Microeconomics Flashcards

Only 10 flashcards are shown at a time! Once you’ve mastered these 10 Economic terms, click the shuffle button below for 10 new terms. There are approximately 115 flashcards covering Microeconomics.

Deadweight loss
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(Welfare loss): The loss of total societal welfare (consumer and produce surplus) that occurs when a market is producing at a level of output that is not socially optimal (where MSB=MSC). May arise from a market failure or from a government intervention in an already efficient market.

Deadweight loss
Interest
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The payment for capital in the resource market. Firms pay interest on the money they borrow to acquire capital equipment (technology). Households receive interest for providing their savings to banks, who make the loans to the firms paying interest.

Interest
The Basic Economic Questions
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What should be produced? How should it be produced? and, “For whom should production take place?” Any economic system, either centrally planned or free market, must address these questions.

The Basic Economic Questions
Specialization
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The practice of allocating an individual’s, an organization’s or a nation’s resources towards the production of a good or a category of goods for which it has a relatively low opportunity cost. Improves the overall allocation of resources and allows individuals and, with trade, allows individuals or nations to consume beyond what they would be able to produce on their own.

Specialization
Mixed economy
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Most economies today are mixed economies, i.e. sharing characteristics of the free market system but with an active role for government.

Mixed economy
Tragedy of the commons
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When there exists a common access resource, over which there is no private owner, the incentive among rational users of that resource is to exploit it to the fullest potential in order to maximize their own self gain before the resource is depleted. The tragedy, therefore, is that common resources will inevitably be depleted due to humans’ self-interested behavior, leaving us with shortages in key resources essential to human survival.

Tragedy of the commons
Entrepreneurship
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The creativity and innovation an individual business owner puts towards the production of goods and services.

Entrepreneurship
Marginal Private Cost (MPC)
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The costs of production of a good experienced by the firms in market. Does not take into account any social or environmental costs.

Marginal Private Cost (MPC)
Tax incidence
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(Sometimes called tax burden) When an indirect tax is placed on a particular good or group of goods, the incidence, or burden, of the tax is shared by producers and consumers. Buyers will pay a higher price, thus share some of the burden of the tax. But once the tax has been paid to the government, producers end up keeping a lower price, meaning they also share some of the tax burden. The amount of a tax on a particular good paid by consumers is the consumer tax incidence; the amount paid by producers is the producer tax incidence.

Tax incidence
Per unit tax
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A tax levied on producers for every unit produced. In contrast to a lump sum tax, which is a one time payment from producers to the government. A per unit tax increases firm’s marginal cost and average variable cost (thus, also the average total cost), but does not affect fixed costs. A per unit tax will likely cause a firm to reduce its output in the short-run, since MC shifts up and moves along the demand curve.

Per unit tax

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