No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Appendix A Definition Index 486 Price takers: Firms in a “perfectively competitive” market structure sell identical products and have no market power; that is, they have no ability to influence the price of their product. (Chapter 8—Perfect Competition) Principal: On a loan, this refers to the amount borrowed. (Chapter 12—Loanable Funds Framework) Producer’s surplus: the monetary gain to producers from the difference they would be willing to supply a good or service, and the market price. (Chapter 4—Supply and Costs/Producer Surplus) Product differentiation: a marketing strategy to show the differential advantage of a firm’s product over possible substitutes. (Chapter 8—Monopoly/Monopolistic Competition & Oligopoly) Production possibilities frontier (PPF): A PPF illustrates the tradeoff between two goods, given a fixed amount of productive inputs. More of one good necessarily reduces the production of the alternative good. (Chapter 2—Gains from Trade) Productive efficiency: occurs when firms produce at their minimum average total cost. (Chapter 8—Perfect Competition) Profit maximizers: Firms/entrepreneurs may pursue many goals, but competitive pressures will force them to maximize profits for their enterprise. All other goals and objectives are subsidiary, as they are enabled by high profits. (Chapter 7—Profit: The Driving Force for Entrepreneurs) Protectionist legislation: legislation passed to restrict entry into markets by foreign competitors. (Chapter 15—Comparative Advantage-Redux) Public choice analysis (theory): a study of political behavior using the analytical techniques of economics, with individuals maximizing their own utility according to self-interest. (Chapter 14—Introduction) Public goods: goods that are difficult for the markets to produce efficiently, since they have attributes of non-excludability and non-rivalrousness. (Chapter 13—Public Goods) Purchasing power parity (PPP): an application of the law of one price, which suggests that in the absence of transaction costs, goods should trade at the same price everywhere. Purchasing power parity calculates an exchange rate which would allow consumers to purchase a similar basket of goods in either country. (Chapter 15— Purchasing Power Parity)