when a government grants a patent for an invention to one firm. 11.1

 Natural Monopoly

Where the barriers to entry are something other than legal prohibition 9.1

 Single-Priced Monopoly

This is distinct from other monopolies in that the firm must charge the same price to all consumers. In this case, the aggregate demand is the firm’s demand! 9.2

Accounting Profit

This is a cash concept. It means total revenue minus explicit costs—the difference between dollars brought in and dollars paid out. 7.1

Allocative Efficiency

Is an economic concept regarding efficiency at the social or societal level. It refers to producing the optimal quantity of some output, the quantity where the marginal benefit to society of one more unit just equals the marginal cost. 9.4

Average Product

of labour is the total product divided by the quantity of labour. AP=TP/L. 7.2

Barriers to Entry

It is very easy for firms to start and stop selling in this market. For example, if a farmer decides to plant corn instead of soybeans, there is nothing preventing them from doing so.  8.1


means a group of firms that have a formal agreement to collude to produce the monopoly output and sell at the monopoly price. 11.2

Circular Flow Diagram

It pictures the economy as consisting of two groups—households and firms—that interact in two markets. (2.2)


defines when firms act together in this way to reduce output and keep prices high. 11.2

Comparative Advantage

When one is able to produce a good at a lower opportunity cost than another, the person is said to be efficient or have a comparative advantage in producing that good. (2.5)


According to the Canadian Law, “is a form of protection for original works of authorship including literary, dramatic, musical, architectural, cartographic, choreographic, pantomimic, pictorial, graphic, sculptural, and audiovisual creations.” 9.1

Cross-cultural marketing

is defined as the process of marketing among consumers whose culture differs from that of the marketer's own culture; such as language, religion, social norms and values, education and living style.

Cross-Price Elasticity of Demand 

This shows us how quantity demanded is a response to changes in the price of related goods.

Demand curve

a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time.10.2 & 10.3


Refers to the amount (price) consumers are willing and able to purchase goods or services at (4.1) 

Differentiated Products

Physical aspects of the product, selling location, intangible aspects of the product, and perceptions of the product. Products that are distinctive in one of these four ways are called differentiated products.10.2 & 10.5

Diseconomies of Scale

occur when the average cost of production rises as output increases. 7.5

Dominant strategy

is the strategy an individual (or firm) will pursue regardless of the other individual’s (or firm’s) decision. 11.3


each oligopolist must worry that while it is holding down output, other firms are taking advantage of the high price by raising output and earning higher profits. 11.4

Economic Efficiency

The market equilibrium where the marginal benefit from a good just equals the marginal cost of producing it. At the efficient level of output which is also called the competitive equilibrium, it is impossible to produce greater consumer surplus without reducing producer surplus, and it is impossible to produce greater producer surplus without reducing consumer surplus. (4.2)

Economic Growth

Allows countries, individuals, or firms to reach points outside their PPF. Factors that allow shifts in countries’ PPF resulting in a change in attainable output include: (2.4)

Economic Model

This is a simplified framework that is designed to illustrate complex processes. (2.1)

Economic Profit

Is total revenue minus total cost, including both explicit and implicit costs. The difference is important because even though a business pays income taxes based on its accounting profit, whether or not it is economically successful depends on its economic profit. 7.1

Economies of Scale

occur when the average cost of production falls as output increases. Economies of scale refer to the situation where, as the quantity of output goes up, the cost per unit goes down. 7.5

Elastic Demand

Is one in which the elasticity (in absolute value) is greater than one, indicating high responsiveness to changes in price (Fig 6.2 A). (6.1)

Explicit Costs

These are out-of-pocket costs, that is, actual payments. The wage and rent that a firm pays for office space are explicit costs. 7.1


The effect of market exchange on a third party who is outside or “external” to the exchange (5.1)

Fixed Inputs

These are those that can’t easily be increased or decreased in a short period of time. In the pizza example, the building is a fixed input. Once the entrepreneur signs the lease, he or she is stuck in the building until the lease expires. Fixed inputs define the firm’s maximum output capacity. 7.2

Game theory

is a branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs based on what other players decide to do. 11.3

Identical Goods

Identical goods mean there is nothing to distinguish one firm’s goods from another. For example corn – once all the corn is dumped into the grain elevator there is absolutely no way to tell from which farm a particular kernel of corn came. 8.1

Implicit Costs

These are more subtle but just as important. They represent the opportunity cost of using resources that the firm already owns. Often for small businesses, they are resources that the owners contribute.7.1

Income Elasticity

Shows how the quantity demanded of a good response to a change in income

Inelastic Demand

Is one in which the elasticity (in absolute value) is less than one, indicating low responsiveness to changes in price (Fig 6.2 A). (6.1)

