# Glossary

- Page ID
- 71914

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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)Words (or words that have the same definition) | The definition is case sensitive | (Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages] | (Optional) Caption for Image | (Optional) External or Internal Link | (Optional) Source for Definition |
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(Eg. "Genetic, Hereditary, DNA ...") | (Eg. "Relating to genes or heredity") | The infamous double helix | https://bio.libretexts.org/ | CC-BY-SA; Delmar Larsen |

Word(s) | Definition | Image | Caption | Link | Source |
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absolute advantage | Condition that exists when one production possibilities frontier can produce more of all goods than another. | ||||

absolute advantage | Condition that exists when one production possibilities frontier can produce more of all goods than another. | ||||

ad valorem | At value. | ||||

ad valorem | At value. | ||||

arbitrage | Buying and reselling to make a profit. | ||||

arbitrage | Buying and reselling to make a profit. | ||||

Arrow-Pratt measure of risk aversion | A measure of risk aversion computed as the negative of the ratio of the second derivative of utility divided by the first derivative of utility. | ||||

Arrow-Pratt measure of risk aversion | A measure of risk aversion computed as the negative of the ratio of the second derivative of utility divided by the first derivative of utility. | ||||

autarky | State of no exchange. | ||||

autarky | State of no exchange. | ||||

baby boom | A dramatic increase in births for the years 1946 to 1964. | ||||

baby boom | A dramatic increase in births for the years 1946 to 1964. | ||||

bid increments | The difference between successive price requests. | ||||

bid increments | The difference between successive price requests. | ||||

bid-rigging | Price fixing in an auction context. | ||||

bid-rigging | Price fixing in an auction context. | ||||

bidder credits | Favoritism in an auction for certain bidders in the form of discounts on payment. | ||||

bidder credits | Favoritism in an auction for certain bidders in the form of discounts on payment. | ||||

bliss point | A point that maximizes utility. | ||||

bliss point | A point that maximizes utility. | ||||

budget line | Set of goods that just exhaust the consumer's budget. | ||||

budget line | Set of goods that just exhaust the consumer's budget. | ||||

budget set | Set of goods a consumer can afford. | ||||

budget set | Set of goods a consumer can afford. | ||||

business cycle | Random fluctuations in output. | ||||

business cycle | Random fluctuations in output. | ||||

capital accounts | Earnings on foreign assets, and the payments from U.S.-based assets owned by foreigners. | ||||

capital accounts | Earnings on foreign assets, and the payments from U.S.-based assets owned by foreigners. | ||||

certainty equivalent | The amount of money that provides equal utility to the random payoff of the gamble. | ||||

certainty equivalent | The amount of money that provides equal utility to the random payoff of the gamble. | ||||

ceteris paribus | Latin phrase meaning “other things equal.” | ||||

ceteris paribus | Latin phrase meaning “other things equal.” | ||||

circle model | A Hotelling model set on a circle. | ||||

circle model | A Hotelling model set on a circle. | ||||

Civil Rights Act | Legislation that prohibited segregation based on race in schools, public places, and employment. | ||||

Civil Rights Act | Legislation that prohibited segregation based on race in schools, public places, and employment. | ||||

Coasian bargaining | Solving the problem of externalities through negotiation. | ||||

Coasian bargaining | Solving the problem of externalities through negotiation. | ||||

Cobb-Douglas production function | A production function that is the product of each input, x, raised to a given power. |
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Cobb-Douglas production function | A production function that is the product of each input, x, raised to a given power. |
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common resource | A resource shared by many people. | ||||

common resource | A resource shared by many people. | ||||

common values | Situation in which bidders in an auction have the same value, which is generally not known with certainty. | ||||

common values | Situation in which bidders in an auction have the same value, which is generally not known with certainty. | ||||

comparative disadvantage | Condition that exists when one good has a higher opportunity cost over another. | ||||

comparative disadvantage | Condition that exists when one good has a higher opportunity cost over another. | ||||

comparative static | A prediction that allows one to determine how one variable affects another, at least in the setting described by the model. | ||||

comparative static | A prediction that allows one to determine how one variable affects another, at least in the setting described by the model. | ||||

compensated demand | Demand that exists when a change in price is accompanied by just enough additional income to keep utility the same. | ||||

compensated demand | Demand that exists when a change in price is accompanied by just enough additional income to keep utility the same. | ||||

compensating differential | Income or costs that equalize different choices. | ||||

compensating differential | Income or costs that equalize different choices. | ||||

complement in supply | A good whose cost falls as the amount produced of another good rises. | ||||

complement in supply | A good whose cost falls as the amount produced of another good rises. | ||||

complements | For a given good x, a good whose consumption increases the value of x. |
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complements | For a given good x, a good whose consumption increases the value of x. |
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compound interest | The correct rate of interest that is calculated by adding together the cumulative interest payments earned during one year. | ||||

compound interest | The correct rate of interest that is calculated by adding together the cumulative interest payments earned during one year. | ||||

concentrated benefits and diffused costs | Situation where a small number of people with strong incentives are able to expropriate a small amount per person from a large number of people. | ||||

concentrated benefits and diffused costs | Situation where a small number of people with strong incentives are able to expropriate a small amount per person from a large number of people. | ||||

