Glossary

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Glossary Entries
Word(s)	Definition	Image	Caption	Link	Source
adverse selection	The tendency of one party to a potential agreement to assume pessimistic circumstances and hold to conservative agreement terms when it is aware that it has limited information about the other party.
adverse selection	The tendency of one party to a potential agreement to assume pessimistic circumstances and hold to conservative agreement terms when it is aware that it has limited information about the other party.
Advertising	A means of increasing the likelihood a firm's product or service is among those actually considered by consumers.
Advertising	A means of increasing the likelihood a firm's product or service is among those actually considered by consumers.
asymmetric information	Something that is known to one party but not to another party in a transaction.
asymmetric information	Something that is known to one party but not to another party in a transaction.
average cost	The total cost divided by the quantity produced; AC = C/Q.
average cost	The total cost divided by the quantity produced; AC = C/Q.
average productivity	The total number of units of output divided by the total units of an input; the total dollars in revenue or profit divided by the total units of an input.
average productivity	The total number of units of output divided by the total units of an input; the total dollars in revenue or profit divided by the total units of an input.
Bertrand model	An approach that assumes all firms can anticipate the prices that their competitors will charge and that each firm can decide what production level and price leads to the highest profit it can achieve; also called price competition.
Bertrand model	An approach that assumes all firms can anticipate the prices that their competitors will charge and that each firm can decide what production level and price leads to the highest profit it can achieve; also called price competition.
breakeven point	The volume of business that separates economic loss from economic profit; the quantity at which the revenue function and the cost function are equal.
breakeven point	The volume of business that separates economic loss from economic profit; the quantity at which the revenue function and the cost function are equal.
business	A for-profit or nonprofit organization that creates and provides goods and services for individuals or other organizations.
cap and trade	The regulation of greenhouse gas emissions by giving firms the right to emit a certain amount of pollutants or resell those rights to another firm.
cap and trade	The regulation of greenhouse gas emissions by giving firms the right to emit a certain amount of pollutants or resell those rights to another firm.
capacity	The production volume where average cost is at the lowest value; the
capacity	The production volume where average cost is at the lowest value; the
capture theory of regulation	A postulate that government regulation is actually executed to improve conditions for the parties being regulated and not necessarily to promote the public's interest in reducing market failure and inefficiency.
capture theory of regulation	A postulate that government regulation is actually executed to improve conditions for the parties being regulated and not necessarily to promote the public's interest in reducing market failure and inefficiency.
cartel	An arrangement in which sellers coordinate their activities so well that they behave in effect like divisions of one enterprise, rather than as competing businesses that make independent decisions on quantity and price.
cartel	An arrangement in which sellers coordinate their activities so well that they behave in effect like divisions of one enterprise, rather than as competing businesses that make independent decisions on quantity and price.
collusion	The process through which firms agree to operate at the same production volume and price; it is illegal in many countries.
collusion	The process through which firms agree to operate at the same production volume and price; it is illegal in many countries.
comparative statics	The examination of the impact of a change on the equilibrium point.
comparative statics	The examination of the impact of a change on the equilibrium point.
Concentration ratios	The sum of the market shares of the firms having the highest market shares in a market; if the value for one firm is above 90, that firm may function as a monopoly.
Concentration ratios	The sum of the market shares of the firms having the highest market shares in a market; if the value for one firm is above 90, that firm may function as a monopoly.
conglomerate merger	Expansion in which a business's new activity is part of a different value chain.
conglomerate merger	Expansion in which a business's new activity is part of a different value chain.
constant economies of scale	A situation in which a business that has achieved its least minimum efficient scale sees its long-run average cost remain about the same with continued increases in the size of its operation.
constant economies of scale	A situation in which a business that has achieved its least minimum efficient scale sees its long-run average cost remain about the same with continued increases in the size of its operation.
consumer surplus	The difference between what consumers would pay to buy a unit of a good or service and a lower equilibrium price that they actually pay; the area under the demand curve down to a horizontal line corresponding to the market equilibrium price.
consumer surplus	The difference between what consumers would pay to buy a unit of a good or service and a lower equilibrium price that they actually pay; the area under the demand curve down to a horizontal line corresponding to the market equilibrium price.
contestable market model	An idealized market that is similar to perfect competition but in which there are a modest number of sellers, each of which represents a sizeable portion of overall sales.
