for price to change until the market clears
Market power(Page 328)Ability of a seller or buyer to affect the price of a good. Market price(P)Price prevaling market Market signaling (Page 601)Process by which sellers send signals to buyers conveying information about product quality Markup pricing(page 341)Increasing the production cost of a good by a fixed percentage to determine a sales price. Maximin strategy (page 69)Strategy that theminimumgain that can ter(page 650)The individual with the median preferred outcome among all voters Method of Lagrange multipliers (Page 140)Technique to maximize or minimize a function subject to one or more constraints. Microeconomics (page 4)Branch of economics that deals with the behavior of individual economic firms,workers,and investorsas well as the makets that these units Mixed bundling (Page 397)Practice of selling two or more goods both as a package and individually Mixed strategy (Page 470)Strategy in which a player makes a random choice among two or more possible actions based on a set of chosen probabilities Mono competition (page 424)Market in which firms can enter freely,each producing its own brand or version ofa differentiated produc Monopoly(Page 328)Market with only one seller Monopoly power (Page 328)The ability of a firm to profitably charge a price higher than marginal cost. Monopsony (Page 328)Market wit Mon nopsony power(Page e35)Buyer's ability to affect the price of agoo Moral hazard(page 606)When an insured party whose actions are unobserved can affect the probability or magnitude of a payment associated with an event Multiple regression analysis (Page 655)Statistical procedure for quantifying economic relationshins and testing hypotheses about them. Nashequilibrium(Page 430)Set of strategies or actions in which each firm does the best it can given its competitors'actions Natural monopoly (Page 350)Firm that can produce the entire output of the market at a cost lower than what it would be if there were several firms. Negatively orreated (Page 161)Having a tendency to move in opposite directions(said of two Net present value(NPV)criterion(page 542)Rule holding that one should invest if the present value of the expected future cash flow from an investment is larger than the cost of the investment. Network externality (page 127When each individual's demand depends on the purchases of other individuals is(Page 544)Adiscount rate that includes the effects Nominal price (page 11)Absolute price of a good,unadjusted for inflation. Noncooperative game (page 443)Game in which negotiation and enforcement of binding contracts between plavers are not possible. Nondiversifiable risk(Page 546)risk that cannot be eliminated by investing in many projects or
Market power (Page 328) Ability of a seller or buyer to affect the price of a good. Market price (Page 8) Price prevailing in a competitive market. Market signaling (Page 601) Process by which sellers send signals to buyers conveying information about product quality Markup pricing (page 341) Increasing the production cost of a good by a fixed percentage to determine a sales price. Maximin strategy (page 469) Strategy that maximizes the minimum gain that can be earned. Median voter (page 650) The individual with the median preferred outcome among all voters. Method of Lagrange multipliers (Page 140) Technique to maximize or minimize a function subject to one or more constraints. Microeconomics (page 4) Branch of economics that deals with the behavior of individual economic units-consumers, firms, workers, and investors-as well as the markets that these units comprise. Mixed bundling (Page 397) Practice of selling two or more goods both as a package and individually Mixed strategy (Page 470) Strategy in which a player makes a random choice among two or more possible actions, based on a set of chosen probabilities. Monopolistic competition (page 424) Market in which firms can enter freely, each producing its own brand or version of a differentiated product. Monopoly (Page 328) Market with on1y one seller Monopoly power (Page 328) The ability of a firm to profitably charge a price higher than marginal cost. Monopsony (Page 328) Market with only one buyer. Monopsony power (Page 352) Buyer’s ability to affect the price of a good. Moral hazard (page 606) When an insured party whose actions are unobserved can affect the probability or magnitude of a payment associated with an event. Multiple regression analysis (Page 655) Statistical procedure for quantifying economic relationships and testing hypotheses about them. N Nash equilibrium (Page 430) Set of strategies or actions in which each firm does the best it can given its competitors’ actions. Natural monopoly (Page 350) Firm that can produce the entire output of the market at a cost lower than what it would be if there were several firms. Negatively correlated (Page 161) Having a tendency to move in opposite directions (said of two variables). Net present value (NPV) criterion (page 542) Rule holding that one should invest if the present value of the expected future cash flow from an investment is larger than the cost of the investment. Network externality (page 127) When each individual’s demand depends on the purchases of other individuals. Nominal discount rate (Page 544) A discount rate that includes the effects of inflation. Nominal price (page 11) Absolute price of a good, unadjusted for inflation. Noncooperative game (page 443) Game in which negotiation and enforcement of binding contracts between players are not possible. Nondiversifiable risk (Page 546) risk that cannot be eliminated by investing in many projects or
