TASC Economics Level 3 flashcards
TASC Economics Level 3 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Opportunity cost
- The value of the next-best alternative forgone when a choice is made; it includes both explicit and implicit costs.
- Production possibilities frontier
- A curve showing the maximum combinations of two goods that can be produced with given resources and technology; points on the curve are efficient.
- Marginal analysis
- A decision rule comparing the additional benefit of an action with its additional cost; optimal when marginal benefit equals marginal cost.
- Public good
- A good that is nonrival in consumption and nonexcludable, such as national defense; private markets tend to underprovide it because of free riding.
- Negative externality
- A cost imposed on third parties not involved in a transaction, such as pollution; it causes the market quantity to exceed the socially optimal quantity.
- Pigouvian tax
- A tax equal to the marginal external cost of a negative externality, designed to bring market output down to the socially efficient level.
- Progressive tax
- A tax for which the average tax rate rises as income rises, so higher-income earners pay a larger share of their income in tax.
- Law of demand
- The principle that, all else equal, quantity demanded of a good falls as its price rises, producing a downward-sloping demand curve.
- Equilibrium price
- The price at which quantity demanded equals quantity supplied; at this price there is neither a shortage nor a surplus.
- Price ceiling
- A legally imposed maximum price; if set below equilibrium, it creates a shortage because quantity demanded exceeds quantity supplied.
- Price elasticity of demand
- The percentage change in quantity demanded divided by the percentage change in price; demand is elastic if the absolute value exceeds one.
- Income elasticity of demand
- The percentage change in quantity demanded divided by the percentage change in income; positive for normal goods and negative for inferior goods.
- Cross-price elasticity
- The percentage change in quantity demanded of one good divided by the percentage change in the price of another; positive for substitutes, negative for complements.
- Tax incidence
- The division of the burden of a tax between buyers and sellers; the less elastic side of the market bears the larger share.
- Diminishing marginal returns
- The principle that adding more of a variable input to fixed inputs eventually reduces the marginal product of that input.
- Marginal cost
- The change in total cost resulting from producing one additional unit of output; it intersects average total cost at its minimum.
- Profit maximization rule
- A firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost, provided price covers average variable cost in the short run.
- Perfect competition
- A market structure with many buyers and sellers, identical products, and free entry and exit; each firm is a price taker.
- Monopoly
- A market with a single seller protected by barriers to entry; the firm faces the market demand curve and can earn long-run economic profit.
- Marginal revenue product
- The additional revenue a firm earns from hiring one more unit of labor; equal to marginal product times marginal revenue; hiring stops where it equals the wage.
- Derived demand
- Demand for a factor of production that arises from the demand for the goods and services the factor helps produce.
- Compensating wage differential
- The higher wage paid to workers in risky, unpleasant, or undesirable jobs to attract them away from otherwise comparable safer jobs.
- Gross domestic product
- The market value of all final goods and services produced within a country during a given period, usually one year.
- Real GDP
- GDP measured using constant base-year prices to remove the effect of inflation, allowing comparison of output across years.
- Unemployment rate
- The number of unemployed persons divided by the labor force, multiplied by 100; the labor force includes employed and unemployed persons.
- Consumer price index
- A measure of the average price of a fixed basket of goods and services purchased by a typical urban consumer, used to calculate inflation.
- Money multiplier
- The maximum amount the money supply can increase per dollar of excess reserves; equal to one divided by the required reserve ratio.
- Open market operations
- The buying and selling of government securities by a central bank to change bank reserves and the money supply.
- Expansionary monetary policy
- Central bank actions that increase the money supply and lower interest rates, such as buying securities or lowering the reserve requirement.
- Automatic stabilizers
- Government programs such as unemployment insurance and progressive taxes that automatically increase spending or reduce taxes during recessions without new legislation.
- Crowding out
- The reduction in private investment that occurs when government borrowing to finance deficits raises interest rates.
- Comparative advantage
- The ability of a country to produce a good at a lower opportunity cost than another country, forming the basis for mutually beneficial trade.