This document provides definitions and explanations of various economic concepts across 15 chapters. In Chapter 1, it defines core competency, free ride, market share, and total quality management. In Chapter 2, it covers concepts such as architecture, arbitrage, comparative advantage, constraints, derivatives, efficiency, externalities, functions, gains from trade, and more. The document continues defining additional terms in each subsequent chapter related to topics like market structures, pricing strategies, organizational design, international economics, and antitrust policy.

1. Chapter 1:
C
Core competency: the main thing a firm does
F
Free ride occurs when someone receives benefits without paying for those benefits
M
Market share percentage of total sales made by one firm
T
Total quality management devoting resources to ensuring that quality is high--often
implied that marginal revenue from quality is less than marginal cost of obtaining quality
Chapter 2;
A
Architecture organization or structure of the firm
arbitrage: a process of simultaneously buying in low-priced market and selling the
identical item in high-priced market
C

2. Comparative advantage when an activity by one person can be carried out with lower
opportunity costs than could be done by another
Constraint a restraint or limit; the budget constraint indicates a limited amount that can
be spent
D
Derivative in calculus, the change in a dependent variable that comes with a very small
change in the independent variables
E
Efficiency lowest cost
Externalities costs or benefits created by a transaction not paid for
or received by the parties carrying out the transaction
F
Function a rule that describes the relationship between variables
G
Gains from trade the additional amount that an individual, firm, or nation can obtain by
trading as compared to not trading

3. H
hold-up the situation in which one party to a transaction is able to force another to
perform as the first desires
horizontal integration occurs when a firm merges with or acquires a rival firm; the
combining of firms at the same level of business
L
Law of one price identical items sell for the same price in different markets
M
market failure a situation in which a free market does not allocate resources efficiently
marginal relationship a relationship between two variables that looks at the difference
or change between them
O
Objective function the item being optimized; profit under profit maximization; cost
under cost minimization; happiness under utility maximization
P
Pareto efficient an outcome or equilibrium in which no one can be made better off
without harming another
production possibilities curve (PPC) a graph illustrating the limitations of resources
public good a product that can be consumed by anyone and where one's consumption

4. does not reduce the amount others can consume
partial derivative in calculus, measures a change in the dependent variable with respect
to a very small change in one independent variable, everything else held constant
T
Transaction costs costs involved in carrying out a transaction
V
Vertical integration occurs when a firm that is a supplier to another firm is merged with
the second firm
Chapter 3;
A
Accounting profit revenue that exceeds costs, not including cost of capital
added value value of output that exceeds cost of resources
C
Cost of capital the opportunity cost to creditors and investors--the amount a firm must
pay investors so that they will not take their funds to another activity
E
Economic profit total revenue less total costs, including opportunity cost of capital

5. N
Negative economic profit revenues are less than costs when costs include all costs (that
is, the cost of land, labor, and capital)
normal profit zero economic profit
S
Shareholder value the value of a firm to an investor
Chapter 4:
C
complements products that are used together
countercyclical goods when income goes up, quantity demanded of these goods goes
down--income elasticity of demand is negative
cross-price elasticity of demand a measure of the sensitivity of sales to change in the
price of a related item; percentage change in quantity demanded of item A divided by
percentage change in price of item B
cyclical goods when income goes up, quantity demanded of these goods goes up--income
elasticity of demand is positive
E
Elastic measure of sensitivity of sales to changes in a determinant of sales

6. I
income elasticity of demand a measure of the sensitivity of sales to a change in income
inelastic percentage change in quantity demanded is less than percentage change in price
indifference analysis measuring consumer choice by examining the baskets of goods and
services among which the individual is indifferent
indifference curve a graph showing different combinations of goods among which the
consumer is indifferent
L
Long run a period of time just long enough that everything is variable
M
Marginal rate of substitution (MRS) the slope of the indifference curve
N
Noncyclical goods: products whose sales do not depend on income
P
Price elasticity of demand the sensitivity of sales to price changes; the percentage
change in quantity demanded divided by the percentage change in price

7. S
Substitutes items that can be used in place of each other
U
Unit-elastic percentage change in quantity demanded is equal to percentage change in
price
Chapter 5:
A
Average fixes costs (AFC) total costs divided by quantity
average total costs (ATC) total costs divided by quantity; per unit costs
average variable costs (AVC) total variable costs divided by quantity
C
Constant returns to scale a doubling of all resources results in a doubling output
D
Diseconomies of scale a doubling of resources leads to less than a doubling of output
Downsizing reducing the size of the firm; cutting costs
E