Consolidated annuities or consols | Bonds that pay a fixed amount in perpetuity (forever). | ||||

Consolidated annuities or consols | Bonds that pay a fixed amount in perpetuity (forever). | ||||

constant elasticity | Condition in which the elasticity remains at the same level while the underlying variables change. | ||||

constant elasticity | Condition in which the elasticity remains at the same level while the underlying variables change. | ||||

constant returns to scale | Situation that exists when increasing all inputs by the same scalar factor increases output by that scalar factor. | ||||

constant returns to scale | Situation that exists when increasing all inputs by the same scalar factor increases output by that scalar factor. | ||||

consumer price index (CPI) | A price deflator that adjusts for what it costs to buy a “standard” bundle of food, clothing, housing, electricity, and other items. | ||||

consumer price index (CPI) | A price deflator that adjusts for what it costs to buy a “standard” bundle of food, clothing, housing, electricity, and other items. | ||||

consumer surplus | The value of consuming a good, minus the price paid. | ||||

consumer surplus | The value of consuming a good, minus the price paid. | ||||

contract curve | Curve in which every point maximizes one person’s utility given another’s utility. | ||||

contract curve | Curve in which every point maximizes one person’s utility given another’s utility. | ||||

convex function | The function that lies below the straight line segment connecting two points, for any two points in the interval. | ||||

convex function | The function that lies below the straight line segment connecting two points, for any two points in the interval. | ||||

corporate finance | The study of funding of operations of companies. | ||||

corporate finance | The study of funding of operations of companies. | ||||

corporation | A single entity owned by shareholders. | ||||

corporation | A single entity owned by shareholders. | ||||

Cournot model | A model of imperfect competition where firms simultaneously set quantities. | ||||

Cournot model | A model of imperfect competition where firms simultaneously set quantities. | ||||

covary | To move together. | ||||

covary | To move together. | ||||

deadweight loss | The buyer’s values minus the seller’s costs of units that are not economic to trade because of a tax or other interference in the market. | ||||

deadweight loss | The buyer’s values minus the seller’s costs of units that are not economic to trade because of a tax or other interference in the market. | ||||

Diminishing marginal returns | The principle that spending more on something reduces the per-unit value produced. | ||||

Diminishing marginal returns | The principle that spending more on something reduces the per-unit value produced. | ||||

diminishing marginal value | Condition in which the value of the last unit declines as the number consumed rises. | ||||

diminishing marginal value | Condition in which the value of the last unit declines as the number consumed rises. | ||||

discounted | The practice of adjusting a sequence of payments to account for the interest these payments would earn in financial markets. | ||||

discounted | The practice of adjusting a sequence of payments to account for the interest these payments would earn in financial markets. | ||||

discretionary expenditures | Government expenditures that aren’t transfers. | ||||

discretionary expenditures | Government expenditures that aren’t transfers. | ||||

dominant strategy | A strategy that is optimal no matter what the other players do. | ||||

dominant strategy | A strategy that is optimal no matter what the other players do. | ||||

Dutch auction | Auction where prices start high and decrease until a bidder signals willingness to pay, at which point the auction stops. | ||||

Dutch auction | Auction where prices start high and decrease until a bidder signals willingness to pay, at which point the auction stops. | ||||

economy of scale | Situation that exists when larger scale lowers average cost. | ||||

economy of scale | Situation that exists when larger scale lowers average cost. | ||||

economy of scope | Situation that exists when producing more related goods lowers average cost. | ||||

economy of scope | Situation that exists when producing more related goods lowers average cost. | ||||

Edgeworth box | A graphical representation of the exchange problem facing participants in a two-good exchange economy. | ||||

