Micro Terms
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Nationalization
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the taking over of private firms by the government. |
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Natural Monopoly
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a single firm in an industry in which average total cost is declining over
the entire range of the market and the minimum efficient scale is larger than the size of
the market. |
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Negative Externality
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the situation in which costs spill over onto someone not involved in
producing or consuming the good. |
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Net Exports
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the value of goods and services sold abroad minus the value of goods and
services bought from the rest of the world; exports minus imports. |
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Nonexcludability
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the situation in which no one can be prevented from consuming a good. |
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Nonrivilary
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the situation in which more people can consume a good without reducing the
amount available for others to consume. |
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Nontariff Barrier
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any government action other than a tariff that reduces imports, such as a
quota or a standard. |
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Normal Good
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a good for which demand increases when income rises and decreases when
income falls. |
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Normal Profits
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the amount of accounting profits when economic profits are equal to zero. |
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Normative Economics
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economic analysis that makes recommendations about economic policy. |
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Oligopoly
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an industry characterized by few firms selling the same product with
limited entry of other firms. |
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Opportunity Cost
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the value of the next best foregone alternative that was not chosen
because something else was chosen. |
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Pareto Efficiency
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a situation in which it is not possible to make someone better off without
making someone else worse off. |
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Partnership
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a firm owned by more than one person in which the partners decide the
division of the firm's income among them and are jointly liable for losses the firm
incurs. |
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Payroll Tax
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a tax on wages and salaries of individuals. |
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Perfectly Elastic Demand
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demand for which the price elasticity is infinite, indicating an infinite
response to a change in the price and therefore a horizontal demand curve. Graph |
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Perfectly Elastic Supply
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supply for which the price elasticity is infinite, indicating an infinite
response of quantity supplied to a change in price and thereby a horizontal supply curve. |
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Perfectly Inelastic Demand
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demand for which the price elasticity is zero, indicating no response to a
change in price and therefore a vertical demand curve. Graph |
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Perfectly Inelastic Supply
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supply for which the price elasticity is zero, indicating no response of
quantity supplied to a change in price and thereby a vertical supply curve. |
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Personal Income Tax
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a tax on all forms of income an individual or household receives. |
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Positive Economics
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economic analysis that explains what happens in the economy and why,
without making recommendations about economic policy. |
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Positive Externality
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the situation in which benefits spill over onto someone not involved in
producing or consuming a good or engaged in an activity. |
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Potential Pareto Improvement
(PPI)
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basis for policy evaluation using efficiency as the criterion where as a
consequence of the policy the gainers could (not necessarily will) compensate the losers
and still have a net gain. |
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Poverty Line
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an estimate of the minimum amount of annual income required for a family
to avoid severe economic hardship. |
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Poverty Rate
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the percentage of people living below the poverty line. |
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Predatory Pricing
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action on the part of one firm to set a price below its shutdown point to
drive its competitors out of business. |
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Present Discounted Value
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the value in the present of future payments. |
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Price
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refers to a particular good and is defined as the amount of money or other
goods that one must pay to obtain the good. |
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Price Ceiling
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a government price control that sets the maximum allowable price for a
good. Graph |
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Price Control
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a government law or regulation that sets or limits the price to be charged
for a particular good. |
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Price Discrimination
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a situation in which different groups of consumers are charged different
prices for the same good. |
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Price Elasticity of Demand
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the percentage change in the quantity demanded of a good divided by the
percentage change in the price of that good. Graph |
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Price Elasticity of Supply
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the percentage change in quantity supplied divided by the percentage
change in price. |
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Price Fixing
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the situation in which firms conspire to set prices for goods sold in the
same market. |
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Price Floor
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a government price control that sets the minimum allowable price for a
good. Graph |
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Price Leader
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the price setting firm in a collusive industry where other firms follow
the leader. |
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Price-Cost Margin
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the difference between price and marginal cost divided by the price. This
index is an indicator of market power, where an index of 0 indicates no market power and a
higher price-cost margin indicates greater market power. |
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Price-Maker
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a firm that has the power to set its price, rather than taking the price
set by the market. |
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Price-Taker
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any firm that takes the market price as given; this firm cannot affect the
market price because the market is competitive. |
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Principal-Agent Problem
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a problem that stems from asymmetric information. The Agent, e.g., the
worker, and the principal, e.g., the boss, has different objectives and it is costly for
the principal to monitor the action of the agent. |
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Prisoner's Dilemma
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a situation in which individual incentives lead to a nonoptimal
(noncooperative) outcome. If the players can credibly commit to cooperate, then they
achieve the best (cooperative) outcome. |