8. Economics of scale a doubling of resources leads to a more than doubling of output
J
Joint venture two or more firms joining together to produce
L
law of diminishing marginal returns adding increasing amounts of a variable resource
to a fixed amount of other resources initially increases output but eventually causes
output to increase at a decreasing rate and finally to decrease
long-run average total cost (LRATC) total costs divided by quantity when there are not
fixed costs
M
Marginal cost (MC) the change in cost divided by the change in quantity
O
Outsourcing divesting activities so they are purchased in the market rather than created
in-house
S
short run a period of time just short enough that at least one resource is fixed
short-run average total cost (SRATC) per unit costs; total costs divided by quantity

9. when some costs are fixed
Supply chain management the management of the value chain; the process of creating
and selling a good or service from raw materials through finished product to the
consumer
T
Total fixed costs (TFC) total costs of the fixed resources
Total variable costs (TVC) total costs of variable resources
Chapter 6:
C
commodity market a market in which many sellers offer an identical item for sale
consumer surplus the bonus provided consumers by a market; the differences between
what buyers would be willing and able to pay and the market price
D
Differentiated products : products that are different in customers' minds
M
Market structures the selling environments in which firms operate
monopolistic competition a selling environment in which there are many firms with
differentiated products, where entry and exit can be carried out easily
monopoly a selling environment in which only one firm sells a good or service

10. O
Oligopoly: a selling environment in which just a few firms dominate the market
P
perfect competition a selling environment in which there are many firms selling
identical products and in which entry and exit are easy
price taker a perfect competitor or commodity seller; the price one must sell at is
determined by the market
producer surplus the difference between what a producer is willing and able to sell a
good or service at and the market price
S
Standardized products: products that are identical
strategic behavior carrying out actions by considering the actions and reactions of others
Chapter 7:
E
Experience goods: goods whose attributes are discovered through trial

11. R
Rent seeking devoting resources to transferring income from one group to another
S
Search goods products consumers must know about and understand characteristics of
before they will purchase them
services items consumed immediately
strategic asset an asset that enables a firm to create barriers to entry
sunk cost expenditures that once made have no liquidation value
Chapter 8:
C
Cannibalization occurs when sales of one product by a firm reduce sales of another
product by the same firm
cost-plus pricing setting price according to a markup on average costs
customizing setting price according to an individual's willingness and ability to purchase
an item
F
Full-cost pricing: pricing based on total costs

12. L
Limit price the price above which new firms will enter
M
meet-the-competition clause a low-price guarantee--matching any other firm's price
mixed bundling occurs when a firms sells two or more products individually and also
sells the products as one product
most-favored-customer clause a firm guarantees that its customers will obtain the
lowest price offered by the firm
P
peak-load pricing prices differ depending on amount of demand--higher when demand
is higher
perfect price discrimination each consumer pays exactly what each is willing and able
to pay for a good or service
personalized pricing: pricing determined according to each individual's willingness and
ability to pay
predatory price: a price low enough to drive competitors out of business
product-line extension adding an attribute or component to an existing product
pure bundling offering two products for sale only in combination
S
Second-degree price discrimination when the firm is able to group multiple units of the
good and charge different prices for the different groups

13. T
Third-degree price discrimination groups of customers pay a different price for the
same product
tying selling on product by offering it for sale in combination with another product
V
Value pricing standard economic pricing where MR = MC but the name value is
attached to make it seem as if the customer is gaining something additional
Chapter 9:
A
Applied research: research focused on bringing a final product to fruition
B
Basic research: research devoted to solving a problem irrespective of final output
D
Development readying the results of research for sale as a final product

14. L
Locked-in having to utilize a specific technology even though it is not the most efficient
technology
N
New Economy term referring to the technological changes occurring in information
processing and management
network a situation in which activities carried out by groups of people or firms using a
specific technology have lower costs than if each person or firm uses different
technologies
P
path dependence a situation in which certain actions or certain technologies are adopted
simply because previous actions or technologies were adopted
positive feedback externalities created by one person carrying out an activity spill over
to or benefit all others also participating in those activities
positive network externalities see positive feedback
T
Tipping point the point at which a disease becomes an epidemic

15. U
Using the market purchasing an activity from the market rather than carrying out the
activity in-house
W
Winner-takes-all one firm or one technology completely dominates the market--
becomes a monopoly
Chapter 10:
B
Buyback a means of securing a contract--one party agrees to buy back a portion of the
transaction between two parties
C
contracts agreements to carry out certain transactions
corporate culture a set of collectively held values, beliefs, and norms of behavior among
members of a firm that influence individual behaviors
D
Downstream an activity that uses a firm's output as inputs into its own production
H
Hostages a means of ensuring that one party to a transaction carries out the transaction

16. M
make-or-buy decision the decision whether to carry out an activity in-house or to
purchase the activity in the market
matrix an organizational structure designed to ensure efficient communication among
disparate units
M-form, multidivisional form an organizational structure designed to enable
specialization
N
Network a situation in which activities carried out by groups of people or firms using a
specific technology have lower costs than if each person or firm uses different
technologies
S
Self-managed team a workplace organization designed to enlist the benefits of
teamwork
T
Team a popular means of organizing the workplace--having output produced by groups
or individuals
transaction costs: costs involved in carrying out a transaction