Edgeworth box | A graphical representation of the exchange problem facing participants in a two-good exchange economy. | ||||

efficient | Maximizing the gains from trade under the assumption that the only people affected by any given transaction are the buyers and the seller. | ||||

efficient | Maximizing the gains from trade under the assumption that the only people affected by any given transaction are the buyers and the seller. | ||||

elasticity | The percentage change in one variable for a small percentage change in another. | ||||

elasticity of demand | The percentage change in one variable for a small percentage change in another. | ||||

elasticity of demand | The percentage change in one variable for a small percentage change in another. | ||||

elasticity of supply | The percentage increase in quantity supplied resulting from a small percentage increase in price. | ||||

elasticity of supply | The percentage increase in quantity supplied resulting from a small percentage increase in price. | ||||

Engel curve | Graph that shows the path of consumption as income changes, holding prices constant. | ||||

Engel curve | Graph that shows the path of consumption as income changes, holding prices constant. | ||||

English auction | Auction where bids increase until no one is willing to top the current bid. | ||||

English auction | Auction where bids increase until no one is willing to top the current bid. | ||||

equilibrium | Condition that occurs when the pressure for higher prices is balanced by the pressure for lower prices so that the current rate of exchange between buyers and sellers persists. | ||||

equilibrium | Condition that occurs when the pressure for higher prices is balanced by the pressure for lower prices so that the current rate of exchange between buyers and sellers persists. | ||||

excess burden of taxation | The amount by which the cost of taxation exceeds the taxes raised. | ||||

excess burden of taxation | The amount by which the cost of taxation exceeds the taxes raised. | ||||

exchange economy | An economy where the supply of each good is just the total endowment of that good, and there is no production. | ||||

exchange economy | An economy where the supply of each good is just the total endowment of that good, and there is no production. | ||||

external benefits | Benefits obtained by third parties. | ||||

external benefits | Benefits obtained by third parties. | ||||

external economy of scale | An economy of scale that operates at the industry level, not the individual firm level. | ||||

external economy of scale | An economy of scale that operates at the industry level, not the individual firm level. | ||||

externality | Any effect on people not involved in a particular transaction. | ||||

externality | Any effect on people not involved in a particular transaction. | ||||

factor price equalization | Theory that predicts that the value of factors of production should be equalized through trade. | ||||

factor price equalization | Theory that predicts that the value of factors of production should be equalized through trade. | ||||

Factors of production | Inputs to the production process. | ||||

Factors of production | Inputs to the production process. | ||||

Federal Trade Commission (FTC) | Federal government agency that enforces the antitrust laws, along with the U.S. Department of Justice (DOJ), and provides consumer protection. | ||||

Federal Trade Commission (FTC) | Federal government agency that enforces the antitrust laws, along with the U.S. Department of Justice (DOJ), and provides consumer protection. | ||||

first mover advantage | Situation in which choosing first is better than choosing simultaneously. | ||||

first mover advantage | Situation in which choosing first is better than choosing simultaneously. | ||||

first-order condition | A mathematical condition for optimization stating that the first derivative is zero. | ||||

first-order condition | A mathematical condition for optimization stating that the first derivative is zero. | ||||

Fixed factors of production | Factors that are not readily moved and thus give particular regions a comparative advantage in the production of some kinds of goods and not in others. | ||||

Fixed factors of production | Factors that are not readily moved and thus give particular regions a comparative advantage in the production of some kinds of goods and not in others. | ||||

fixed-proportions production function | A production function that requires inputs be used in fixed proportions to produce output. | ||||

fixed-proportions production function | A production function that requires inputs be used in fixed proportions to produce output. | ||||

flow | The rate of change in the amount of some material that exists from one instant to the next. | ||||

flow | The rate of change in the amount of some material that exists from one instant to the next. | ||||

Foreclosure | Denying access to necessary inputs. | ||||

Foreclosure | Denying access to necessary inputs. | ||||

free riders | Individuals who don’t contribute to the provision of a public good. | ||||

free riders | Individuals who don’t contribute to the provision of a public good. | ||||

Great Depression | A prolonged and severe economic downturn from 1929 to 1939. | ||||

Great Depression | A prolonged and severe economic downturn from 1929 to 1939. | ||||

grim trigger strategy | Strategy that involves being nice initially but not nice forever when someone else isn’t cooperative. | ||||

grim trigger strategy | Strategy that involves being nice initially but not nice forever when someone else isn’t cooperative. | ||||

gross domestic product (GDP) | The value of traded goods and services produced within the borders of the United States. | ||||

gross domestic product (GDP) | The value of traded goods and services produced within the borders of the United States. | ||||

hedonic pricing | Method of valuation in which each item is first evaluated separately and then the item values are added together to arrive at a total value. | ||||

hedonic pricing | Method of valuation in which each item is first evaluated separately and then the item values are added together to arrive at a total value. | ||||

