| Acquisition | A transaction in which a company buys another company and the purchaser has the right of direct control over the resulting operation (but does not always exercise that right).
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| Adverse Selection Problem | A problem that occurs when buyers and sellers have different amounts of information about the good for sale.
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| Annuity Rule | The present value of any annuity is the annual income it yields divided by the interest rate.
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| Antitrust Policy | The government’s policy toward the competitive process.
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| Art of Economics | The application of the knowledge learned in positive economics to the achievement of the goals one has determined in normative economics.
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| Average Fixed Cost | Fixed cost divided by quantity produced.
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| Average Product | Output per worker.
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| Average Total Cost | Total cost divided by the quantity produced.
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| Average Variable Cost | Variable cost divided by quantity produced.
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| Backward Induction | You begin with a desired outcome and then determine the decisions that lead you to that outcome.
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| Balance of Trade | The difference between the value of the goods and services a country imports and the value of the goods and services it exports.
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| Bar Graph | A graph where the area under each point is filled in to look like a bar.
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| Barriers to Entry | Social, political, or economic impediments that prevent firms from entering a market.
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| Behavioral Economics | The study of economic choice that is based on realistic psychological foundations.
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| Bilateral Monopoly | A market with only a single seller and a single buyer.
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| Budget Constraint | A curve that shows us the various combinations of goods an individual can buy with a given amount of money.
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| Business | A private producing unit in our society.
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| Capitalism | An economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists.
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| Cartel | A combination of firms that acts as if it were a single firm.
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| Cartel Model of Oligopoly | A model that assumes that oligopolies act as if they were monopolists that have assigned output quotas to individual member firms of the oligopoly so that total output is consistent with joint profit maximization.
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| Cheap Talk | Communication that occurs before a game is played that carries no cost and is backed up only by trust, and not any enforceable agreement.
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| Clayton Antitrust Act | A U.S. law that made four specific monopolistic practices illegal: price discrimination, tie-in contracts, interlocking directorships, and buying stock in a competitor’s company in order to reduce competition.
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| Closed Shop | A firm where unions control the hiring.
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| Comparable Worth Laws | Laws mandating comparable pay for comparable work.
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| Comparative Advantage | The ability to be better suited to the production of one good than to the production of another good.
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| Complement | Good that is used in conjunction with other goods.
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| Concentration Ratio | The value of sales by the top firms of an industry stated as a percentage of total industry sales.
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| Conglomerate Merger | The merging of relatively unrelated businesses.
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| Conspicuous Consumption | The consumption of goods not for one’s direct pleasure, but simply to show off to others.
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| Constant Returns to Scale | A situation in which long-run average total costs do not change with an increase in output. Also: Output will rise by the same proportionate increase as all inputs.
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| Consumer Sovereignty | The principle that the consumer’s wishes determine what’s produced.
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| Consumer Surplus | The difference between what consumers would have been willing to pay and what they actually pay.
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| Contestable Market Model | A model of oligopoly in which barriers to entry and barriers to exit, not the structure of the market, determine a firm’s price and output decisions.
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| Contractual Legal System | The set of laws that govern economic behavior.
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| Cooperative Game | Game in which players can form coalitions and can enforce the will of the coalition on its members.
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| Coordinate System | A two-dimensional space in which one point represents two numbers.
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| Corporate Takeover | An action in which another firm or a group of individuals issues a tender offer (that is, offers to buy up the stock of a company) to gain control and to install its own managers.
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| Corporation | A business that is treated as a person, legally owned by its stockholders. Its stockholders are not liable for the actions of the corporate “person.”
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| Cost Minimization Condition | A situation where the ratio of marginal product to the price of an input is equal for all inputs.
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| Cost/Benefit Approach | Assigning costs and benefits, and making decisions on the basis of the relevant costs and benefits.
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| Cross-Price Elasticity of Demand | The percentage change in demand divided by the percentage change in the price of a related good.
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| Deacquisition | One company’s sale of either parts of another company it has bought or parts of itself.
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| Deadweight Loss | The loss of consumer and producer surplus from a tax.
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| Demand | A schedule of quantities of a good that will be bought per unit of time at various prices, other things constant.
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| Demand Curve | The graphic representation of the relationship between price and quantity demanded.
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| Demerit Good or Activity | Good or activity that government believes is bad for people even though they choose to use the good or engage in the activity.
