World Class Education www.kean.edu
By Paul Suozzo Assistant Professor of Bus. Studies Ocean County College
1. Introduction 2. Markets 3. Consumer Theory 4. Costs of Production 5. Competition 6. Monopoly 7. Game Theory 8. Inflation 9. Economic Accounting 10. Business Cycle & Unemployment 11. Income & Expenditure 12. Fiscal & Monetary Policy 13. Taxation 14. Trade 15. The Future & Growth
Fertilizer 0 1 2 3 4 Tomatoes 20 35 44 48 40 Avg. per Bag Marg. Prod. / 35 22 16 10 / +15 +9 +4-8
A B C D E Shovels 80 75 65 45 0 Beach Chairs 0 10 20 30 40
Opportunity Cost: the forfeited benefit of the next best activity Marginal Analysis: making decisions considering only what can be changed Ceteris Paribus: while all other factors proceed as usual Factors of Production: Land, Labor, Capital & Entrepreneurship Law of Increasing Opp. Costs: extra units are only available at an increasing cost Cost/Benefit Analysis: to be worthwhile, an effort s benefits must outweigh its costs Command Econ.: a system where government makes most production decisions and owns most means of production (communism, socialism) Market Econ.: a system guided by markets where most means of production are owned privately (capitalism) Scarcity: when wants outnumber resources (opposite of abundance)
Supply: a group of organizations providing a good or service for a fee Quantity Supplied: a particular quantity of a good or service made available by a specific price Supply Determinants: factors causing Supply to grow or shrink (counterparts for above three exist for Demand) Shortage: when a lower than equilibrium price causes Quantity demanded to surpass Quantity supplied (caused by P ceiling) Surplus: when a higher than equilibrium price causes Quantity supplied to surpass Quantity demanded (caused by P floor) Equilibrium: when there is no pressure for change, the P/Q combination that equate Qs to Qd Consumer Surplus: extra money consumers are willing to pay for a good Producer Surplus: extra discounts suppliers are willing to concede to sell a good Deadweight Loss: loss of surplus caused by market interference
Coefficient of Elasticity: change in Qd relative to a corresponding P change Normal Good: a good whose demand increases with income Inferior Good: a good whose demand decreases with income
Item Price 1 2 3 4 5 6 Hot dog $2 20 12 6 2 0-4 soda 1 9 7 4 3 1 1
Welfare: a person s level of physical comfort Utils: unit in which personal satisfaction is measured Indifferent: when a consumer has no preference between two options totals represent one s preferences while trade-off s must always reflect prices Utility Maximization Rule: the last unit from each category brings the same utils per dollar or else a more satisfying combination exists
FC=240 TC MC VC ATC AVC AFC 1 307 67 67 307 67 240 2 360 53 120 180 60 120 3 414 54 174 138 58 80 4 500 86 260 125 65 60 5 600 100 360 120 72 48 6 726 126 486 121 81 40
Stage 1 2 3 4 5 6 7 8 Output 100 225 400 600 800 1200 1550 1800 Input 50 75 100 150 200 300 400 500 Prdtvty 2 3 4 4 4 4 3.875 3.6
Profit: proceeds remaining once all costs (both direct & indirect) are deducted Fixed Costs: costs that remain constant despite level of production Variable Costs: costs varying directly with production Efficiency:being able to complete the same task with less resources Marginal Cost: cost brought about by another unit of production Long Run: frame of time in which all resources can be modified Scale Economies: change in efficiency brought about by changing scale of production Productivity: output/input
Short-run: frame of time where at least one factor of production cannot be varied Shut-down: when a firm opts to make no output and incur a loss equal to fixed costs Q*: output quantity that maximizes profit or minimizes loss Price taker: when a firm has no influence over price Pure Competition: a market where many firms produce a standard product at the same price Invisible Hand: Adam Smith s metaphor for market allocation
Market Power: ability to influence price Monopoly: when a market is supplied by a single firm Allocative Efficiency: pursuing a goal until marginal benefit (P) falls to equal marginal cost Productive Efficiency: minimizing per unit cost via mass production Fair Return: producing until costs = revenues P Discrimination: offering customers same or similar product for different prices based on willingness to pay Natural Monopoly: where cost per unit can only be minimized if all production is handled by a single firm (usually utility co s)
Symmetrical: when two parties pose one another with the same circumstances Dominant Strategy: when a best course of action offers better outcomes Probable Outcome: outcome resulting from all parties pursuing their best course of action Nash Outcome: when no party would opt to deviate from the probable outcome Collusion Opportunity: when an alternative to the probable outcome exists to the benefit both parties
Year Quant. Q ch. Price Rev. Rev. ch. P. Index Real 1 10 / 1 10 / 67 15 / Real ch 2 12 +.20 1.5 18 +.80 100 18 +.20 3 15 +.25 1.33 20 +.11 89 22.50 +.25 4 10 -.33 2.25 22.50 +.125 150 15 -.33
Inflation: sustained increase in prices Real Growth: increase in units of goods & services Price Index: composite number representing the state of prices
Gross Domestic Product: Market value of all new final goods and services produced within a country during a year Consumption: spending by households Durable Consumption: household investments, household spending on items not quickly exhausted (cars, appliances) Non-Durable Consumption: household spending on quickly expendable items (food, fuel, clothing) Investment: purchases by business not intended for resale Government Purchases: items purchased by government- not transfers Net Exports = Export Imports
Long-run GDP: level of GDP needed to fully employ all resources Current GDP: current level of output regardless of sustainability Recession: 2 or more successive quarters without growth GDP Gap: current long-run GDP Unemployment Rate: unemployed/(unemployed + employed) Labor Force: unemployed + employed Discouraged: jobless persons wanting but not looking for work Frictional: unemployed persons between employers Structural: the unemployed between occupations and/or locales Cyclical: employment caused by dips in industries Natural Unemployment: all unemployment excluding cyclical
Autonomous Consumption: basic consumption regardless of income MPC = new consumption / new income MPS = new savings / new income APC = consumption / income APS = savings / income Injection: new expenditures introduced in an economy Leakage: lost expenditures and new taxes and savings Expenditure Multiplier = 1/MPS
Tax Multiplier = MPC/MPS Federal Reserve System: US central bank system that divorces gov. from money supply control Discount Rate: rate of interest banks borrow from Fed Reserve Ratio: portion of deposits kept as vault cash (reserves) Federal Funds Rate: interest rate banks borrow from each other Term Auction Facility: Fed s policy of making anonymous loans to banks at a rate based on demand Easy Money Policy: lower Disc. Rate and Reserve Ratio, selling of Treasuries and more lending via the Term Auction Facility
Flat Tax: rate of tax that remains constant despite taxable amount Progressive Tax: tax rate that intensifies as taxed amount increases Effective Tax Rate: tax/taxable amount Lump Sum Tax: tax that remains the same regardless of income Subsidy: when gov. helps pay for certain activity (negative tax)
Compute r C I A L F O R I N I A ID A H O 50 25 0 10 5 0 Potato 0 50 100 0 62 125
Comparative Advantage: when a country can make a product with a lesser opportunity cost Tariff: port toll charged on imports Reciprocal Trade Agreement Act: a simplified and more favorable set of trade rules, most favored nation status, the US extends to nations who engage in bi-lateral trade talks with US Gen. Agree. On Tariffs & Trade: international convention to simplify trade and reduce barriers World Trade Organization: international organization to remedy trade disputes and foster world trade
Growth Compounding: when growth portions are added to the initial principal to further perpetuate future growth Rule of 70: number of periods to double = 70/growth rate orgrowth rate = 70/number of periods to double