Hirschman-Herfindahl Index (HHI) | The weighted average of the price-cost margins of all firms in the market. | ||||

Hirschman-Herfindahl Index (HHI) | The weighted average of the price-cost margins of all firms in the market. | ||||

horizontal differentiation | Variety. | ||||

horizontal differentiation | Variety. | ||||

Hotelling model | Model of imperfect competition in which customers’ preferences and products are located by points on the same line segment. | ||||

Hotelling model | Model of imperfect competition in which customers’ preferences and products are located by points on the same line segment. | ||||

households | Groups of people sharing living quarters. | ||||

households | Groups of people sharing living quarters. | ||||

incidence of the tax | Changes in the price paid for a good based on the amount of tax on the good. | ||||

incidence of the tax | Changes in the price paid for a good based on the amount of tax on the good. | ||||

income effect | The effect on consumption of a change in income. | ||||

income effect | The effect on consumption of a change in income. | ||||

indifference curve | The set of goods that produce equal utility; also known as iso-utility curve. | ||||

indifference curve | The set of goods that produce equal utility; also known as iso-utility curve. | ||||

indirect price discrimination | Offering a menu or set of prices and permitting customers to choose distinct prices. | ||||

indirect price discrimination | Offering a menu or set of prices and permitting customers to choose distinct prices. | ||||

Individual rationality | Situation in which the outcome offers a present value of profits at least as high as that offered in the worst equilibrium in the stage game from that player’s perspective. | ||||

Individual rationality | Situation in which the outcome offers a present value of profits at least as high as that offered in the worst equilibrium in the stage game from that player’s perspective. | ||||

informational asymmetry | Situation in which some parties have information that others do not. | ||||

informational asymmetry | Situation in which some parties have information that others do not. | ||||

internal rate of return (IRR) | Method of analyzing an investment that solves the equation NPV = 0 for the interest rate. |
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internal rate of return (IRR) | Method of analyzing an investment that solves the equation NPV = 0 for the interest rate. |
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isocost | Line that holds constant the expenditure on inputs. | ||||

isocost | Line that holds constant the expenditure on inputs. | ||||

isoquant | Curves that describe all the combinations of inputs that produce the same level of output. | ||||

isoquant | Curves that describe all the combinations of inputs that produce the same level of output. | ||||

iterated elimination of dominated strategies | Eliminating strategies by sequentially removing strategies that are dominated for a player. | ||||

iterated elimination of dominated strategies | Eliminating strategies by sequentially removing strategies that are dominated for a player. | ||||

law of one price | Identical goods sell at the same price. | ||||

law of one price | Identical goods sell at the same price. | ||||

linkage principle | The expected price in an auction to sell rises the more the price is linked to the actual value. | ||||

linkage principle | The expected price in an auction to sell rises the more the price is linked to the actual value. | ||||

local public goods | Goods that are produced and consumed in a limited geographical area. | ||||

local public goods | Goods that are produced and consumed in a limited geographical area. | ||||

logarithmic scale | Scale on which a straight line gives constant percentage growth. | ||||

logarithmic scale | Scale on which a straight line gives constant percentage growth. | ||||

long-run average variable cost | The long-run total cost divided by output. | ||||

long-run average variable cost | The long-run total cost divided by output. | ||||

long-run total cost | The total cost of output with all factors varying. | ||||

long-run total cost | The total cost of output with all factors varying. | ||||

marginal | Term meaning “the derivative of.” | ||||

marginal | Term meaning “the derivative of.” | ||||

marginal product | The derivative of the production function with respect to an input. | ||||

marginal product | The derivative of the production function with respect to an input. | ||||

marginal rate of substitution (MRS) | The amount extra of one good needed to make up for a decrease in another good, staying on an indifference curve. | ||||

marginal rate of substitution (MRS) | The amount extra of one good needed to make up for a decrease in another good, staying on an indifference curve. | ||||

marginal rate of technical substitution | The amount of one input needed to make up for a decrease in another input while holding output constant. | ||||

marginal rate of technical substitution | The amount of one input needed to make up for a decrease in another input while holding output constant. | ||||

marginal revenue | The derivative of revenue pq with respect to quantity. |
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marginal revenue | The derivative of revenue pq with respect to quantity. |
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market demand | The quantity purchased by all market participants for each price. | ||||

market demand | The quantity purchased by all market participants for each price. | ||||

market failure | A situation where a competitive market does not yield the socially efficient outcome. | ||||

market failure | A situation where a competitive market does not yield the socially efficient outcome. | ||||

market for lemons | A model where sellers are better informed about quality than buyers. | ||||

market for lemons | A model where sellers are better informed about quality than buyers. | ||||

market power | The ability to increase their price above marginal cost and sustain sales for a long period of time. | ||||

market power | The ability to increase their price above marginal cost and sustain sales for a long period of time. | ||||

