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Absolute Advantage  when a producer can make a good using fewer resources than its trading partners can.
Accounting Profit  Total revenue minus total cost. Here, cost does NOT include all opportunity costs.
Adverse Selection  in this book, a situation in which an individual attracts those with whom her or she least wishes to interact.
Agency Costs  the harm suffered by employers when employees make decisions that help themselves but harm their employers. Agency costs also apply when an individual hires an agent, such as a doctor or stock broker, and the agent makes decisions that help him at the expense of the individual.
Antitrust Laws  government regulations that are intended to increase competition by reducing the prevalence and strength of monopolies.
Assortative Mating  when people marry others like themselves.
Average Fixed Costs  <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073402834/575463/Average_Fixed_Costs.JPG','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (2.0K)</a>
Average Total Costs  total cost divided by output, or <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073402834/575463/Average_Total_Costs.JPG','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (3.0K)</a>
Average Variable Costs  <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073402834/575463/Average_Variable_Costs.JPG','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (2.0K)</a>
Barriers to Entry  anything which prevents firms from entering a market.
Black Markets  markets in which goods are unlawfully traded.
Cartel  a group of firms that collude to raise prices.
Ceteris Paribus  Latin for “other things being equal”.
Change in Demand  occurs when a change in something other than the price of the good causes you to move to another demand curve.
Change in Quantity Demanded  occurs when a change in the price of the good causes you to move along a demand curve.
Change in Quantity Supplied  occurs when a change in the price of the good causes you to move along a supply curve.
Change in Supply  occurs when a change in something other than the price of the good causes you to move to another supply curve.
Collective Ownership  a situation where several people own a singular good.
Collusion  when firms cooperate, implicitly or explicitly, to raise prices.
Command and Control  a method of pollution control in which the government tells firms how much they can pollute and what types of pollution reducing technologies they must use.
Comparative Advantage  when a nation, individual, or company can produce a good at a lower opportunity cost than its trading partners can.
Competitive Markets  when individual buyers and sellers in a market cannot set prices. A competitive market has many buyers and sellers.
Complements  two goods (such as cars and gas) where an increase in the price of one good decreases the demand for the other.
Complicated Pricing  when firms’ pricing plans are made deliberately confusing so customers cannot easily compare prices.
Constant Returns to Scale  when long run average total costs stay the same as output increases.
Consumer’s Surplus  the highest amount an owner would have paid for a good minus the amount the owner actually paid
Copyright Holders  an individual or company that has the exclusive right to sell a copyrighted product. Software, books, movies and music can be copyrighted.
Cross Elasticity of Demand  <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073402834/575463/Cross_Elasticity_of_Demand.JPG','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (7.0K)</a>
Cross elasticities of demand are positive for substitutes and negative for complements.
DDT  (Dichloro–Diphenyl–Trichloroethane) an inexpensive pesticide.
Dead Capital  real estate which cannot be used as collateral for a loan.
Deadweight Loss  a loss one party suffers that does not benefit another party or, restated, a loss that reduces society’s net wealth.
Demand  the entire relationship between price and quantity demanded over a given time period. Demand is never just a single number.
Demand curve  a graph of demand.
Diminishing Marginal Returns  when an individual receives lower and lower benefits from increasing the amount of input used.
Diseconomies of Scale  when long run average total costs increase as output increases.
Disruptive Innovation  when innovation on one product lowers the value of other products.
Economics  the study of human behavior.
Economic Profit  total revenue minus total cost. Costs include all opportunity costs.
Economies of Scale  when long run average total costs decrease as output increases.
Educational Premiums  when workers’ average earnings increase as their level of education increases.
Elasticity  a measure of market responsiveness.
Eminent Domain  the power of a government to take private property.
Equilibrium  point of stability in a market.
Excludable resource  people can be prevented from using this resource.
Exits the Industry  when a firm leaves its former industry, produces zero output in this industry and pays no fixed costs for this industry. Occurs only in the long run.
Exports  goods people in one nation sell to those living in other nations.
Externalities  a cost or benefit that is incidental (or external) to the production and use of a product.
Firms  business organizations that seek to maximize their profits.