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| Depreciation | A measure of the decline in value of an asset that occurs over time through use.
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| Derived Demand | The demand for factors of production by firms, which depends on consumers’ demands.
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| Derived Demand Curve for Labor | A curve that shows the maximum amount of labor, measured in labor hours, that a firm will hire.
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| Direct Regulation | A program in which the amount of a good people are allowed to use is directly limited by the government.
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| Direct Relationship | A relationship in which when one variable goes up, the other goes up too.
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| Diseconomies of Scale | Situation when the long-run average total costs increase as output increases.
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| Dominant Strategy | A strategy that is preferred by a player regardless of the opponent’s move.
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| Downsizing | A reduction in the workforce.
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| Duopoly | An oligopoly with only two firms.
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| Dynamic Efficiency | A market’s ability to promote cost-reducing or product-enhancing technological change.
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| E-commerce | Buying and selling over the Internet.
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| Economic Decision Rule | If the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don’t do it.
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| Economic Efficiency | Achieving a goal at the lowest possible cost.
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| Economic Force | The necessary reaction to scarcity.
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| Economic Model | A framework that places the generalized insights of a theory in a more specific contextual setting.
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| Economic Policy | An action (or inaction) taken by government to influence economic actions.
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| Economic Principle | A commonly held economic insight stated as a law or general assumption.
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| Economic Profit | Explicit and implicit revenue minus explicit and implicit cost. Also, a return on entrepreneurship above and beyond normal profits.
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| Economically Efficient | A method of production that produces a given level of output at the lowest possible cost.
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| Economics | The study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society.
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| Economies of Scale | Situation when long-run average total costs decrease as output increases.
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| Economies of Scope | Situation when the costs of producing products are interdependent so that it’s less costly for a firm to produce a good when it’s already producing another.
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| Efficiency | Achieving a goal as cheaply as possible. Also: using as few inputs as possible.
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| Efficiency Wages | Wages paid above the going-market wage to keep workers happy and productive.
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| Efficient | Achieving a goal at the lowest cost in total resources without consideration as to who pays those costs.
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| Effluent Fees | Charges imposed by government on the level of pollution created.
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| Elastic | The percentage change in quantity is greater than the percentage change in price ( E > 1).
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| Embargo | A total restriction on the import or export of a good.
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| Entrepreneur | An individual who sees an opportunity to sell an item at a price higher than the average cost of producing it.
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| Entrepreneurship | The ability to organize and get something done. Also: Labor services that involve high degrees of organizational skills, concern, oversight responsibility, and creativity.
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| Equilibrium | A concept in which opposing dynamic forces cancel each other out.
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| Equilibrium Price | The price toward which the invisible hand drives the market.
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| Equilibrium Quantity | The amount bought and sold at the equilibrium price.
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| Euro | The currency used by 12 members of the European Union.
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| European Commission (EC) | The executive group of the European Union that indicates action and safeguards the European Union nations; also called Commission of the European Communities. The EU’s antitrust agency.
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| Excess Demand | Situation when quantity demanded is greater than quantity supplied.
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| Excess Supply | Situation when quantity supplied is greater than quantity demanded.
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| Exchange Rate | The price of one country’s currency in terms of another currency.
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| Excise Tax | A tax that is levied on a specific good.
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| Externality | An effect of a decision on a third party not taken into account by the decision maker.
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| Failure of Market Outcome | A situation in which, even though the market is functioning properly (there are no market failures), it is not achieving society’s goals.
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| Fallacy of Composition | The false assumption that what is true for a part will also be true for the whole.
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| Federal Trade Commission Act | A U.S. law that made it illegal for firms to use “unfair methods of competition” and to engage in “unfair or deceptive acts or practices.”
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| Feudalism | An economic system in which traditions rule.
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| Firm | An economic institution that transforms factors of production into goods and services.
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| Fixed Costs | Costs that are spent and cannot be changed in the period of time under consideration.
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| Framing Effect | The tendency of people to base their choices on how the choice is presented.
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| Free Rider | A person who participates in something for free because others have paid for it.
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| Free Rider Problem | Individuals’ unwillingness to share in the cost of a public good.
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| Free Trade Association | A group of countries that have reduced or eliminated trade barriers among themselves.
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| Game Theory | Formal economic reasoning applied to situations in which decisions are interdependent.