Market supply | The sum of all the individual supply curves for all market participants. | ||||

Market supply | The sum of all the individual supply curves for all market participants. | ||||

matching pennies | A child’s game in which the sum of the payoffs is zero. | ||||

matching pennies | A child’s game in which the sum of the payoffs is zero. | ||||

maximum sustainable yield | Policy that maximizes the long-run average value of a sustainable resource. | ||||

maximum sustainable yield | Policy that maximizes the long-run average value of a sustainable resource. | ||||

mean variance preferences | Preference that describe people who value risk linearly with the expected return. | ||||

mean variance preferences | Preference that describe people who value risk linearly with the expected return. | ||||

mechanism | A means of arranging a trade. | ||||

mechanism | A means of arranging a trade. | ||||

median voter | The voter whose preferences fall in the middle of the range. | ||||

median voter | The voter whose preferences fall in the middle of the range. | ||||

minimum wage | The minimum amount that a worker can be paid per hour. | ||||

minimum wage | The minimum amount that a worker can be paid per hour. | ||||

mixed strategies | Random strategies. | ||||

mixed strategies | Random strategies. | ||||

monopoly | A firm that faces a downward sloping demand and has a choice about what price to charge. | ||||

monopoly | A firm that faces a downward sloping demand and has a choice about what price to charge. | ||||

Multi-tasking | Performing several activities simultaneously. | ||||

Multi-tasking | Performing several activities simultaneously. | ||||

Myerson-Satterthwaite theorem | A theorem that shows private information about value may prevent efficient trade. | ||||

Myerson-Satterthwaite theorem | A theorem that shows private information about value may prevent efficient trade. | ||||

Nash equilibrium | Situation in which a player chooses the strategy that maximizes his or her expected payoff, given the strategies employed by others. | ||||

Nash equilibrium | Situation in which a player chooses the strategy that maximizes his or her expected payoff, given the strategies employed by others. | ||||

natural monopoly | Situation that arises when a single firm can efficiently serve the entire market because average costs are lower with one firm than with two firms. | ||||

natural monopoly | Situation that arises when a single firm can efficiently serve the entire market because average costs are lower with one firm than with two firms. | ||||

net present value, or NPV | The present value of a stream of net payments. | ||||

net present value, or NPV | The present value of a stream of net payments. | ||||

network externality | Situation that arises when others’ use of a product makes it more valuable to each consumer. | ||||

network externality | Situation that arises when others’ use of a product makes it more valuable to each consumer. | ||||

nonprofit firm | Firm that is prohibited from distributing a profit to its owners. | ||||

nonprofit firm | Firm that is prohibited from distributing a profit to its owners. | ||||

nonrivalry | Condition in which many people can use a good simultaneously. | ||||

nonrivalry | Condition in which many people can use a good simultaneously. | ||||

normal good | Goods whose demand increases with income. | ||||

normal good | Goods whose demand increases with income. | ||||

normative analyses | A study that makes value judgments. | ||||

normative analyses | A study that makes value judgments. | ||||

numeraire | A good used as a reference good, so that prices are denominated in units of that good. | ||||

numeraire | A good used as a reference good, so that prices are denominated in units of that good. | ||||

opportunity cost | The value that one forgoes in purchasing a product or undertaking an activity. | ||||

opportunity cost | The value that one forgoes in purchasing a product or undertaking an activity. | ||||

option | The right to buy or sell at a price determined in advance. | ||||

option | The right to buy or sell at a price determined in advance. | ||||

Pareto efficiency | Condition that exists when there is no waste or slack in a system, even if it is wildly unfair. | ||||

Pareto efficiency | Condition that exists when there is no waste or slack in a system, even if it is wildly unfair. | ||||

peak-load pricing | The pricing of a service when demand for it is at its highest. | ||||

peak-load pricing | The pricing of a service when demand for it is at its highest. | ||||

perfect substitutes | Two goods that can be substituted for each other at a constant rate while maintaining the same output level. | ||||

perfect substitutes | Two goods that can be substituted for each other at a constant rate while maintaining the same output level. | ||||

permanent income | The present value of the income stream. | ||||

permanent income | The present value of the income stream. | ||||

Perron-Frobenius theorem | Theorem that states that if B is a positive matrix (each component positive), then there is an eigenvalue λ > 0 and an associated positive eigenvector p; and, moreover, λ is the largest (in absolute value) eigenvector of B. |
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Perron-Frobenius theorem | Theorem that states that if B is a positive matrix (each component positive), then there is an eigenvalue λ > 0 and an associated positive eigenvector p; and, moreover, λ is the largest (in absolute value) eigenvector of B. |
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Pigouvian tax | A per-unit tax on a good. | ||||