Fixed Costs  costs that are the same regardless of output. These costs must be paid even if a firm produces zero output.
Fixed Inputs  inputs that can be changed in the long run but not the short run.
Gerrymandering  when politicians draw electoral districts to serve their own self-interests.
Imperfect Price Discrimination  when customers pay different prices but are not subject to perfect price discrimination.
Imports  goods people in one nation buy from those living in other nations.
Income elasticity of demand  <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073402834/575463/Income_elasticity_of_demand.JPG','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (5.0K)</a> Income elasticities of demand are positive for normal goods and negative for inferior goods.
Increasing Marginal Cost  when marginal costs increase as output increases.
Index Funds  mutual funds that invest in all stocks in a relevant index in proportion to each stock’s relative market capitalization.
Infant Industries  industries that have recently been created.
Inferior Goods  goods consumed in larger quantities as a consumer becomes poorer, and in lesser quantities as a consumer becomes richer.
Informally Owned Businesses  businesses that are not legally registered with the government.
Innovation  finding new and improved ways of producing goods and services.
Inputs  what firms use to make goods.
Intellectual Property  non-physical property such as patents and copyrights.
Invisible Hand, The  A theory proposed by eighteenth-century economist Adam Smith. When markets function well, Adam Smith’s invisible hand pushes self-interested people to take actions which are in the best interests of society.
Joint Production  two or more goods are jointly produced if the process that produces one of the goods necessarily produces the others.
Law of Demand  consumers buy less of a good as its price increases and more of a good as its price decreases.
Law of Supply  firms produce less of a good as its price falls and more of a good as its price increases.
Linux  a computer operating system that is free to users. Linux was created and is continually improved by volunteers.
Long Run  a period of time over which firms can innovate and/or change their fixed inputs.
Luddites  people opposed to technological change.
Macroeconomics  a subfield of economics that focuses on the performance of entire economies and looks at issues such as unemployment, inflation and monetary policy.
Malaria  an infectious disease often spread by mosquitoes that kills between one and three million people each year worldwide.
Marginal Cost  the extra cost of increasing output by one unit.
Marginal Deterrence  when a criminal who has committed a crime but has not yet been caught has an incentive to not commit another crime.
Marginal Revenue  the increase in total revenue a firm receives by selling one more good.
Marginal Value  how much value a consumer received from the last unit of the good she consumed.
Market Capitalization  a characteristic of a stock market, equal to its stock price times the total number of shares of its stock.
Market Demand  the sum of all individual demand curves for a good.
Markets  places where individuals and businesses voluntarily exchange money, goods, services, and labor.
Microeconomics  a subfield of economics that focuses on individuals and businesses.
Minimum Wage  a price floor set on wages by government. Firms cannot legally pay workers less than the minimum wage.
Money transfer  money paid from one person to another.
Monopoly  a firm that does not have significant competition in a market.
Moore’s Law  a prediction that the number of transistors on a computer chip will double about every two years.
Mutual Fund  an investment service that picks stocks for its investors.
Natural Monopolies  monopolies based on economies of scale.
Negative Externalities  costs that are incidental (or external) to the production and use of a product.
Neo-Malthusians  individuals who believe that lack of natural resources will soon cause an economic catastrophe.
Normal Goods  goods consumed in larger quantities as a consumer becomes richer, and in lesser quantities as a consumer becomes poorer.
Oligopolies  markets that fall between perfect competition and monopoly.
Opportunity Costs  the value of the next best alternative that must be given up in order to engage in any economic activity. Opportunity cost equals best opportunity lost.
Output  the number of goods produced.
Patent  an authorization that gives an individual or company the exclusive right to sell a specific good. Goods made with some new and innovative design can be patented by the good’s inventor.
Perfect Competition  when the market forces firms to intensively compete for customers. Perfectly competitive markets have many buyers and sellers who are all price takers.
Perfect Price Discrimination  when the price charged to each customer equals the most that the customer is willing to pay. Extreme price discrimination.
Pigouvian Taxes  taxes on goods with negative externalities.
Pork  wasteful government spending that benefits a politician.