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| General Agreement on Tariffs and Trade (GATT) | A regular international conference to reduce trade barriers held from 1947 to 1995. It has been replaced by the World Trade Organization (WTO).
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| General Rule of Political Economy | When small groups are helped by a government action and large groups are hurt by that same action, the small group tends to lobby far more effectively than the large group.
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| Global Corporation | Corporation with substantial operations on both the production and sales sides in more than one country.
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| Globalization | The integration of world economies.
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| Good/Bad Paradox | The phenomenon of doing poorly because you’re doing well.
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| Government Failure | A situation in which the government intervention in the market to improve market failure actually makes the situation worse.
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| Grandfather | To pass a law affecting a specific group but providing that those in the group before the law was passed are exempt from some provisions of the law.
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| Graph | A picture of points in a coordinate system in which points denote relationships between numbers.
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| Herfindahl Index | An index of market concentration calculated by adding the squared value of the individual market shares of all firms in the industry.
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| Horizontal Merger | The combining of two companies in the same industry.
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| Hostile Takeover | A merger in which the firm being taken over doesn’t want to be taken over.
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| Households | Groups of individuals living together and making joint decisions.
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| Implicit Collusion | A type of collusion in which multiple firms make the same pricing decisions even though they have not explicitly consulted with one another.
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| Incentive-Compatible Contract | A contract in which the incentives of each of the two parties to the contract are made to correspond as closely as possible.
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| Incentive Effect | How much a person will change his or her hours worked in response to a change in the wage rate.
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| Income | Payments received plus or minus changes in the value of a person’s assets in a specified time period.
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| Income Effect | The reduction in quantity demanded because price increases make us poorer.
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| Income Elasticity of Demand | The percentage change in demand divided by the percentage change in income.
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| Indifference Curve | A curve that shows combinations of goods among which an individual is indifferent.
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| Indivisible Setup Cost | The cost of an indivisible input for which a certain minimum amount of production must be undertaken before the input becomes economically feasible to use.
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| Industrial Policy | A formal policy that government takes toward business.
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| Industrial Revolution | A time when technology and machines rapidly modernized industrial production and massproduced goods replaced handmade goods.
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| Inefficiency | Getting less output from inputs that, if devoted to some other activity, would produce more output.
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| Inefficient | Achieving a goal in a more costly manner than necessary.
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| Inelastic | The percentage change in quantity is less than the percentage change in price ( E < 1).
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| Infant Industry Argument | The argument that with initial protection, an industry will be able to become competitive.
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| Inferior Good | Good whose consumption decreases when income increases.
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| Inherent Comparative Advantage | Comparative advantage that is based on factors that are relatively unchangeable.
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| Input | What is put into a production process to achieve an output.
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| Institutions | The formal and informal rules that constrain human behavior.
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| Interest | The income paid to savers—individuals who produce now but don’t consume now.
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| Interpolation Assumption | The assumption that the relationship between variables is the same between points as it is at the points.
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| Inverse Relationship | A relationship between two variables in which when one goes up, the other goes down.
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| Invisible Hand | The price mechanism; the rise and fall of prices that guides our actions in a market.
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| Invisible Hand Theory | A market economy, through the price mechanism, will tend to allocate resources efficiently.
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| Isocost Line | A line that represents alternative combinations of factors of production that have the same costs.
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| Isoquant Curve | A curve that represents combinations of factors of production that result in equal amounts of output.
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| Isoquant Map | A set of isoquant curves that show technically efficient combinations of inputs that can produce different levels of output.
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| Judgment by Performance | To judge the competitiveness of markets by the performance (behavior) of firms in that market.
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| Judgment by Structure | To judge the competitiveness of markets by the structure of the industry.
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| Labor Market | The factor market in which individuals supply labor services for wages to other individuals and to firms that need (demand) labor services.
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| Labor Productivity | The average output per worker.
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| Laissez-Faire | An economic policy of leaving coordination of individuals’ actions to the market.
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| Land Bank Program | A program in which government supports prices by giving farmers economic incentives to reduce supply.
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| Law of Demand | Quantity demanded rises as price falls, other things constant. Also can be stated as: Quantity demanded falls as price rises, other things constant.
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| Law of Diminishing Marginal Productivity | As more and more of a variable input are added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall. Also, increasing one input, keeping all others constant, will lead to smaller and smaller gains in output.