Pigouvian tax | A per-unit tax on a good. | ||||

Predatory pricing | Pricing below cost in order to drive a rival out of business. | ||||

Predatory pricing | Pricing below cost in order to drive a rival out of business. | ||||

price discrimination | Charging distinct customers different prices for the same good. | ||||

price discrimination | Charging distinct customers different prices for the same good. | ||||

price dispersion | Price variation across stores. | ||||

price dispersion | Price variation across stores. | ||||

price support | The combination of a minimum price, or price floor, and government purchase of any surplus. | ||||

price support | The combination of a minimum price, or price floor, and government purchase of any surplus. | ||||

price system | System that involves a specific price for trading Y for X, and vice versa, that is available to both parties. |
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price system | System that involves a specific price for trading Y for X, and vice versa, that is available to both parties. |
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principal | The entity—person or corporation—on whose behalf an agent works. | ||||

principal | The entity—person or corporation—on whose behalf an agent works. | ||||

prisoner’s dilemma | Game in which the strategies are to confess or not to confess; the first player to confess avoids jail. | ||||

prisoner’s dilemma | Game in which the strategies are to confess or not to confess; the first player to confess avoids jail. | ||||

private benefit | The benefit obtained by the buyer. | ||||

private benefit | The benefit obtained by the buyer. | ||||

production function | The mapping from inputs to an output or outputs. | ||||

production function | The mapping from inputs to an output or outputs. | ||||

production possibilities | The collection of feasible outputs of an individual, group or society, or country. | ||||

production possibilities | The collection of feasible outputs of an individual, group or society, or country. | ||||

production possibilities frontier | The boundary of the production possibilities set. | ||||

production possibilities frontier | The boundary of the production possibilities set. | ||||

property rights | Rights that come with ownership. | ||||

property rights | Rights that come with ownership. | ||||

pure strategy Nash equilibrium | A Nash equilibrium in which no player randomizes. | ||||

pure strategy Nash equilibrium | A Nash equilibrium in which no player randomizes. | ||||

quasilinear utility | Utility that is additively separable. | ||||

quasilinear utility | Utility that is additively separable. | ||||

quintile | One fifth, or 20%, of a group. | ||||

quintile | One fifth, or 20%, of a group. | ||||

quota | A maximal production quantity, usually set based on historical production. | ||||

quota | A maximal production quantity, usually set based on historical production. | ||||

Raising rivals’ costs | Increasing input prices as a means of harming a rival. | ||||

Raising rivals’ costs | Increasing input prices as a means of harming a rival. | ||||

Ramsey rule | For resources in fixed supply, prices rise at the interest rate. | ||||

Ramsey rule | For resources in fixed supply, prices rise at the interest rate. | ||||

rate of return regulation | Price-limiting strategy that limits the profitability of firms. | ||||

rate of return regulation | Price-limiting strategy that limits the profitability of firms. | ||||

recessions | Periods marked by a drop in gross domestic output. | ||||

recessions | Periods marked by a drop in gross domestic output. | ||||

relevant antitrust market | A set of products sold in a geographic area in which a hypothetical monopoly can profitably raise price. | ||||

relevant antitrust market | A set of products sold in a geographic area in which a hypothetical monopoly can profitably raise price. | ||||

reservation price | The maximum acceptable price a consumer will pay without visiting another supplier. | ||||

reservation price | The maximum acceptable price a consumer will pay without visiting another supplier. | ||||

Reserve prices | Minimum bids in an auction. | ||||

Reserve prices | Minimum bids in an auction. | ||||

revealed preference | Kind that states that choice implies preference. | ||||

revealed preference | Kind that states that choice implies preference. | ||||

revenue equivalence | Situation in which two auctions produce the same price on average. | ||||

revenue equivalence | Situation in which two auctions produce the same price on average. | ||||

Ricardian theory | Theory that suggests nations, responding to price incentives, will specialize in the production of goods in which they have a comparative advantage, and purchase the goods in which they have a comparative disadvantage. | ||||