Inferior Good

Will have a negative income elasticity, since if income rises (or falls), the quantity demanded decreases (or increases). (6.4)

Kinked demand

curve in which competing oligopoly firms commit to match price cuts, but not price increases. 11.5

Legal Monopoly

Where laws prohibit (or severely limit) competition.9.1

Long Run

This is the period of time during which all factors are variable. Once the lease expires for the pizza restaurant, the shop owner can move to a larger or smaller place. 7.2

Long-Run Average cost (LRAC)

curve is actually based on a group of short-run average cost (SRAC) curves, each of which represents one specific level of fixed costs. More precisely, the long-run average cost curve will be the least expensive average cost curve for any level of output. 7.5

Many Firms

Many firms, mean that from the perspective of one individual firm there is no way to raise or lower the market price for a good. This is because the individual firm’s output is such a small part of the overall market that it does not make a difference in terms of price. 8.1

Marginal Product

Marginal product is the additional output of one more worker. Mathematically, Marginal Product is the change in total product divided by the change in labour: MP=ΔTP/ΔL.

Marginal Revenue Curve

This shows the additional revenue gained from selling one more unit. As mentioned before, a firm in perfect competition faces a perfectly elastic demand curve for its product—that is, the firm’s demand curve is a horizontal line drawn at the market price level.8.2

Marginal Social Benefit Curve or D-Social

When we add external benefits to private benefits. In the presence of a positive externality (with a constant marginal external benefit), this curve lies above the demand curve at all quantities. (5.1)

Marginal Social Cost Curve or S-Social

When we add external costs to private costs. In the presence of a negative externality (with a constant marginal external cost), this curve lies above the supply curve at all quantities. (5.1)

Market price

is the current price at which a good or service can be purchased or sold. 10.2

Market Structure and The Competitive Environments

In which firms and consumers interact. There are three main metrics by which we measure a market’s structure: (8.0)

The number of firms. More firms mean more competition and more places to which consumers can turn to purchase a good.
The similarity of goods: The more similar the goods sold in the market the more easily consumers can switch firms and the more competitive the market is.
The barriers to entry: The more difficult is it to enter a market for a new firm, the less competitive it is.

Mid-Point Method For Elasticity

To calculate elasticity, instead of using simple percentage changes in quantity and price, economists use the average percent change. (6.1)

% Change in Quantity Demanded:  [New Q – Old Q /(New Q +Old Q)/2]×100% /(New Q +Old Q)/2 shows the average of the two quantities
% Change in Price: [New Price – Old Price / (New P +Old P)/2]×100% (New P +Old P)/2 is the average of the two prices

Minimum Efficient Scale

Where the average cost is at its minimum. This is the point where economies of scale are used up and no longer benefit the firm. Figure 9.11 illustrates these points. 7.5

Monopolistic Competition

lies in between monopoly and perfect competition. It involves many firms competing against each other, but selling products that are distinctive in some way. 10.1 


One firm produces all of the output in a market. Since a monopoly faces no significant competition, it can charge any price it wishes, subject to the demand curve. 9.0

Nash equilibrium

is an outcome where, given the strategy choices of the other players, no individual player can obtain a higher payoff by altering their strategy choice. 11.3

Negative Externality

Externalities can be negative or positive. If you hate country music, then having it waft into your house every night. (5.1)

Normal Good

Will have a positive income elasticity, since if income rises (or falls), the quantity demanded also increases (or decreases). (6.4)


arises when a small number of large firms have all or most of the sales in an industry. 11.1


 Gives the inventor the exclusive legal right to make, use, or sell the invention for a limited time.9.1


are the outcomes associated with every possible strategic combination, for each player. 11.3

Perfectly elastic

means the response to price is complete and infinite: a change in price results in the quantity falling to zero. 10.2

Perfectly Inelastic Demand

is one in which elasticity is zero, the demand curve is vertical

Players of the game

are the agents actively participating in the game and who will experience outcomes based on the play of all players. 11.3

Positive Externality

Occurs when the market interaction of others presents a benefit to non-market participants. If you love country music, then what amounts to a series of free concerts 


Price Ceiling

It is a type of price control where the government sets the maximum price to be charged to sell a good or service

Price Floor

It is a type of price control where the government sets the minimum price to be charged or paid to sell a good or service

Price Takers

Meaning that their decision is simply how much to sell at the market price. If they try and sell for a higher price, no one will buy from them, and they could sell for a lower price, but if they did so, they would only be hurting themselves because it would not affect the quantity sold. 8.1

Prisoner’s dilemma

is a scenario in which the gains from cooperation are larger than the rewards from pursuing self-interest. 11.3