contestable market model	An idealized market that is similar to perfect competition but in which there are a modest number of sellers, each of which represents a sizeable portion of overall sales.
cost approach	Starting with the goods and services a firm intends to provide and then deciding what configuration will achieve output at the lowest cost.
cost approach	Starting with the goods and services a firm intends to provide and then deciding what configuration will achieve output at the lowest cost.
cost function	The sum of fixed cost and the product of the variable cost per unit times quantity of units produced, also called total cost; C = F + V*Q.
cost function	The sum of fixed cost and the product of the variable cost per unit times quantity of units produced, also called total cost; C = F + V*Q.
countercyclic good	A good or service for which income elasticity is negative; a good or service for which demand increases when income decreases.
countercyclic good	A good or service for which income elasticity is negative; a good or service for which demand increases when income decreases.
Cournot model	An approach that assumes all firms can determine the upcoming production levels or operating capacities of their competitors and can make adjustments to price to use the committed capacity effectively.
Cournot model	An approach that assumes all firms can determine the upcoming production levels or operating capacities of their competitors and can make adjustments to price to use the committed capacity effectively.
cross-price elasticity	A measure of the change in demand for one good or service when the price of a substitute or a complement changes; the value is positive for substitute goods and negative for complementary goods.
cross-price elasticity	A measure of the change in demand for one good or service when the price of a substitute or a complement changes; the value is positive for substitute goods and negative for complementary goods.
cumulative production	Total production to date.
cumulative production	Total production to date.
cyclic good	A good or service for which income elasticity is greater than one; a good or service for which demand is sensitive to changes in the business cycle.
cyclic good	A good or service for which income elasticity is greater than one; a good or service for which demand is sensitive to changes in the business cycle.
deadweight loss	Former surplus that no longer goes to either consumers or producers.
deadweight loss	Former surplus that no longer goes to either consumers or producers.
demand function	The mathematical relationship between price and quantity, holding other variables that influence demand, such as price, advertising expenditure, the price of a substitute or complement, and disposable income, constant.
demand function	The mathematical relationship between price and quantity, holding other variables that influence demand, such as price, advertising expenditure, the price of a substitute or complement, and disposable income, constant.
derived demand curve	A negative relationship between quantity of input and marginal revenue product that is a transformation of a firm's demand curve.
derived demand curve	A negative relationship between quantity of input and marginal revenue product that is a transformation of a firm's demand curve.
double marginalization	A process through which a single vertically integrated firm can realize higher profit than two independent firms operating at different stages of the value chain and making exchanges.
double marginalization	A process through which a single vertically integrated firm can realize higher profit than two independent firms operating at different stages of the value chain and making exchanges.
doubling rate of reduction	The decrease in average cost that occurs each time cumulative production doubles.
doubling rate of reduction	The decrease in average cost that occurs each time cumulative production doubles.
downstream integration	Vertical expansion of business operations into a later stage of the value chain.
downstream integration	Vertical expansion of business operations into a later stage of the value chain.
Durable goods	A strategy in which a firm sets the price very high at first and drops the price progressively over time in order to attract most customers at a price close to the maximum they would be willing to pay.
Durable goods	A strategy in which a firm sets the price very high at first and drops the price progressively over time in order to attract most customers at a price close to the maximum they would be willing to pay.
economic profit	The difference between revenue and economic costs.
economic profit	The difference between revenue and economic costs.
economic rent	The difference between the amount the provider of a limited input supply is able to charge and the minimum amount that would be necessary to induce the provider to sell the unit to a firm.
economic rent	The difference between the amount the provider of a limited input supply is able to charge and the minimum amount that would be necessary to induce the provider to sell the unit to a firm.
economy of scope	The ability of a business venture to achieve cost savings by providing multiple goods and services.
economy of scope	The ability of a business venture to achieve cost savings by providing multiple goods and services.
efficiency wage	An incentive to induce an employee to be productive and retain his or her job that is based on a value somewhat above the employee's marginal revenue product.
efficiency wage	An incentive to induce an employee to be productive and retain his or her job that is based on a value somewhat above the employee's marginal revenue product.
elasticity of demand	The ratio of the percentage change in demand to the percentage change in a determinant factor, such as price.
elasticity of demand	The ratio of the percentage change in demand to the percentage change in a determinant factor, such as price.
Equity	The issue of whether the distribution of goods and services to individuals and the profits to firms are fair.