Ricardian theory | Theory that suggests nations, responding to price incentives, will specialize in the production of goods in which they have a comparative advantage, and purchase the goods in which they have a comparative disadvantage. | ||||

risk premium | The difference between the expected payoff and the certainty equivalent. | ||||

risk premium | The difference between the expected payoff and the certainty equivalent. | ||||

risk premium | The difference between the expected payoff and the certainty equivalent. | ||||

risk premium | The difference between the expected payoff and the certainty equivalent. | ||||

risk-averse | Preferring the expected value of a gamble to the gamble. | ||||

risk-averse | Preferring the expected value of a gamble to the gamble. | ||||

Robinson-Patman | Section of the Clayton Act prohibiting price discrimination that lessens competition. | ||||

Robinson-Patman | Section of the Clayton Act prohibiting price discrimination that lessens competition. | ||||

satiation | The point at which increased consumption does not increase utility. | ||||

satiation | The point at which increased consumption does not increase utility. | ||||

sealed-bid auction | Auction where bidders simultaneously submit sealed bids, and the highest bidder wins and pays the highest bid. | ||||

sealed-bid auction | Auction where bidders simultaneously submit sealed bids, and the highest bidder wins and pays the highest bid. | ||||

second welfare theorem of general equilibrium | Theorem that states that any Pareto-efficient point is an equilibrium of the price system for some endowment. | ||||

second welfare theorem of general equilibrium | Theorem that states that any Pareto-efficient point is an equilibrium of the price system for some endowment. | ||||

second-order condition | A mathematical condition for maximization stating that the second derivative is nonpositive. | ||||

second-order condition | A mathematical condition for maximization stating that the second derivative is nonpositive. | ||||

self-interested behavior | Selfishness. | ||||

self-interested behavior | Selfishness. | ||||

shadow value | The value associated with a constraint. | ||||

shadow value | The value associated with a constraint. | ||||

sharing rule | In agency theory, sharing a fixed proportion of the output with the agent. | ||||

sharing rule | In agency theory, sharing a fixed proportion of the output with the agent. | ||||

Sherman Act | The first U.S. antitrust law; it makes restraint of trade (monopolization) illegal. | ||||

Sherman Act | The first U.S. antitrust law; it makes restraint of trade (monopolization) illegal. | ||||

short run | Time interval in which not all inputs can be changed. | ||||

short run | Time interval in which not all inputs can be changed. | ||||

short-run average variable cost | The average cost ignoring the investment in capital equipment. | ||||

short-run average variable cost | The average cost ignoring the investment in capital equipment. | ||||

short-run equilibrium | The point where short-run demand equals short-run supply. | ||||

short-run equilibrium | The point where short-run demand equals short-run supply. | ||||

short-run fixed cost | The difference between variable cost and total cost. | ||||

short-run fixed cost | The difference between variable cost and total cost. | ||||

short-run marginal cost | The derivative of short-run total cost with respect to output. | ||||

short-run marginal cost | The derivative of short-run total cost with respect to output. | ||||

short-run total cost | The total cost of output with only short-run factors varying. | ||||

short-run total cost | The total cost of output with only short-run factors varying. | ||||

short-run variable cost | The total cost minus the cost of producing zero units. | ||||

short-run variable cost | The total cost minus the cost of producing zero units. | ||||

shortage | Condition in which the quantity demanded exceeds the quantity supplied. | ||||

shortage | Condition in which the quantity demanded exceeds the quantity supplied. | ||||

signaling | Expenditures of time or money whose purpose is to convince others of something. | ||||

signaling | Expenditures of time or money whose purpose is to convince others of something. | ||||

social costs | The total costs for all parties. | ||||

social costs | The total costs for all parties. | ||||

stage game | The game that is repeated in a supergame. | ||||

stage game | The game that is repeated in a supergame. | ||||

steady state | Condition in which the variables stay constant and forces are balanced. | ||||

steady state | Condition in which the variables stay constant and forces are balanced. | ||||

strategic equivalence | Situation in which two games are strategically equivalent if they have the same strategies (after a renaming) and the strategies lead to the same outcomes. | ||||

strategic equivalence | Situation in which two games are strategically equivalent if they have the same strategies (after a renaming) and the strategies lead to the same outcomes. | ||||

strike price | The amount one pays to obtain a share of stock. | ||||

strike price | The amount one pays to obtain a share of stock. | ||||

subgame perfection | The idea that every stage of a dynamic game is played in an optimal way. | ||||

subgame perfection | The idea that every stage of a dynamic game is played in an optimal way. | ||||

substitute | For a given good x, a good whose consumption decreases the value of x. |
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substitute | For a given good x, a good whose consumption decreases the value of x. |
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substitute in supply | A good whose cost rises as the amount produced of another good rises. | ||||

substitute in supply | A good whose cost rises as the amount produced of another good rises. | ||||