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| Law of Diminishing Marginal Rate of Substitution | As you get more and more of a good, if some of that good is taken away, then the marginal addition of another good you need to remain on the same indifference curve gets less and less.
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| Law of One Price | The wages of workers in one country will not differ significantly from the wages of (equal) workers in another institutionally similar country.
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| Law of Supply | Quantity supplied rises as price rises, other things constant. Also can be stated as: Quantity supplied falls as price falls, other things constant.
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| Lazy Monopolist | A monopolist that does not push for efficiency, but merely enjoys the position it is already in.
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| Learning by Doing | As we do something, we learn what works and what doesn’t, and over time we become more proficient at it. Also: To improve the methods of production through experience.
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| Limited Liability | The liability of a stockholder (owner) in a corporation; it is limited to the amount the stockholder has invested in the company.
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| Line Graph | A graph where the data are connected by a continuous line.
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| Linear Curve | A curve that is drawn as a straight line.
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| Long-Run Decision | A decision in which a firm chooses among all possible production techniques.
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| Lorenz Curve | A geometric representation of the share distribution of income among families in a given country at a given time.
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| Luxury | Good that has an income elasticity greater than 1.
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| Macroeconomic Externality | An externality that affects the levels of unemployment, inflation, or growth in the economy as a whole.
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| Macroeconomics | The study of the economy as a whole, which includes inflation, unemployment, business cycles, and growth.
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| Marginal Benefit | Additional benefit above the benefits already derived.
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| Marginal Cost | Additional cost over and above the costs already incurred. Also: Increase (decrease) in total cost from increasing (or decreasing) the level of output by one unit. Also: The change in total cost associated with a change in quantity.
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| Marginal Factor Cost | The additional cost to a firm of hiring another worker.
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| Marginal Physical Product (MPP) | The additional units of output that hiring an additional worker will bring about.
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| Marginal Product | The additional output that will be forthcoming from an additional worker, other inputs constant.
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| Marginal Productivity Theory | Factors are paid their marginal revenue product (what they contribute at the margin to revenue).
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| Marginal Rate of Substitution | The rate at which one good must be added when the other is taken away to keep the individual indifferent between the two combinations. Also: The rate at which one factor must be added to compensate for the loss of another factor to keep output constant.
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| Marginal Revenue (MR) | The change in total revenue associated with a change in quantity.
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| Marginal Revenue Product (MRP) | The marginal revenue a firm expects to earn from selling an additional worker’s output.
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| Marginal Social Benefit | The marginal private benefit of consuming a good plus the benefits of the positive externality resulting from consuming that good.
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| Marginal Social Cost | The marginal private costs of production plus the cost of the negative externality associated with that production.
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| Marginal Utility | The satisfaction one gets from consuming one additional unit of a product above and beyond what one has consumed up to that point.
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| Market Demand Curve | The horizontal sum of all individual demand curves.
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| Market Economy | An economic system based on private property and the market in which, in principle, individuals decide how, what, and for whom to produce.
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| Market Failure | A situation in which the invisible hand pushes in such a way that individual decisions do not lead to socially desirable outcomes.
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| Market Force | An economic force that is given relatively free rein by society to work through the market.
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| Market Incentive Plan | A plan requiring market participants to certify that they have reduced total consumption—not necessarily their own individual consumption—by a specified amount.
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| Market Niche | An area in which competition is not working.
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| Market Structure | The physical characteristics of the market within which firms interact.
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| Market Supply Curve | The horizontal sum of all individual supply curves. Also: Horizontal sum of all the firms’ marginal cost curves, taking account of any changes in input prices that might occur.
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| Marxian (Radical) Model | A model that focuses on equitable distribution of power, rights, and income among social classes.
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| Medicare | A multibillion-dollar medical insurance system.
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| Mercantilism | An economic system in which government determines the what, how, and for whom decisions by doling out the rights to undertake certain economic activities.
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| Merger | The act of combining two firms.
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| Merit Good or Activity | A good or activity that government believes is good for you, even though you may not choose to consume the good or engage in the activity.
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| Microeconomics | The study of individual choice, and how that choice is influenced by economic forces.
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| Minimum Efficient Level of Production | The amount of production that spreads setup costs out sufficiently for a firm to undertake production profitably.