Equity	The issue of whether the distribution of goods and services to individuals and the profits to firms are fair.
Excess capacity	A means of competing in which a firm invests in a very high production volume in order to convince other firms that a lower price tactic will not succeed.
Excess capacity	A means of competing in which a firm invests in a very high production volume in order to convince other firms that a lower price tactic will not succeed.
firm	A for-profit or nonprofit organization that creates and provides goods and services for individuals or other organizations.
firm supply curve	A segment of a firm's marginal cost curve that is above the shutdown price level and for which marginal cost is increasing up to the point of maximum production.
firm supply curve	A segment of a firm's marginal cost curve that is above the shutdown price level and for which marginal cost is increasing up to the point of maximum production.
First-degree price discrimination	An attempt by a seller to leave the price unannounced in advance and charge each customer the highest price he or she would be willing to pay for the purchase.
First-degree price discrimination	An attempt by a seller to leave the price unannounced in advance and charge each customer the highest price he or she would be willing to pay for the purchase.
fixed costs	Expenses that remain the same regardless of the volume of sales or that remain the same within a certain range of sales volumes.
fixed costs	Expenses that remain the same regardless of the volume of sales or that remain the same within a certain range of sales volumes.
follower firms	In an oligopoly market, firms that react to the price or capacity decision of a leader firm.
follower firms	In an oligopoly market, firms that react to the price or capacity decision of a leader firm.
free market;	An idealized market in which there are many buyers and sellers who are price takers, sellers are free to either enter or exit the market, the good or service being sold is the same for all sellers, and all buyers and sellers have perfect information.
free riders	A firm that benefits from the startup costs of an initial entrant in a market without having to contribute to those costs; a person who prefers to let someone else pay for a public good.
free riders	A firm that benefits from the startup costs of an initial entrant in a market without having to contribute to those costs; a person who prefers to let someone else pay for a public good.
game theory	Applied mathematical tools that are used to describe strategic behavior in oligopolies.
game theory	Applied mathematical tools that are used to describe strategic behavior in oligopolies.
Giffen goods	A good or service for which consumption may increase in response to a price increase or decrease in response to a price decrease.
Giffen goods	A good or service for which consumption may increase in response to a price increase or decrease in response to a price decrease.
HHI	The sum of the squared individual market shares of all the firms in a market; a value of less than 1000 indicates that a market should be reasonably competitive, whereas a value over 8000 indicates that the market has a firm that may function like a monopoly.
HHI	The sum of the squared individual market shares of all the firms in a market; a value of less than 1000 indicates that a market should be reasonably competitive, whereas a value over 8000 indicates that the market has a firm that may function like a monopoly.
homogeneous	The characteristic that every seller sells the same good, and the buyer does not care which seller he or she uses if all sellers charge the same price.
homogeneous	The characteristic that every seller sells the same good, and the buyer does not care which seller he or she uses if all sellers charge the same price.
Imperfect information	Ignorance or uncertainty about the prices being charged for goods and services or the utility preferences of buyers, or uncertainty about the outcome of events.
Imperfect information	Ignorance or uncertainty about the prices being charged for goods and services or the utility preferences of buyers, or uncertainty about the outcome of events.
income effect	The change in the mix of goods and services that consumers can afford (that is, the change in wealth or purchasing power) when the price of a good changes.
income effect	The change in the mix of goods and services that consumers can afford (that is, the change in wealth or purchasing power) when the price of a good changes.
income elasticity	The response of demand to changes in income; the percentage change in demand in response to the percentage change in income.
income elasticity	The response of demand to changes in income; the percentage change in demand in response to the percentage change in income.
influence costs	A type of social waste caused when powerful sellers or buyers try to influence regulation through lobbying.
influence costs	A type of social waste caused when powerful sellers or buyers try to influence regulation through lobbying.
informativeness principle	The suggestion that measures of performance that reflect individual employee effort be included in employee contracts.
informativeness principle	The suggestion that measures of performance that reflect individual employee effort be included in employee contracts.
invisible hand	The price adjustment process that moves a market to equilibrium when the market price is above or below the equilibrium price.
invisible hand	The price adjustment process that moves a market to equilibrium when the market price is above or below the equilibrium price.
joint products	The result of a combined production process that creates a natural opportunity for an economy of scope.
joint products	The result of a combined production process that creates a natural opportunity for an economy of scope.
law of demand	Increases in price result in decreases in the maximum quantity that can be sold.
law of demand	Increases in price result in decreases in the maximum quantity that can be sold.
law of diminishing marginal returns to an input	Marginal revenue product will decrease as an input and corresponding output continue to be increased.
law of diminishing marginal returns to an input	Marginal revenue product will decrease as an input and corresponding output continue to be increased.
learning by doing	Productivity gains that come from experience and improved knowledge.
learning by doing	Productivity gains that come from experience and improved knowledge.
