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· A change in the quantity of output a firm can produce using a given quantity of inputs.
A change in the ability of a firm to produce a given level of output with a given quantity of inputs.
· The record of a country’s trade with other countries in goods, services, and assets.
· The value of one country’s currency in terms of another country’s currency.
· An increase in the market value of one currency relative to another currency.
1. foreginers who want to buy goodsand services in the US
2. Foreign firms that want to investin the US
3. currency traders who believe
· The application of mechanical power to the production of goods, beginning in England around 1750.
· The accumulated knowledge and kills that workers acquire from education and training or from their life experiences.
· The relationship between real GDP per hour worked and capital per hour worked, holding the level of technology constant.
· A model of long-run economic growth that emphasizes that technological change is influenced by economic incentives and so is determined by the working of the market system.
· The exclusive right to produce a product for a period of 20 years from the date the product is invented.
· The prediction that the level of GDP per capita (or income per capita) in poor countries will grow faster than in rich countries.
· The purchase or building by a corporation of a facility in a foreign country.
· An economy that has no interactions in trade or finance with other countries.
· The part of the balance of payments that records purchases of assets a country has made abroad and foreign purchases of assets in the country.
· The difference between capital outflows from a country and capital inflows, also equal to net foreign direct investment plus net foreign portfolio investment.
· The part of the balance of payments that records relatively minor transactions, such as migrants’ transfers and sales and purchases of nonproduced, nonfinancial assets.
· The price of domestic goods in terms of foreign goods in terms of foreign goods.
An equation that shows that national saving is equal to domestic investment plus net foreign investment.
· Government Savings = Taxes – Government Spending
· National Savings = Private Savings + Public Savings
National Savings = Domestic Investment + Net Foreign Investment
= private saving + public saving
= (Y – T – C) + (T – G)
= Y – C – G
· Private Savings = National Income – Consumption – Taxes
= Y – T – C
Broader definition of money.
M1 + Savings Deposits, Time Deposits and Mutual Fund Deposits
Exports minus imports. Exports are added to forms of expenditures because otherwise we would not be including all forms of spending of goods and services in the U.S.
The rule that when everything is constant, increase in price causes increase in supply and that decreases in price causes decrease in supply.
Quantity demanded> quantity supplied.
Any time price is below equilibrium price, quantity demanded will exceed quantity supplied.
o Product markets: Markets for goods and services.
o Factor markets: Markets for the factors of production.
· Prices of Related Goods
· Population and demographics
· Expected future prices.
· Prices of inputs
· Technological Change (a positive or negative change in the ability of a firm to produce a given level of output with a given number of inputs)
· Number of firms in the market
· Expected future prices
Social Benefits= Private Benefits + External Benefits
When there is a negative externality in producing a good or service, too much of the good or service will be produced at equilibrium.
Where there is a positive externality in consuming a good or service, too little of the good or service will be produced at market equilibrium.
A situation in which a market fails to produce the efficient level of output.
If transaction costs are low, private bargaining will result in an efficient solution to the problem of externalities.
Goods and services produced domestically but sold overseas.
To use inputs, such as workers, machines and natural resources to produce outputs of goods and services.
The processes a firm uses to turn inputs in to outputs of goods and services.
A nonmonetary opportunity cost.
The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.
Total cost divided by the quantity of output produced
Total cost divided by quantity of output produced.
Total Cost (TC)/ Quantity of Output (Q)=Average Total Cost (ATC)
Average Total Cost= Average Fixed Cost+ Average Variable Cost
When the marginal product of labor is rising, the marginal cost of output is falling.
When the marginal product of labor is falling, the marginal cost of production is rising.
Because the marginal product of labor rises and then falls.
Fixed cost divided by the quantity of output produced.
Fixed Cost (FC)/ Quantity of Output (Q)=Average Fixed Cost (AFC)
Variable cost divided by the quantity of output produced.
Variable Cost (VC)/ Quantity of Output (Q)=Average Variable Cost (AVC)
o The situation when a firm’s long term average costs fall as it increases output.
o The greater the economies of scale, the smaller the numbers of firms in an industry.
o Reasoning behind competition in restaurant/computer industry.
The situation when a firm’s long run average costs remain unchanged as it increases output.
The level of output at which all economies of scale are exhausted.
A perfectly competitive firm cannot affect the market price. Prices in competitive markets are determined by the interaction of demand and supply.
Buyer or seller that is unable to affect the market price.
Profit= Total Revenue(TR)- Cost (C)
· In order to maximize profits, firms should produce the quantity of wheat where the difference between total revenue and total cost is as large as possible.
The total revenue divided by the quantity of the product sold.
For a firm in a perfectly competitive market, price is equal to both average revenue and marginal revenue.