17. U
U-form, unitary form, functional form organizational form or structure of a firm that
enables just one activity
upstream the firm that is a supplier to another firm
V
Vertical integration occurs when a firm that is a supplier to another firm is merged with
the second firm
Chapter 11:
B
Back loaded compensation a compensation structure in which an individual receives
less than his productivity is worth during the first years he is with the firm
E
Efficiency wage: wage that is higher than the equilibrium of market wage in order to
induce increased productivity
F
Free ride occurs when someone receives benefits without paying for those benefits

18. G
Golden parachutes compensation provided executives of a firm who are dismissed or
otherwise lose a position with the firm
greenmail payments provided to employees/executives of a target firm in the event of a
hostile takeover
M
Marginal revenue product the value of an additional resource to a firm; the marginal
revenue multiplied by the marginal product
P
Piece-work rates compensation based on output
poison pill a situation in which a firm acquired by another firm imposes large costs for
the acquiring firm
V
Value of the marginal product the value of a resource to a firm that sells its output in a
commodity market
W
Wage compression occurs when wages of newly hired workers are near or above the
wages or employees who have been with the firm for a long period of time

19. Chapter 12:
B
Black-Scholes option pricing formula a means of determining a value for the right but
not the obligation to undertake an action
C
Call option the right but not the obligation to purchase an item
N
Net present value (NPV) present value of earnings less present value of costs
O
Options the right but not the obligation to carry out some activity
R
Real option the right but not the obligation to purchase an asset or carry out an activity

20. Chapter 13:
C
Commitment expending resources on a particular action in order to demonstrate that the
action will be carried out
D
dominant strategy an activity that will be carried out no matter what rivals do
dominated strategy an activity that will not be carried out because there are better, more
profitable activities no matter what rivals do
E
Expected value value weighed by probability of occurrence
G
Game theory mathematical representation of strategic behavior
N
Nash equilibrium situation in which no one has an incentive to change current actions
P

21. Prisoner's dilemma a situation in which a rival's actions lead to a less than best solution
R
Repeated trials carrying out activities more than once
risk aversion avoidance of risk; when someone prefers a result with certainty over the
possibility of receiving either a higher or lower result
Risk premium the price that people will pay to avoid risk
S
scorched-earth policy a strategy for penalizing those who cheat on agreements--
destroying all assets so that others cannot use them
sequential game: game in which decisions are made in steps, with each step taking place
at a different point in time
simultaneous game: game in which decisions are made at the same time
T
Tit-for-tat a strategy for penalizing those who cheat on agreements--doing unto others
what they do unto you

22. Chapter 14:
A
Arbitrage: process of simultaneously buying in low-priced market and selling the
identical item in high-priced market
B
Balance sheet exposure the items on a balance sheet whose value may be affected by
exchange-rate changes
C
Currency futures contracts for delivery of a certain amount of foreign currency at some
future date and at a known price; similar in this way to foreign-exchange forwards
E
Exchange rate the rate at which two currencies are exchanged
F
foreign exchange currency not that of the domestic nation
foreign-exchange options the right but not the obligation to buy or sell foreign exchange
at some point in the future for a price determined now
forward marke:t market in which transactions to occur in the future are bought and sold
today

23. forward rate the price determined today for a transaction to take place in the future
forwards contracts for delivery of a certain item at some future date and at a known price
H
Hedging: undertaking an action to offset some possible losses related to a separate
transaction
I
Interest rate parity (IRP) occurs when interest rates in different nations are the same
once adjusted for exchange-rate changes
L
Law of one price identical items sell for the same price in different markets
M
Market-based exposure sales and/or costs of multinational companies may be affected
by exchange-rate changes
O
Offsets a means of ensuring that an agreement is carried out

24. P
Purchasing power parity (PPP) the prices of goods and services are the same in
different nations once adjusted for exchange-rate changes
Q
Quota a fixed amount that a supplier is allowed to offer for sale in a particular market
S
Spot rate current price
T
Tariff a tax imposed on imported goods and services
Chapter 15:
H
Herfindahl-Hirshman index (HHI) a measure of the degree of dominance of a firm or
firms in a market; the sum of squares of sales--HI = (size)2 + (size) 2 = … + (size) 2,
where (size) 2 is the size of a firm squared
N

25. Natural monopoly situation that exists when economies of scale persist throughout the
entire market
P
Per se rule a fixed rule of antitrust that an action is illegal no matter the circumstances
R
Rule of reason the idea that antitrust prosecution depends on the reasonableness of the
action, that is, the circumstances surrounding the action
rent seeking devoting resources to transferring income from one group to another
(The End): Remember me in your prayers :( Wasi )