Limit pricing	A strategy for warding off competition in which an existing firm sets a low price that is just enough for it to make a small profit but that will cause a new entrant to lose money.
Limit pricing	A strategy for warding off competition in which an existing firm sets a low price that is just enough for it to make a small profit but that will cause a new entrant to lose money.
long-run	A time frame that is far enough in the future that individuals can make adjustments in their consumption decisions that will improve their utility or satisfaction.
long-run	A time frame that is far enough in the future that individuals can make adjustments in their consumption decisions that will improve their utility or satisfaction.
long-run average cost curve	A function for which each value reflects the lowest possible average cost of an operation resized to be optimal for that level of production.
long-run average cost curve	A function for which each value reflects the lowest possible average cost of an operation resized to be optimal for that level of production.
long-run production	A time frame that occurs far enough in the future that businesses have sufficient time to expand, contract, or otherwise modify their production capacity; a time frame during which all costs are variable.
long-run production	A time frame that occurs far enough in the future that businesses have sufficient time to expand, contract, or otherwise modify their production capacity; a time frame during which all costs are variable.
loss	The difference between revenue and cost when the cost incurred in operating the business exceeds revenue.
loss	The difference between revenue and cost when the cost incurred in operating the business exceeds revenue.
marginal measurements	The change in a function in response to a small change in quantity; used to determine the optimal level of planned production.
marginal measurements	The change in a function in response to a small change in quantity; used to determine the optimal level of planned production.
marginal product	The amount of additional output that would be generated if one more unit of an input were obtained and processed.
marginal product	The amount of additional output that would be generated if one more unit of an input were obtained and processed.
marginal profit	The change in profit resulting from a unit increase in the quantity sold.
marginal profit	The change in profit resulting from a unit increase in the quantity sold.
marginal revenue product	The additional revenue created from one additional unit of an input; the marginal product of the input times the marginal revenue of the output.
marginal revenue product	The additional revenue created from one additional unit of an input; the marginal product of the input times the marginal revenue of the output.
market equilibrium	The quantity and price at which there is concurrence between sellers and buyers; the point on a graph where the market demand curve and market supply curve intersect.
market equilibrium	The quantity and price at which there is concurrence between sellers and buyers; the point on a graph where the market demand curve and market supply curve intersect.
market failure	The situation that occurs when a market operates inefficiently.
market failure	The situation that occurs when a market operates inefficiently.
market shares	The percentage of all sales that are purchased from a particular firm.
market shares	The percentage of all sales that are purchased from a particular firm.
market supply curve	A curve that represents the relationship between total quantity provided in a market and the market price; a graphical illustration of the willingness of firms to increase production in response to improved profitability.
market supply curve	A curve that represents the relationship between total quantity provided in a market and the market price; a graphical illustration of the willingness of firms to increase production in response to improved profitability.
marketing mix	The composition of a business's decisions about price, promotional activities, location, and sales channels, all of which need to be consistent in order to be effective.
marketing mix	The composition of a business's decisions about price, promotional activities, location, and sales channels, all of which need to be consistent in order to be effective.
models	A simplified representation of a real-world organization and its environment that leads to the understanding of complex and uncertain situations and appropriate action.
models	A simplified representation of a real-world organization and its environment that leads to the understanding of complex and uncertain situations and appropriate action.
monopolist	The one seller that possesses market power.
monopolist	The one seller that possesses market power.
monopolistic competition	A model of a market that is similar to perfect competition but in which the good sold may have slight variations from seller to seller.
monopolistic competition	A model of a market that is similar to perfect competition but in which the good sold may have slight variations from seller to seller.
monopsony	In a market with a single buyer, the buyer has the power to push the price down to a minimum.
monopsony	In a market with a single buyer, the buyer has the power to push the price down to a minimum.
moral hazard	A circumstance in which one party in an economic exchange deliberately exploits the ignorance of another party in the transaction to its own advantage and to the disadvantage of the unknowing party.