The marginal revenue curve for a perfectly competitive firm is the same as its demand curve.
How to tell if you are breaking even or operating at a loss:
· If Profit (P) is greater than (>) Average Total Cost (ATC) then: The firm is making a profit.
· If P = ATC, then the firm is breaking even.
· If P< ATC, then the firm is experiencing losses.
A firm can reduce its loss below the amount of its total fixed cost by continuing to produce, provided that the total revenue it receives is greater than its variable cost.
A cost that has already been paid and that cannot be recovered. These are normally fixed costs.
Supply Curve of a Firm (Short Run)
A perfectly competitive firm’s marginal cost curve is also its supply curve.
If a firm is experiencing losses, it will shut down if its total revenue is less than its variable costs. Total Revenue< Variable Costs
Total Revenue= (Price X Quantity)
If price is less than average total cost, a firm will shut down.
Market Supply Curve in Perfectly Competitive Industry
A firms revenues, minus all its costs implicit and explicit).
· Economic profit leads to the entry of new firms.
The situation in which a firm’s total revenue is less than its total cost, including all implicit costs.
· Economic losses lead to exit of firms.
The situation in which the entry and exit of firms has resulted in the typical firm breaking even.
In the long run, a perfectly competitive market will supply whatever amount of a good consumers demand at a price determined by the minimum point on the typical firm’s average cost curve.
· Constant Cost Industries: Where a typical firm’s average costs do not change as the industry expands production.
· Increasing Cost Industries: Have upward sloping supply curves, more production, rising prices will cover the average costs.
· Decreasing Cost Industries: Have downward sloping supply curves.
The situation where a good or service is produced at the lowest possible cost.
· Perfect competition results in productive efficiency.
Monopoly: A firm that is the only seller of a good or service that does not have a close substitute.
Anything that keeps new firms from entering an industry in which firms are earning economic profits.
If the minimum point on an LRAC comes at a level of output that is a large fraction of industry sales.
o In oligopolies, the game theory is applied to how firms interact with other firms to get what they want.
o Rules, strategies and payoffs are all important aspects of the game.
An agreement among firms to charge the same price or otherwise not to compete.
o Collusion is against the law in the U.S.
· A situation in which each firm chooses the best strategy given the strategies chosen by other firms.
An equilibrium in a game in which the players cooperate to increase their mutual payoff.
A game in which pursuing dominant strategies results in non-cooperation that leaves everyone worse off.
Implicit colluding, where managers find away to signal to each other a price they will be selling an item at.
A form of implicit collusion in which one firm in an oligopoly announces a price change and the other firms in the industry match the change.
Sequential games are used to analyze two business strategies: deterring entry and bargaining between firms.
· A firm can be a monopoly provided that the substitutes that are being sold in place of a firm’s product is not a close substitute.
· A firm is a monopoly if it can ignore all the actions of other firms.
A situation in which the usefulness of a product increases the number of consumers who use it.
· A monopoly’s demand curve is the same as the demand curve for the product.
· Price Makers that face a downward sloping demand and marginal revenue curve.
Do Monopolies Reduce Economic Efficency?
· If an industry becomes a monopoly, the supply curve becomes the monopolists marginal cost curve.
· Then, the monopolist reduces output to the level at which marginal revenue equals marginal cost.
· A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.
· Monopoly causes a reduction in consumer surplus
· Monopoly causes an increase in producer surplus
· Monopoly causes a deadweight loss which represents a reduction in economic efficiency.
Market Power: The ability of a firm to charge a price greater than marginal cost. A loss of economic efficiency will occur when a firm has market power
o Government regulates mergers because it knows that if firms gain market power by merging, they may use that marker power to raise prices and reduce output.
A merger between firms at different stages of production of a good.
The period of a business cycle in which business production and total employment are increasing.
The period of a business cycle in which total production ant total employment are decreasing.
The market value of all final goods and services produced in a country during a period of time, typically one year.
· Central concept in macro economics.
Anything that took place during one time period, only products that were produced during a given year. NO used goods.
These two things should give the same dollar amount, no matter the approach.
THE SUM OF THESE THINGS IS THE TOTAL INCOME IN THE ECONOMY AND GDP CAN BE MEASURED BY INCOME!
Payments by the government to individuals for which the government does not receive a good or service in return.
· Social Security is an example.
· Not included in GDP
Y (GDP) = C(Consumption) + I(Investment) + G(Government Purchases) + NX(Net Exports)
The market value a firm adds to a product. The difference between the price a firm sells a good and the price it pays for intermediate goods.
- GDP is not adjusted for changes in crime or other social problems.
A measure of the price level, determined by this equation:
The value of all final goods and services produced by residents of the U.S.Anything produced by companies who call the US home, even if they produce outside.