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| Minimum Wage Law | A law specifying the lowest wage a firm can legally pay an employee.
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| Mixed Strategy | A strategy of choosing randomly among moves.
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| Monitoring Costs | Costs incurred by the organizer of production in seeing to it that the employees do what they’re supposed to do.
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| Monitoring Problem | The need to oversee employees to ensure that their actions are in the best interest of the firm.
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| Monopolistic Competition | A market structure in which many firms sell differentiated products; there are few barriers to entry.
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| Monopoly | A market structure in which one firm makes up the entire market.
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| Monopoly Power | The ability of individuals or firms currently in business to prevent other individuals or firms from entering the same kind of business.
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| Monopsony | A market in which a single firm is the only buyer.
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| Most-Favored Nation | A country that will be charged as low a tariff on its exports as any other country.
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| Movement along a Demand Curve | The graphical representation of the effect of a change in price on the quantity demanded.
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| Movement along a Supply Curve | The graphical representation of the effect of a change in price on the quantity supplied.
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| Nash Equilibrium | A set of strategies for each player in the game in which no player can improve his or her payoff by changing strategy unilaterally.
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| Natural Monopoly | An industry in which a single firm can produce at a lower cost than can two or more firms. Also: An industry in which significant economies of scale make the existence of more than one firm inefficient.
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| Necessity | A good that has an income elasticity less than 1.
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| Negative Externality | The adverse effect of a decision on others not taken into account by the decision maker.
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| Network Externality | The phenomenon that the greater use of a product increases the benefit of that product to everyone.
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| Noncooperative Game | Game in which each player is out for him- or herself and agreements are either not possible or not enforceable.
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| Nonlinear Curve | A curve that is drawn as a curved line.
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| Nonrecourse Loan Program | A program in which government “buys” goods in the form of collateral on defaulting loans.
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| Normal Good | Good whose consumption increases with an increase in income.
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| Normal Profit | The amount the owners of business would have received in the next-best alternative. Also, payments to entrepreneurs as the return on their risk taking.
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| Normative Economics | The study of what the goals of the economy should be.
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| North American Industry Classification System (NAICS) | An industry classification that categorizes industries by type of economic activity and groups firms with like production processes.
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| Oligopoly | A market structure in which there are only a few firms and firms explicitly take other firms’ likely response into account; there are often significant barriers to entry.
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| Opportunity Cost | The benefit you might have gained from choosing the next-best alternative.
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| Optimal Policy | A policy in which the marginal cost of undertaking the policy equals the marginal benefit of that policy.
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| Output | A result of a productive activity.
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| Outsourcing | The relocation of production once done in the United States to foreign countries.
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| Pareto Optimal Policy | A policy that benefits some people and hurts no one.
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| Partnership | A business with two or more owners.
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| Patent | The legal protection of a technical innovation that gives the person holding it sole right to use that innovation. (Note: A patent is good for only a limited time.)
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| Payoff Matrix | A table that shows the outcome of every choice by every player, given the possible choices of all other players.
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| Perfectly Competitive Market | A market in which economic forces operate unimpeded.
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| Perfectly Elastic | Quantity responds enormously to changes in price (E = ∞).
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| Perfectly Inelastic | Quantity does not respond at all to changes in price (E = 0).
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| Pie Chart | A circle divided into “pie pieces,” where the undivided pie represents the total amount and the pie pieces reflect the percentage of the whole pie that the various components make up.
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| Positive Economics | The study of what is, and how the economy works.
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| Positive Externality | The positive effect of a decision on others not taken into account by the decision maker. Also, when the effects of a decision not taken into account by the decision maker are beneficial to others.
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| Poverty Threshold | The income below which a family is considered to live in poverty.
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| Present Value | A method of translating a flow of future income or savings into its current worth.
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| Price Ceiling | A government-imposed limit on how high a price can be charged. In other words, a government-set price below the market equilibrium price.
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| Price-Discriminate | To charge different prices to different individuals or groups of individuals.
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| Price Elasticity of Demand | The percentage change in quantity demanded divided by the percentage change in price.
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| Price Elasticity of Supply | The percentage change in quantity supplied divided by the percentage change in price.
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| Price Floor | A government-imposed limit on how low a price can be charged. In other words, a government-set price above equilibrium price.
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| Price Stabilization Program | A program designed to eliminate short-run fluctuations in prices, while allowing prices to follow their long-run trend line.