moral hazard	A circumstance in which one party in an economic exchange deliberately exploits the ignorance of another party in the transaction to its own advantage and to the disadvantage of the unknowing party.
most profitable production level	The quantity where marginal profit equals zero; in the absence of production level constraints, the quantity where marginal revenue is equal to marginal cost.
most profitable production level	The quantity where marginal profit equals zero; in the absence of production level constraints, the quantity where marginal revenue is equal to marginal cost.
natural monopolies	A situation that occurs when total costs are very high but marginal costs are low such that the lowest average cost can be achieved only by one seller.
natural monopolies	A situation that occurs when total costs are very high but marginal costs are low such that the lowest average cost can be achieved only by one seller.
Network effects and standards	A situation in which products increase in value when the adoption rate of the product increases.
Network effects and standards	A situation in which products increase in value when the adoption rate of the product increases.
noncyclic good	A good or service for which income elasticity is between zero and one; a good or service for which demand is less sensitive or responsive to changes in income levels.
noncyclic good	A good or service for which income elasticity is between zero and one; a good or service for which demand is less sensitive or responsive to changes in income levels.
oligopoly	A market in which there are multiple sellers, at least some of which provide a significant portion of sales and recognize that their decisions on output volume have an effect on market price.
oligopoly	A market in which there are multiple sellers, at least some of which provide a significant portion of sales and recognize that their decisions on output volume have an effect on market price.
opportunity cost	The value of the next best alternative forgone.
opportunity cost	The value of the next best alternative forgone.
optimal level on an input	If the marginal revenue product exceeds the marginal input cost, a firm can improve profitability by increasing the use of the input; if the marginal cost of the input exceeds the marginal revenue product, profit can be improved by decreasing use of the input.
optimal level on an input	If the marginal revenue product exceeds the marginal input cost, a firm can improve profitability by increasing the use of the input; if the marginal cost of the input exceeds the marginal revenue product, profit can be improved by decreasing use of the input.
optimum tax	The value of the marginal externality damage or benefit created by consumption of an additional unit from a market exchange, which is used to correct a positive or negative externality.
optimum tax	The value of the marginal externality damage or benefit created by consumption of an additional unit from a market exchange, which is used to correct a positive or negative externality.
Pareto efficiency	The outcome of a set of exchanges between decision-making units in a market or network of markets when it is impossible to modify how the exchanges occurred to make one party better off without making another party worse off; also known as efficiency.
Pareto efficiency	The outcome of a set of exchanges between decision-making units in a market or network of markets when it is impossible to modify how the exchanges occurred to make one party better off without making another party worse off; also known as efficiency.
Patents	A means by which the developer of a product or service that incorporates a new idea or process is given a monopoly for a certain period of time.
Patents	A means by which the developer of a product or service that incorporates a new idea or process is given a monopoly for a certain period of time.
perfect information	Producers understand the production capabilities known to other producers and have immediate access to any resources used by other producers; both buyers and sellers know all the prices being charged by other sellers.
perfect information	Producers understand the production capabilities known to other producers and have immediate access to any resources used by other producers; both buyers and sellers know all the prices being charged by other sellers.
positive externalities	Beneficial effects of market activity that fall on third parties and that can create inefficiency.
positive externalities	Beneficial effects of market activity that fall on third parties and that can create inefficiency.
predatory pricing	The illegal practice of using low prices for the specific purpose of driving out existing competitors and keeping out new entrants.
predatory pricing	The illegal practice of using low prices for the specific purpose of driving out existing competitors and keeping out new entrants.
price discrimination	Charging different prices to different customers so that more revenue is generated with no added cost.
price discrimination	Charging different prices to different customers so that more revenue is generated with no added cost.
price elastic	A classification of goods and services for which the percentage change in quantity is greater than the percentage change in price; a value of price elasticity that is more negative than -1.
price elastic	A classification of goods and services for which the percentage change in quantity is greater than the percentage change in price; a value of price elasticity that is more negative than -1.
price elasticity	Responsiveness or sensitivity of demand to changes in the price of the good or service being consumed; the ratio of the percentage change in quantity to the percentage change in price.
price elasticity	Responsiveness or sensitivity of demand to changes in the price of the good or service being consumed; the ratio of the percentage change in quantity to the percentage change in price.