by holding the stocks of many companies. sdimiecultorimpe sible tocharge for theirus Nonrival good (Page 644)Good for which the marginal cost of its provision to an additional consumer is zero. Normal good (Page 106)A good for which consumption increases when income rises. Normative analysis(page 7)Analysis examining questions of what ought to be. 0 Oligopoly (page 424)Market in which only a few firms compete with one another,and entry by new firms is impeded Oligopsony (page 352)Market with only a few buyers. Opportunity cost(page 204)Cost associated with opportunities that are forgone when a firm's not putto their highest-vaueus Opportunity cost of capital (page 542)Rate of retun that one could earn by investing in an alternate project with similar risk. Optimal strategy (Page 462)Strategy that maximizes player's expected payoff. Ordinal utility fumction(page 74)Utility function that generates a ranking of market baskets in order of most to least prefer 6 Paasche index(page 95)Amount of money at current-year prices that an individual requires to purchase a bundle of goods and services divided by the cost of purchasing the same bundle in a hase year Parallel conduct(page 360)Form of implicit collusion in which one firm consistently follows actions of Pareto efficieney (page 567)Synonymous with"efficient allocation"an allocation of goods in which no one can be made better off without making someone else worse off. Partial equilibriumanalysis(page 564)Determination of equilibrium prices and quantities in a market independent of effects from other markets. Payoff (Page 462)Outcome of a ga me that gen ates ards or benefits for the plaver payoff(page 15)Value as Payoff matrix(page 443)Table showing profit(or payoff)to each firm given its decision and the decision of its competitor. Peak-load pricing(page 382)Practice of charging higher prices during peak periods when capacity constraints aus marginal costs to be high (Page )Two goods for which the MRS,the are shaped as right angles Perfeet substitutes(page 70)Two goods for which the marginal rate of substitution of one for the other is a constant Perpetuity(page538)Bond paying out a fixed amount of money each year,forever Point elas of demand(pag 119)Price elasti city (page6)Analysis escribing effect Positively correlated (Page 162)Having a tendency to move in the same direction (said of two variables). Predatory pricing(page 361)Practice of pricing to drive current competitors out of business and
by holding the stocks of many companies. Nonexclusive goods (page 645) Goods that people cannot be excluded from consuming, so that it is difficu1t or impossible to charge for their use. Nonrival good (Page 644) Good for which the marginal cost of its provision to an additional consumer is zero. Normal good (Page 106) A good for which consumption increases when income rises. Normative analysis (page 7) Analysis examining questions of what ought to be. O Oligopoly (page 424) Market in which only a few firms compete with one another, and entry by new firms is impeded. Oligopsony (page 352) Market with only a few buyers. Opportunity cost (page 204) Cost associated with opportunities that are forgone when a firm’s resources are not put to their highest-value use. Opportunity cost of capital (page 542) Rate of return that one could earn by investing in an alternate project with similar risk. Optimal strategy (Page 462) Strategy that maximizes player’s expected payoff. Ordinal utility function (page 74) Utility function that generates a ranking of market baskets in order of most to least preferred. P Paasche index (page 95) Amount of money at current-year prices that an individual requires to purchase a bundle of goods and services divided by the cost of purchasing the same bundle in a base year Parallel conduct (page 360) Form of implicit collusion in which one firm consistently follows actions of another. Pareto efficiency (page 567) Synonymous with “efficient allocation”-an allocation of goods in which no one can be made better off without making someone else worse off. Partial equilibrium analysis (page 564) Determination of equilibrium prices and quantities in a market independent of effects from other markets. Payoff (Page 462) Outcome of a game that generates rewards or benefits for the player payoff (page 150) Value associated with a possible outcome. Payoff matrix (page 443) Table showing profit (or payoff) to each firm given its decision and the decision of its competitor. Peak-load pricing (page 382) Practice of charging higher prices during peak periods when capacity constraints cause marginal costs to be high. Perfect complements (Page 70) Two goods for which the MRS is infinite, the indifference curves are shaped as right angles. Perfect substitutes (page 70) Two goods for which the marginal rate of substitution of one for the other is a constant. Perpetuity (page 538) Bond paying out a fixed amount of money each year, forever Point elasticity of demand (page 119) Price elasticity at a particular point on the demand curve. Positive analysis (page 6) Analysis describing relationships of cause and effect. Positively correlated (Page 162) Having a tendency to move in the same direction (said of two variables). Predatory pricing (page 36l) Practice of pricing to drive current competitors out of business and