Private Markets

Private markets only consider consumers, producers, and the government – the impacts on external parties are irrelevant. (5.1)

Product differentiation

is based on variety and innovation. 10.5

Production Function

A mathematical expression or equation that explains the engineering relationship between inputs and outputs. 7.2


The process (or processes) a firm uses to transform inputs (e.g. labour, capital, raw materials) into outputs, i.e. the goods or services the firm wishes to sell. 7.2

Public Good

Public goods have two defining characteristics: they are nonexcludable and non-rival. (5.4)

Repeated games

are simultaneous move games played repeatedly by the same players. 11.3

Short Run

This is the period of time during which at least one or more factors remain fixed. Within a short period of time, the shop owner may not be able to obtain more physical capital or move to a larger space.


This is the period of time during which at least one or more factors of production are fixed. During the period of the pizza restaurant lease, the pizza restaurant is operating in the short run, because it is limited to using the current building (an example of capital) —the owner can’t choose a larger or smaller building. Plant size or capital is a fixed factor of production in the short run. 7.2

Single-shot games

are played once and then the game is over. 11.3


In production results in gains from trade, as each person or country, can focus on what it can produce at the lowest cost and trade it with its partner.(2.5)


are all of the possible strategic choices available to each player, they can be the same for all players or different for each player. 11.3


The amount of some good or service a producer is willing to supply at each price. The supply curve shows the quantity that firms are willing to supply at each price. (4.2)

Tax Wedge

This method recognizes that who pays the tax is ultimately irrelevant. Instead, the wedge method illustrates that a tax drives a wedge between the price consumers pay and the revenue producers receive, equal to the size of the tax levied. (4.4)

The Coase Theorem

States that if property rights are well-defined, and negotiations among the actors are costless, the result will be a socially efficient level of the economic activity in question. It is one of the most important and influential theorems in economics. (5.2)

Total Costs (TC)

Of production in the short run, a useful starting point is to divide total costs into two categories: Fixed Costs and Variable Costs. Fixed cost of production is the cost that does not change as output changes and variable cost is the cost that changes as output changes. 7.3

Total Fixed Costs

Are his expenditures that do not change regardless of the number of haircuts offered. 7.3

Total Product (TP)

TP is the amount of output produced with a given amount of labour and a fixed amount of capital. In this example, one barber can give 8 haircuts in a day. Two barbers can produce 22 haircuts in a day and so on. 7.2

Total Revenue

The income the firm generates from selling its products. We calculate it by multiplying the price of the product times the quantity of output sold 7.1


An identifying symbol or name for a particular good or service, like Chiquita bananas, Chevrolet cars, Rogers Cable.9.1

Variable Inputs

These are those that can easily be increased or decreased in a short period of time. The pizzaiolo can order more ingredients with a phone call, so ingredients would be variable inputs. The owner could hire a new person to work the counter pretty quickly as well. So labour is a variable input. 7.2

Willingness to Pay (WTP)

Serves as a starting point for the demand curve. A consumer’s maximum Willingness to Pay is equal to that consumer’s Marginal Benefit (MB). This is useful information if we want to use Marginal Analysis. (4.1)

Absolute Advantage

In the production of crabs as he can produce a maximum of 20 crabs while you can produce a maximum of 15 crabs, and you have an absolute advantage in producing pineapples as you can grow a maximum of 30 pineapples while Jamie can produce a maximum of 15 only. The graph below (Fig 2.6) shows Jamie’s production possibilities. (2.5)

Barriers to Entry

These are the legal, technological, or market forces that discourage or prevent potential competitors from entering a market. Barriers to entry can range from the simple and easily surmountable, such as the cost of renting retail space, to the extremely restrictive. For example, there are a finite number of radio frequencies available for broadcasting. 9.1

Bid Rigging

An illegal practice in which bidders (buyers) conspire to set prices in their own interest. 9.5


A factor of production that has been produced for use in the production of other goods and services. Office buildings, machinery, and tools are examples of capital. (1.3)

Change in Demand

The demand curve shifts from its current position. (3.2) 

Change in Quantity Demanded

A movement along a demand curve that results from a change in price. (3.1)

Change in Quantity Supplied

A movement along a supply curve that results from a change in price

Change in Supply

The supply curve shifts from its current position


Mean that one alternative is selected over another. Selecting among alternatives involves three ideas central to economics: scarcity, choice, and opportunity cost. (1.1)

Command Economy

The government decides what goods and services will be produced and what prices it will charge for them. The government decides what methods of production to use and sets wages for workers. The government provides many necessities like healthcare and education for free. (1.2)


Both goods A and B are consumed together 

Constant Returns to scale (Fig 7.10)

occur when the average cost of production does not change as output rises. In a typical long-run average cost curve, there are sections of both economies of scale and diseconomies of scale. 7.5

Constant Unitary Elasticity

A demand curve, occurs when a price change of one percent results in a quantity change of one percent. Fig 6.4  (6.1)

Consumer Surplus

The amount that individuals would have been willing to pay, minus the amount that they actually paid. 