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Privatization
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the process of converting a government enterprise into a privately owned
enterprise. |
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Producer Surplus
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the supply side equilivant to consumer surplus defined as the difference
between the price received by a firm for items sold and the marginal cost of the items
production; for the market as a whole, it is the sum of all the individual firms' producer
surpluses; or the area above the market supply curve and below the market price. Graph |
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Producer Surplus, Change In
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the change in producer wefare as a result of a change in demand or supply
conditions. Graph |
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Product Differentiation
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the effort by firms to produce goods that are slightly different from
other types of goods. |
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Production Function
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a relationship that shows the quantity of output for any given amount of
input. |
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Production Possibilities
Frontier
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alternative combinations of production of various goods that are possible,
given the economy's resources and technology. Graph |
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Profit Maximization
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an assumption that firms try to achieve the highest possible level of
profits-total revenue minus total costs-given their production function. |
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Profits
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total revenue received from selling the product minus the total costs of
producing the product. |
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Progressive Tax
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a tax for which the amount of an individual's taxes rises as a proportion
of income as the person's income increases. |
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Property Rights
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rights over the use, sale, and proceeds from a good or resource. |
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Property Tax
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a tax on the value of property owned. |
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Proportional Tax
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a tax for which the amount of an individual's taxes as a percentage of
income is constant as the person's income rises. |
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Protectionist Policy
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a policy that restricts trade in order to protect domestic producers. |
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Public Good
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a good or service that has two characteristics nonrivilary in consumption
and nonexcludability. |
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Public Infrastructure Project
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an investment project such as a bridge or jail funded by government
designed to improve publicly provided services such as transportation or criminal justice.
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Quantity Demanded
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the amount of a good that people want to buy at a given price. |
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Quantity Supplied
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the amount of a good that a person or firm is willing to sell at a given
price. |
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Quintile Divisions
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groupings of one-fifth of a population ordered by income, wealth, or some
other statistic. |
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Quota
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a governmental limit on the quantity of a particular good sold or
imported. Graph |
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Rate of Return
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the return on an asset stated as a percentage of the price of the asset. |
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Rate of Technical
Substitution
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the rate at which one input must be substituted for another input to
maintain the same production; it is the slope of the isoquant. |
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Real Gross Domestic Product
(real GDP)
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a measure of the value of all the goods and services newly produced in a
country during some period of time, adjusted for inflation. |
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Real Wage
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the wage or price of labor adjusted for inflation; in contrast, the
nominal wage has not been adjusted for inflation. |
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Regressive Tax
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a tax for which the amount of an individual's taxes falls as a proportion
of income as the person's income increases. |
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Relative Price
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the price of a particular good compared to the price of other goods. |
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Rent Control
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a government price control that sets the maximum allowable rent on a house
or apartment. |
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Rental Price of Capital
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the amount that a rental company charges for the use of capital equipment
for a specified period of time. |
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Rule of Reason
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an evolving standard by which antitrust cases are decided, requiring not
only the existence of monopoly power but also the intent to restrict trade and the
existence of significant impact. |
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Sales Tax
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a type of excise tax that applies to total expenditures on a broad group
of goods. |
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Scarcity
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the situation in which the quantity of resources is insufficient to meet
all wants. |
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Sherman Antitrust Act
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a law passed in 1890 in the United States to reduce anticompetitive
behavior; Section 1 makes price fixing illegal, and Section 2 makes attempts to monopolize
illegal. |
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Short Run
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the period of time during which it is not possible to change all inputs to
production; only some inputs, such as labor, can be changed. |
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Shortage
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the situation in which quantity demanded is greater than quantity
supplied. |
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Shutdown Point
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the point at which price equals the minimum of average variable cost. |
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Smoot-Hawley tariff
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a set of tariffs imposed in 1930 that raised the average tariff level to
59 percent by 1932. |
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Social Insurance Transfer
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a transfer payment, such as social security, that does not depend on the
income of the recipient. |
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Social Security
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the system through which individuals make payments to the government when
they work and receive payments from the government when they retire or become disabled. |
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Socialism
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an economic system in which the government owns and controls all the
capital and makes decisions about prices and quantities as part of a central plan. |
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Sole Proprietorship
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a firm owned by a single person. |
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Specialization
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the situation in which a resource, such as labor, concentrates and
develops efficiency at a particular task. |
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Standard Industrial
Classification (SIC)
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a taxonomy used to label and group industries for statistical purposes;
each industry is given an SIC code. |
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Strategic Behavior
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behavior that takes into account the power and reactions of other persons.