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| Price Support Program | A program designed to maintain prices at higher levels than the market prices.
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| Price Taker | A firm or individual who takes the price determined by supply and demand as given.
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| Principle of Diminishing Marginal Utility | As you consume more of a good, after some point, the marginal utility received from each additional unit of a good decreases with each additional unit consumed, other things equal.
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| Principle of Increasing Marginal Opportunity Cost | In order to get more of something, one must give up ever-increasing quantities of something else.
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| Principle of Rational Choice | Spend your money on those goods that give you the most marginal utility (MU) per dollar.
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| Prisoner’s Dilemma | A well-known game that demonstrates the difficulty of cooperative behavior in certain circumstances.
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| Private Good | A good that, when consumed by one individual, cannot be consumed by another individual.
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| Private Property Right | Control a private individual or firm has over an asset.
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| Producer Surplus | Price the producer sells a product for less the cost of producing it.
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| Production | The transformation of factors into goods and services.
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| Production Function | The relationship between the inputs (factors of production) and outputs.
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| Production Possibility Curve | A curve measuring the maximum combination of outputs that can be obtained from a given number of inputs.
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| Production Possibility Table | A table that lists a choice’s opportunity costs by summarizing what alternative outputs can be achieved with given inputs.
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| Production Table | A table showing the output resulting from various combinations of factors of production or inputs.
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| Productive Efficiency | Achieving as much output as possible from a given amount of inputs or resources.
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| Productivity | Output per unit of input.
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| Profit | What’s left over from total revenues after all the appropriate costs have been subtracted. Also, a return on entrepreneurial activity and risk taking.
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| Profit-Maximizing Condition | MR = MC = P.
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| Progressive Tax | A tax whose rates increase as a person’s income increases.
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| Property Rights | The rights given to people to use specified property as they see fit.
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| Proportional Tax | A tax whose rates are constant at all income levels, no matter what a taxpayer’s total annual income is.
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| Public Assistance | Means-tested social programs targeted to the poor and providing financial, nutritional, medical, and housing assistance.
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| Public Choice Economist | An economist who integrates an economic analysis of politics with an analysis of the economy.
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| Public Choice Model | A model that focuses on economic incentives as applied to politicians.
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| Public Good | A good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual. That is, a good that is nonexclusive and nonrival.
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| Quantity Demanded | A specific amount that will be demanded per unit of time at a specific price, other things constant.
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| Quantity Supplied | A specific amount that will be supplied at a specific price, other things constant.
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| Quasi Rent | Any payment to a resource above the amount that the resource would receive in its next-best use.
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| Quota | Quantity limit placed on imports.
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| Rational | An adjective used to describe behavior individuals undertake in their own best interest.
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| Regressive Tax | A tax whose rates decrease as income rises.
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| Regulatory Trade Restrictions | Government-imposed procedural rules that limit imports.
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| Rent | The income from a factor of production that is in fixed supply.
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| Rent Control | A price ceiling on rents, set by government.
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| Rent Seeking | The restricting of supply in order to increase the price suppliers receive.
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| Rent-Seeking Activity | Activity designed to transfer surplus from one group to another.
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| Reverse Engineering | The process of a firm buying other firms’ products, disassembling them, figuring out what’s special about them, and then copying them within the limits of the law.
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| Rule of 72 | The number of years it takes for a certain amount to double in value is equal to 72 divided by the rate of interest.
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| Scarcity | The goods available are too few to satisfy individuals’ desires.
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| Screening Question | A question structured in a way to extract a truthful answer.
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| Sequential Game | Game where players make decisions one after another, so one player responds to the known decisions of other players.
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| Share Distribution of Income | The relative division of total income among income groups.
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| Sherman Antitrust Act | A U.S. law designed to regulate the competitive process.
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| Shift in Demand | The graphical representation of the effect of anything other than price on demand.
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| Shift in Supply | The graphical representation of the effect of a change in a factor other than price on supply.
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| Short-Run Decision | A decision in which the firm is constrained in regard to what production decisions it can make.
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| Shutdown Point | The point below which the firm will be better off if it temporarily shuts down than it will if it stays in business.
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| Signaling | An action taken by an informed party that reveals information to an uninformed party and thereby partially offsets adverse selection.
