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.

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
Price mechanism
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Determines the allocation of resources between society’s competing wants and needs in a free market system. Prices act as signals from buyers to sellers as to what is most demanded by society.

Price mechanism
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
Productivity
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The output per unit of input of a resource. An important determinant of the level of aggregate supply in a nation. Will increase as a result of better or more capital, education and health, all which add to the human capital of a nation.

Productivity
Substitute
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When a good can be used instead of another good, the two goods are substitutes. For instance, Coke and Pepsi are substitutes. The demand for one good is directly related to the price of its substitutes.

Substitute
Wage
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The payment to labor in the resource market. Wages are the “price of labor”

Wage
Resource market
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The market in a nation’s circular flow in which households provide firms with the factors of production (land, labor and capital) in exchange for money incomes (rent, wages and interest). Firms are the buyers, households are the sellers in the resource market.

Resource market
Ad Valorem taxes
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Indirect taxes which are a percentage of the price of the good. For example a 20% alcohol tax would be $2 on a $10 bottle of wine but $4 on a $20 bottle of wine.

Ad Valorem taxes
Demand
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A schedule or curve showing the quantities of a particular good demanded at a range of price in a particular period of time.

Demand
Income effect
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One explanation for the law of demand. Says that as the price of a good decreases, consumers feel as if they have more disposable income, thus tend to consumer more of the good whose price is falling. On the other hand, as the price of a good rise, real income decreases, consumers feel poorer, thus consume less of the good.

Income effect

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