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Structure-Conduct-Performance
Method
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a method of analyzing the market power in an industry by looking at the
structure of the industry. |
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Substitute
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a good that has many of the same characteristics and can be used in place
of another good. |
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Substitution Effect
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the amount by which quantity demanded falls when the price rises,
exclusive of the income effect. Graph for a normal good. Graph for an inferior good. Graph for a Giffen good. |
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Supplemental Security Income
(SSI)
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a means-tested transfer program designed primarily to help the poor who
are disabled or blind. |
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Supply
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a relationship between price and quantity supplied. |
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Supply Curve
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a graph of supply showing the tendency for a positive relationshipship
between price and quantity supplied. Graph |
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Supply Curve, Change In
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a shift of the price-quantity supplied relationship; anything that affect
supply other that the price of the good shifts the supply curve. Graph |
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Supply Curve, Movement Along
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a change in the quantity supplied due solely to a change in the price of
the good. Graph |
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Supply Schedule
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a tabular presentation of supply showing the price and quantity supplied
of a particular good, all else being equal. |
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Surplus
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the situation in which quantity supplied is greater than quantity
demanded. |
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Tariff
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a tax on imports. Graph |
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Tax Incidence
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the allocation of the burden of the tax between buyer and seller. |
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Tax Revenue
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the tax rate times the amount subject to tax. |
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Tendency of Supply
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the tendency for the quantity supplied of a good in a market to increase
as its price rises. |
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Terms of Trade
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quantity of imported goods a country can obtain in exchange for a unit of
exported goods. |
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Total Costs
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the sum of variable costs and fixed costs. |
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Total Revenue
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the price per unit times the quantity the firm sells. |
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Tradable Permit
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a governmentally granted license to pollute that can be bought and sold. |
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Trade Adjustment Assistance
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transfer payments made to workers who are hurt by the move to free trade. |
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Trade War
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a conflict among nations over trade policies caused by imposition of
protectionist policies on the part of one country and subsequent retaliatory actions by
other countries. |
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Transaction Cost
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the cost of buying or selling in a market including search, bargaining,
and writing contracts. |
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Transfer Payment
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a grant of funds from the government to an individual. |
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Unemployment Insurance
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a program which makes payments to people who lose their jobs. |
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Unit Elastic Demand
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demand for which price elasticity equals 1 in absolute terms. |
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User Fee
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a fee charged for the use of a good normally provided by the government. |
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Utility
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a numerical indicator of a person's preferences in which higher levels of
utility indicate a greater preference. |
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Utility, Marginal
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the amount by which an additional unit of a good, service, or activity
increases a person's total utility, ceteris paribus. Graph |
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Utility, Total
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a conceptual measure of the number of units of utility a person obbtains
by enjoying a given quantity of a good, service, or activity during a given time period.
Graph |
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Utility Maximization
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an assumption that people try to achieve the highest level of utility
given their budget constraint. |
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Utility Maximizing Rule
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a condition that a consumer maximizes utility by choosing to purchase a
combination of goods such that the ratio of marginal utilities for any two goods equals
the ratio of their market prices or, alternatively, such that the ratio of the marginal
utility to the price of any good bought equals the ratio of the marginal utility to the
price of any other good bought. |
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Variable Costs
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costs of production that vary with the quantity of production. |
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Vertical Merger
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a combining of two firms in which one supplies goods to the other. |
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Voluntary Import Expansion
(VIE)
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a government agreement to expand imports from a particular country. |
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Voluntary Restraint Agreement
(VRA)
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a country's self imposed government restriction on exports to a particular
country. |
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Wage
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the price of labor defined over a period of time worked. |
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World Trade Organization
(WTO)
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an international organization that can mediate trade disputes. |