price inelastic	A classification of goods and services for which the percentage change in quantity is less than the percentage change in price; a value of price elasticity that falls between 0 and -1.
price inelastic	A classification of goods and services for which the percentage change in quantity is less than the percentage change in price; a value of price elasticity that falls between 0 and -1.
price support programs	A regulation, often used in agricultural markets, through which the government tries to keep prices higher by mandating a minimum price or providing direct assistance to firms that have little market power in the face of buyer concentration.
price support programs	A regulation, often used in agricultural markets, through which the government tries to keep prices higher by mandating a minimum price or providing direct assistance to firms that have little market power in the face of buyer concentration.
price taker	A buyer who presumes his or her purchase decision has no impact on the price charged for the good; a seller who presumes its production decisions have no impact on the price charged for the good by other sellers.
price taker	A buyer who presumes his or her purchase decision has no impact on the price charged for the good; a seller who presumes its production decisions have no impact on the price charged for the good by other sellers.
principal-agent problem	The situation that results when an employer is not able to monitor all of an employee's actions and thus has insufficient information about whether an employee takes actions that are not necessarily what the employer would want.
principal-agent problem	The situation that results when an employer is not able to monitor all of an employee's actions and thus has insufficient information about whether an employee takes actions that are not necessarily what the employer would want.
producer surplus	The difference between the market price and sellers' marginal cost or the combined economic profit of all sellers in the short run; the area above the supply curve up to a horizontal line corresponding to the market equilibrium price.
producer surplus	The sum of consumer surplus and producer surplus, which is maximized when a market is in equilibrium and is less than its maximum value when there is deadweight loss.
producer surplus	The difference between the market price and sellers' marginal cost or the combined economic profit of all sellers in the short run; the area above the supply curve up to a horizontal line corresponding to the market equilibrium price.
Product bundling	Firms take advantage of natural production economies of scope by selling complementary products together at a lower cost.
Product bundling	Firms take advantage of natural production economies of scope by selling complementary products together at a lower cost.
product differentiation strategy	A response to a highly competitive market in which a firm adopts an aggressive program to keep its products distinguishable from the products of other firms.
product differentiation strategy	A response to a highly competitive market in which a firm adopts an aggressive program to keep its products distinguishable from the products of other firms.
profit functions	The revenue function minus the cost function; in symbols π = R - C = (PQ) - (F + VQ).
profit functions	The revenue function minus the cost function; in symbols π = R - C = (PQ) - (F + VQ).
public good	A good or service that can benefit others in addition to the purchaser without detracting from the purchaser's benefits.
public good	A good or service that can benefit others in addition to the purchaser without detracting from the purchaser's benefits.
public utilities	A regulated monopoly in which a private firm is the sole seller of a good or service at a price approved by a regulatory agency and that passes the benefits of low average costs to buyers.
public utilities	A regulated monopoly in which a private firm is the sole seller of a good or service at a price approved by a regulatory agency and that passes the benefits of low average costs to buyers.
regulatory guidance	Information designed to ensure that the behaviors of organizations and people trying to achieve their objectives result in the best overall pattern of economic exchange.
regulatory guidance	Information designed to ensure that the behaviors of organizations and people trying to achieve their objectives result in the best overall pattern of economic exchange.
Reputation and warranties	A strategy in which a firm uses advertising to make an ongoing presence in a market desired by customers so as to distinguish themselves from short-term sellers.
Reputation and warranties	A strategy in which a firm uses advertising to make an ongoing presence in a market desired by customers so as to distinguish themselves from short-term sellers.
resource approach	The recognition of core competencies and the determination of what kinds of goods or services best exploit them.
resource approach	The recognition of core competencies and the determination of what kinds of goods or services best exploit them.
revenue	The total monetary value of the goods or services that a business sells.
revenue	The total monetary value of the goods or services that a business sells.
revenue function	The product of the price per unit times the number of units sold; R = P*Q.
revenue function	The product of the price per unit times the number of units sold; R = P*Q.
rival goods	A product that can be consumed by only one person or a very limited group of people at a specific time.
rival goods	A product that can be consumed by only one person or a very limited group of people at a specific time.
satisfice	The tendency for people to work to meet a certain level of consumption satisfaction rather than to achieve the very best, or optimal, pattern of consumption.
satisfice	The tendency for people to work to meet a certain level of consumption satisfaction rather than to achieve the very best, or optimal, pattern of consumption.