Economic Surplus or Total Surplus

The sum of consumer surplus and producer surplus 


This is a social science that examines how people choose among the alternatives available to them. It is social because it involves people and their behaviour. It is a science because it uses, as much as possible, a scientific approach in its investigation of choices. (1.1)

Elastic Supply

Is one in which the elasticity is greater than one, indicating high responsiveness to changes in price.


Measures the responsiveness of one variable to changes in another variable.


is an assertion of a relationship between two or more variables that could be proven to be false. 

Inelastic Supply

Is one in which the elasticity is less than one, indicating low responsiveness to changes in price

Inferior Goods

Consumption of the goods decreases (increases) when income increases (decreases)


We call this combination of patents, trademarks, and copyrights intellectual property because it implies ownership over an idea, concept, or image, not a physical piece of property like a house or a car. 9.1


This is the human effort that can be applied to the production of goods and services. People who are employed—or are available to be—are considered part of the labour available to the economy. (1.3)

Long Run Equilibrium

Where firms continue to produce as long as the price equals the average total cost, ending in zero economic profits


Looks at the economy as a whole. Microeconomics and macroeconomics are not separate subjects, but rather complementary perspectives on the overall subject of the economy. (1.2)

Marginal Analysis

This is the process of breaking down a decision into a series of ‘yes or no’ decisions. More formally, it is an examination of the additional benefits of an activity compared to the additional costs incurred by that same activity. If benefits > costs, this is the right choice for a rational thinker. (1.4)

Market Economy

A market is an institution that brings together buyers and sellers of goods or services, who may be either individuals or businesses. The New York Stock Exchange is a prime example of a market that brings buyers and sellers together. (1.2)


Focuses on the actions of individual agents within the economy, like households, workers, and businesses. (1.2)

Mixed Economy

Most economies in the real world are mixed. They combine elements of command and market systems. The Canadian economy is positioned toward the market-oriented end of the spectrum. (1.2)

Movement Along The Supply Curve

Such a movement is called a change in quantity supplied. (3.3) 

Normal Goods

Consumption of the goods increases (decreases) when income increases (decreases)

Normative Statemen

This is one that makes a value judgment. Such a judgment is the opinion of the speaker; no one can “prove” that the statement is or is not correct. (1.5)

Perfectly Elastic Demand

is one in which elasticity is infinity, the demand curve is horizontal

Perfectly Elastic Supply

is one in which elasticity is infinity, the supply curve is horizontal

Perfectly Inelastic Supply

is one in which elasticity is infinity, the supply curve is vertical

Pigouvian tax

A tax that addresses a negative externality by taxing the good instead of the actual external cost.

Positive Cross-price elasticity

shows two goods are substitutes and negative cross-price elasticity shows two goods are complements.

Positive Statement

A statement of fact or a hypothesis. (1.5)

Predatory Pricing

A practice that is aimed at driving out competition by artificially reducing the price of one product sold by a supplier. 9.5

Price Elasticity of Demand

shows how the quantity demanded of a good response to changes in its price.

Price Elasticity of Supply

shows how the quantity supplied of a good response to changes in its price.

Producer Surplus

The amount that a seller is paid for a good minus the seller’s actual cost. 

Production Possibility Frontier (PPF)

This is the graphical representation of Figure 2.2. It represents the maximum combination of goods that can be produced given available resources and technology. Each point represents one of the combinations from Figure 2.2. (2.3)


This means that human wants for goods, services and resources exceed what is available. Because of scarcity, we need to make choices. (1.1)


This is the amount by which the quantity demanded exceeds the quantity supplied at the current price.A shortage occurs only if the current price is lower than the equilibrium price(3.5)

Shutdown Point

The point at which level the firm is indifferent between producing the loss minimizing output or shutting down.


Externalities that occur in market transactions that affect other parties beyond those involved.


One can consume either good A or good B


Is the amount by which the quantity supplied exceeds the quantity demanded at the current price. A surplus occurs only if the current price exceeds the equilibrium price. (3.5)

Technology and Entrepreneurship

Goods and services are produced using the factors of production available to the economy. (1.3)

The law of increasing opportunity cost

Which holds that as the production of a good or service increases, the marginal opportunity cost of producing it increases as well.


is a simplified representation of how two or more variables interact with each other.

Total Variable Costs

Are incurred in the act of producing—the more he produces, the greater the variable cost. 7.3


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