Positive Externalities  benefits that are incidental (or external) to the production and use of a product.
Potential Competition  firms that are not yet in a market but might enter in the future.
Predatory Pricing  when a firm charges a very low price to drive its competition out of the market.
Price  the amount of money needed to purchase a good, or the amount of money a seller is willing to accept for a good.
Price ceiling  a maximum price for a good set by the government.
Price Discrimination  charging different customers different prices for the same good.
Price elasticity of demand  <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073402834/575463/Price_elasticity_of_demand.JPG','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (5.0K)</a>
Price elasticity of supply  <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073402834/575463/Price_elasticity_of_supply.JPG','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (5.0K)</a>
Price floor  a minimum price set by the government for a good.
Price Gouging  when politicians believe that firms charge “excessively” high prices.
Price Takers  firms and consumers who cannot influence prices.
Prisoners’ Dilemma  when each individual in a situation is better off acting selfishly but everyone would be better off if all people acted altruistically.
Producer’s Surplus  a good’s price minus the cost to the seller of making the good.
Profit  Total revenue minus total cost.
Property Rights  the ability to own a good, use a good, sell it to others or prevent others from using the good.
Public Choice Theory  examines how government officials and voters make political decisions.
Public Good  any non-rival and non-excludable good.
Quantity Demanded  the amount of a good consumers want to purchase at a specified price over a specified time period.
Quantity Supplied  the amount of a good suppliers want to produce at a given price over a specified time period.
Quotas  government-imposed limits on imports.
Rational individuals  people who consider all the significant consequences of their actions and make decisions that further their self-interests.
Rationing  when goods are allocated other than through price.
Real Estate  land and buildings.
Rents  money a person receives beyond what the marketplace would ordinarily give him. Rents occur when politicians intervene in the market to help favored individuals.
Rent Control  a price ceiling set on the housing market.
Rent-Seeking  spending resources to capture rents. These resources are usually spent trying to influence politicians.
Rival Resource  one person’s use of a rival resource reduces the amount of this resource available to others.
Roundabout Production  a situation where, instead of making a good directly, an individual makes another good and then trades this second good for the original good desired.
Scabs  derogatory name for those who fulfill the employment tasks of striking employees.
Self-interested Individuals  people who maximize their own welfare, however they define it.
Self-Selection  when members of more than one group take actions which reveals which group each person is in.
Shutdown  when a firm produces zero output but still must pay some fixed costs. Occurs only in the short run.
Short Run  a period of time over which firms cannot innovate or change their fixed inputs.
Shortage  when quantity supplied is less than quantity demanded.
Specialization  when people produce what they are best at making and trade for what they do not produce.
Statistical Discrimination  when a member of a group is discriminated against because of negative traits that many members of his group have.
Strike  when employees of a firm refuse to work until the firm improves wages, benefits or working conditions.
Strong Complements  two goods that almost always go together.
Substitutes  two goods are substitutes when an increase in the price of one good causes an increase in demand for another.
Sunk Costs  costs that cannot be recovered regardless of what you do.
Supply  the entire relationship between price and quantity supplied over a specified time period.
Supply Curve  a graphical representation of supply.
Surplus  when quantity supplied is greater than quantity demanded.
Tariffs  taxes on imports.
Technological Spillovers  gains from innovation that go to people other than the innovator or those that helped pay for the innovation.
Total Costs  fixed costs plus variable costs.
Total Revenue  price multiplied by sales.
Total Surplus  the sum of consumers’ and producers’ surplus.
Tradable Permits  permits giving firms the right to emit certain amounts of pollution. Firms can buy tradable permits and sell those permits they do not use.
Tragedy of the Commons  arises when a resource which is rival but non-excludable is used until depletion.
Union  an organization of workers.
Value  the most a good’s owner would pay for the good.
Variable Costs  costs that vary with output. Variable costs are always zero if output is zero.
Variable Inputs  inputs that can be changed in both the short and long run.
Wealth  an individual’s wealth is the value of all his possessions. The total wealth of society is the sum of each individual’s wealth.
Wikipedia  a free online encyclopedia written by volunteers.





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