scale	The target production level when a business is able to adjust all factors of production in the long run.
scale	The target production level when a business is able to adjust all factors of production in the long run.
second-degree price discrimination	The sale of goods and services for one price for low-volume purchases and a different price for high-volume purchases; charging a two-part price in the form of a flat charge to be a customer and a per unit charge based on how much is consumed.
second-degree price discrimination	The sale of goods and services for one price for low-volume purchases and a different price for high-volume purchases; charging a two-part price in the form of a flat charge to be a customer and a per unit charge based on how much is consumed.
shutdown rule	When all fixed costs are regarded as sunk for the next production period, a firm should continue to operate only as long as the selling price per unit is at least as large as the average variable cost per unit.
shutdown rule	When all fixed costs are regarded as sunk for the next production period, a firm should continue to operate only as long as the selling price per unit is at least as large as the average variable cost per unit.
signaling	Observable actions that a potential employee takes that help distinguish him or her as a high-quality worker.
signaling	Observable actions that a potential employee takes that help distinguish him or her as a high-quality worker.
spillover effects	The results of research and development used for one product that are applied to other products or firms.
spillover effects	The results of research and development used for one product that are applied to other products or firms.
substitution effect	The consumer's response to a change in the price of a good that restores the ratios of marginal utility to price for two goods to a state of balance.
substitution effect	The consumer's response to a change in the price of a good that restores the ratios of marginal utility to price for two goods to a state of balance.
sunk cost	Money that has been spent in the past and should not be taken into account in the current decision.
sunk cost	Money that has been spent in the past and should not be taken into account in the current decision.
the value of the firm	The collective worth of all economic profits into the future and the amount the owners would expect to receive if they sold the business; for a corporation, the equity on a company's balance sheet.
the value of the firm	The collective worth of all economic profits into the future and the amount the owners would expect to receive if they sold the business; for a corporation, the equity on a company's balance sheet.
theory of the consumer	Individuals plan their purchases, the timing of those purchases, and borrowing and saving so as to maximize the satisfaction that they and their household units will experience from consumption of goods and services.
theory of the consumer	Individuals plan their purchases, the timing of those purchases, and borrowing and saving so as to maximize the satisfaction that they and their household units will experience from consumption of goods and services.
Third-degree price discrimination	Differential pricing offered to different groups of customers.
Third-degree price discrimination	Differential pricing offered to different groups of customers.
tournament theory	The idea that paying a CEO well beyond what is justifiable on the basis of the individual's contributions creates an incentive for other executives on the team to put in extra effort in order to have a chance at similar rewards in the future.
tournament theory	The idea that paying a CEO well beyond what is justifiable on the basis of the individual's contributions creates an incentive for other executives on the team to put in extra effort in order to have a chance at similar rewards in the future.
transaction cost economics	A theory that explains when a firm should expand, not expand, break apart, or sell off business units based on the costs involved in making exchanges.
transaction cost economics	A theory that explains when a firm should expand, not expand, break apart, or sell off business units based on the costs involved in making exchanges.
transfer price	The established value assigned to an item exchanged between a selling division and an acquiring division of the same corporation.
transfer price	The established value assigned to an item exchanged between a selling division and an acquiring division of the same corporation.
unit contribution margin	The difference between the price per unit and the variable cost per unit; price per unit - variable cost per unit.
unit contribution margin	The difference between the price per unit and the variable cost per unit; price per unit - variable cost per unit.
value	The difference between what individuals acquire and what they produce; the basis of exchange between individuals and organizations.
value	The difference between what individuals acquire and what they produce; the basis of exchange between individuals and organizations.
value chain	The network of operations that account for the creation of a product.
value chain	The network of operations that account for the creation of a product.
warranties	A promise to repair or replace a product that is only of value to the buyer if the seller is likely to be available when the buyer makes a claim on the promise.
warranties	A promise to repair or replace a product that is only of value to the buyer if the seller is likely to be available when the buyer makes a claim on the promise.
welfare economics	A subfield of economics that focuses on evaluating the performance of markets.
welfare economics	A subfield of economics that focuses on evaluating the performance of markets.
Yield management	A pricing strategy in which a firm changes prices frequently in order to extract higher prices from customers and make it more difficult for other firms to compete on price.
Yield management	A pricing strategy in which a firm changes prices frequently in order to extract higher prices from customers and make it more difficult for other firms to compete on price.

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