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| Simultaneous Move Game | Game where players make their decisions at the same time as other players without knowing what choice the other players have made.
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| Sin Tax | A tax that discourages activities society believes are harmful (sinful).
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| Slope | The change in the value on the vertical axis divided by the change in the value on the horizontal axis.
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| Social Security System | A social insurance program that provides financial benefits to the elderly and disabled and to their eligible dependents and/or survivors.
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| Socialism | An economic system based on individuals’ goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce.
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| Socioeconomic Distribution of Income | The allocation of income among relevant socioeconomic groupings.
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| Sole Proprietorship | A business that has only one owner.
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| Status Quo Bias | An individual’s actions are very much influenced by what the current situation is, even when that reasonably does not seem to be very important to the decision.
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| Stock | A financial asset that conveys ownership rights in a corporation. Also, certificate of ownership in a company.
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| Strategic Bargaining | Demanding a larger share of the gains from trade than you can reasonably expect.
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| Strategic Decision Making | Taking explicit account of a rival’s expected response to a decision you are making.
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| Strategic Trade Policy | Threatening to implement tariffs to bring about a reduction in tariffs or some other concession from the other country.
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| Substitute | Good that can be used in place of another good.
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| Substitution Effect | The reduction in quantity demanded because relative price has risen.
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| Sunk Cost | Cost that has already been incurred and cannot be recovered.
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| Supplemental Security Income (SSI) | A federal program that pays benefits, based on need, to the elderly, blind, and disabled.
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| Supply | A schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant.
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| Supply Curve | A graphical representation of the relationship between price and quantity supplied.
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| Takeover | The purchase of one firm by a shell firm that then takes direct control of all the purchased firm’s operations.
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| Tariff | An excise tax on an imported (internationally traded) good.
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| Tax Incentive Program | A program using a tax to create incentives for individuals to structure their activities in a way that is consistent with the desired ends.
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| Team Spirit | The feelings of friendship and being part of a team that bring out people’s best efforts.
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| Technical Efficiency | A situation in which as few inputs as possible are used to produce a given output.
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| Technological Change | An increase in the range of production techniques that leads to more efficient ways of producing goods as well as the production of new and better goods.
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| Technological Development | The discovery of new or improved products or methods of production.
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| Technological Lock-In | The prior use of a technology makes the adoption of subsequent technologies difficult.
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| Technology | The way we make goods and supply services.
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| Third-Party-Payer Market | A market in which the person who receives the good differs from the person paying for the good.
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| Total Cost | The explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm.
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| Total Revenue | The amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm.
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| Total Utility | The total satisfaction one gets from consuming a product.
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| Trade Adjustment Assistance Programs | Programs designed to compensate losers for reductions in trade restrictions.
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| Transferable Comparative Advantage | Comparative advantage based on factors that can change relatively easily.
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| Ultimatum Game | A game in which the person only gets the money if the other person accepts the offer. If the second person does not accept, they both get nothing.
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| Unemployment Compensation | Short-term financial assistance, regardless of need, to eligible individuals who are temporarily out of work.
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| Union Shop | A firm in which all workers must join the union.
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| Unit Elastic | The percentage change in quantity is equal to the percentage change in price (E = 1).
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| Utility | The pleasure or satisfaction that one expects to get from consuming a good or service.
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| Utility-Maximizing Rule | Utility is maximized when the ratios of the marginal utility to price of two goods are equal.
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| Value of Marginal Product (VMP) | An additional worker’s marginal physical product multiplied by the price at which the firm could sell that additional product.
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| Variable Costs | Costs that change as output changes.
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| Vertical Merger | A combination of two companies that are involved in different phases of producing a product.
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| Vickrey Auction | A sealed-bid auction where the highest bidder wins but pays the price bid by next-highest bidder.
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| Wealth | The value of the things individuals own less the value of what they owe.
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| Welfare Loss Triangle | A geometric representation of the welfare cost in terms of misallocated resources caused by a deviation from a supply/demand equilibrium.
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| World Trade Organization (WTO) | Organization committed to getting countries to agree not to impose new tariffs or other trade restrictions except under certain limited conditions. See also General Agreement on Tariffs and Trade.
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| X-inefficiency | The underperformance of a firm that has a monopoly position. The firm operates far less efficiently than it could technically.
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| Zoning Laws | Laws that set limits on the use of one’s property.
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