substitution effect | The effect on consumption of a change in the relative price, with a sufficient change in income to keep the consumer on the same utility isoquant. | ||||

substitution effect | The effect on consumption of a change in the relative price, with a sufficient change in income to keep the consumer on the same utility isoquant. | ||||

sunk cost fallacy | A psychological tendency to invest more once one has made a significant nonrecoverable investment, even when subsequent investment isn’t warranted. | ||||

sunk cost fallacy | A psychological tendency to invest more once one has made a significant nonrecoverable investment, even when subsequent investment isn’t warranted. | ||||

supply | The function that gives the quantity offered for sale as a function of price. | ||||

supply | The function that gives the quantity offered for sale as a function of price. | ||||

support price | The minimum price the government is willing to pay for a product. | ||||

support price | The minimum price the government is willing to pay for a product. | ||||

surplus | Condition in which the quantity supplied exceeds the quantity demanded. | ||||

surplus | Condition in which the quantity supplied exceeds the quantity demanded. | ||||

the battle of the sexes | A coordination game that involves a married couple who are going to meet each other after work but haven’t decided where they are meeting. | ||||

the battle of the sexes | A coordination game that involves a married couple who are going to meet each other after work but haven’t decided where they are meeting. | ||||

total expenditure | Price times the quantity purchased. | ||||

total expenditure | Price times the quantity purchased. | ||||

Tradable permits | Quotas for pollution that can be exchanged to create a market in the right to pollute. | ||||

Tradable permits | Quotas for pollution that can be exchanged to create a market in the right to pollute. | ||||

tragedy of the commons | Overuse of a resource due to lack of ownership. | ||||

tragedy of the commons | Overuse of a resource due to lack of ownership. | ||||

Transfers to individuals | Direct payments to individuals in the form of a check. | ||||

Transfers to individuals | Direct payments to individuals in the form of a check. | ||||

Treasury bill | A bond that has a fixed redemption value. | ||||

Treasury bill | A bond that has a fixed redemption value. | ||||

two-part pricing | Price discrimination featuring a fixed charge plus a marginal charge. | ||||

two-part pricing | Price discrimination featuring a fixed charge plus a marginal charge. | ||||

two-part test | In antitrust, the requirement for an antitrust violation that a firm had monopoly power and abused that power. | ||||

two-part test | In antitrust, the requirement for an antitrust violation that a firm had monopoly power and abused that power. | ||||

U.S. Department of Justice | Federal government agency that enforces the antitrust laws, along with the Federal Trade Commission (FTC), among other responsibilities. | ||||

U.S. Department of Justice | Federal government agency that enforces the antitrust laws, along with the Federal Trade Commission (FTC), among other responsibilities. | ||||

unilateral effect | In antitrust, a situation in which merging parties increase price unilaterally after the merger is consummated. | ||||

unilateral effect | In antitrust, a situation in which merging parties increase price unilaterally after the merger is consummated. | ||||

unitary elasticity | When elasticity is equal to one. | ||||

unitary elasticity | When elasticity is equal to one. | ||||

usury laws | Laws that limit the legal interest rate that can be charged. | ||||

usury laws | Laws that limit the legal interest rate that can be charged. | ||||

Utility | Flow of pleasure or happiness that a person enjoys. | ||||

Utility | Flow of pleasure or happiness that a person enjoys. | ||||

value of the marginal product | The marginal product times the price of the output. | ||||

value of the marginal product | The marginal product times the price of the output. | ||||

vertical merger | A merger between an input supplier and an input buyer. | ||||

vertical merger | A merger between an input supplier and an input buyer. | ||||

Vickrey auction | Auction where bidders bid simultaneously, and the highest bidder wins and pays the second-highest bid. | ||||

Vickrey auction | Auction where bidders bid simultaneously, and the highest bidder wins and pays the second-highest bid. | ||||

von Neumann-Morgenstern utility function | The value of each outcome, constructed in such a way that a consumer values gambles as if they were the expected utility. | ||||

von Neumann-Morgenstern utility function | The value of each outcome, constructed in such a way that a consumer values gambles as if they were the expected utility. | ||||

Welfare analysis | A normative analysis that trades off gains and losses to different individuals. | ||||

Welfare analysis | A normative analysis that trades off gains and losses to different individuals. | ||||

willingness-to-pay | The amount a customer is willing and able to pay for a good. | ||||

willingness-to-pay | The amount a customer is willing and able to pay for a good. | ||||

winner’s curse | The bidder who most overestimates the value of the object wins the bidding. | ||||

winner’s curse | The bidder who most overestimates the value of the object wins the bidding. |