Economic Principles: A Comprehensive

Study Guide
This study guide covers key concepts from the provided excerpts of N. Gregory
Mankiw's "Principles of Economics". It is designed to help you review your
understanding of fundamental economic ideas, market mechanisms, the role of
government, and macroeconomics.

I. Core Concepts & Themes

 Ten Principles of Economics: These are fundamental ideas guiding
economic analysis, including trade-offs, opportunity cost, rational thinking,
incentives, benefits of trade, efficiency of markets, government intervention,
productivity, inflation, and the short-run trade-off between inflation and
unemployment.
 Thinking Like an Economist: This involves using scientific methods,
making assumptions to simplify complex realities, and employing models
(like the production possibilities frontier and the circular flow diagram) to
understand economic phenomena.
 Interdependence and Gains from Trade: Specialization and trade allow
individuals and countries to achieve higher levels of output and welfare,
based on the principle of comparative advantage.

II. Supply and Demand: How Markets Work

 Market Forces of Supply and Demand: Understanding how buyers
(demand) and sellers (supply) interact to determine equilibrium price and
quantity in competitive markets.
 Elasticity and Its Application: Measuring the responsiveness of quantity
demanded or supplied to changes in price, income, or other factors. This
concept is crucial for understanding how various events affect total revenue
and market outcomes.
 Supply, Demand, and Government Policies: Analyzing the impact of
government interventions like price ceilings (maximum prices), price floors
(minimum prices), and taxes on market equilibrium and economic welfare.

III. Supply and Demand: Markets and Welfare

 Consumers, Producers, and Market Efficiency: Concepts of consumer
surplus and producer surplus as measures of economic well-being, and how
market equilibrium maximizes total surplus, indicating efficiency.
 Application: The Costs of Taxation: How taxes create deadweight losses
by discouraging mutually beneficial transactions, and how the elasticity of
supply and demand affects the distribution of the tax burden and the size of
the deadweight loss.
 Application: International Trade: The effects of international trade on a
country's welfare, identifying winners and losers, and analyzing the impact of
trade restrictions like tariffs and import quotas.

IV. Economics of the Public Sector

 Externalities: Understanding market failures that occur when the
production or consumption of a good affects bystanders not involved in the
market. This includes negative (e.g., pollution) and positive (e.g., basic
research) externalities, and potential solutions (private and public).
 Public Goods and Common Resources: Classifying goods based on
excludability and rivalry, and identifying the challenges associated with
public goods (free-rider problem) and common resources (tragedy of the
commons), leading to inefficient allocation.
 The Design of the Tax System: Principles of taxation (benefit principle,
ability-to-pay principle, horizontal and vertical equity) and the trade-off
between efficiency and equity in tax policy.

V. Macroeconomic Topics (Selected, as per

excerpts)
 Measuring a Nation's Income (GDP): Defining GDP as a measure of total
income and expenditure, its components (consumption, investment,
government purchases, net exports), and the distinction between nominal
and real GDP.
 Measuring the Cost of Living (Inflation): Understanding the Consumer
Price Index (CPI) as a measure of the overall cost of goods and services, its
limitations (substitution bias, introduction of new goods, unmeasured quality
change), and the difference between nominal and real interest rates.
 Production and Growth: The importance of productivity for living
standards, determinants of productivity (physical capital, human capital,
natural resources, technological knowledge), and policies to promote growth.
 Saving, Investment, and the Financial System: The role of the financial
system in channeling savings into investment, and how financial markets
(bonds, stocks) and financial intermediaries (banks, mutual funds) operate.
Analysis of supply and demand for loanable funds.
 Unemployment and Its Natural Rate: Measuring unemployment, types of
unemployment (frictional, structural, cyclical), and reasons why markets
might fail to provide jobs for everyone who wants one (job search, minimum
wage laws, unions, efficiency wages).
 The Monetary System: Money Growth and Inflation: Defining money,
its functions (medium of exchange, unit of account, store of value),
measures of the money supply, and the quantity theory of money explaining
the relationship between money supply and the price level (inflation).
 Open-Economy Macroeconomics: Basic Concepts: Understanding
international flows of goods and capital, net exports, net capital outflow,
nominal and real exchange rates, and the theory of purchasing-power parity.
 Open-Economy Macroeconomics: A Macroeconomic Theory of the
Open Economy: Developing a model to explain trade balance and
exchange rates, and analyzing the impact of various policies (government
budget deficits, trade policies, political instability) on these variables.
 Aggregate Demand and Aggregate Supply: Introducing the aggregate
demand and aggregate supply model to explain short-run economic
fluctuations, including the reasons for the downward slope of the aggregate
demand curve and the shape of the aggregate supply curves (short-run and
long-run). Analyzing the effects of shifts in these curves.
 The Influence of Monetary and Fiscal Policy on Aggregate Demand:
How monetary policy (interest rate adjustments) and fiscal policy
(government spending, taxes) influence aggregate demand, including the
multiplier effect and the crowding-out effect.
 The Short-Run Trade-off Between Inflation and Unemployment
(Phillips Curve): Understanding the Phillips curve as a short-run inverse
relationship between inflation and unemployment, and how shifts in
aggregate demand move the economy along this curve. Discussing the
natural-rate hypothesis and the costs of disinflation.

VI. Microeconomic Topics (Selected, as per

excerpts)
 Costs of Production: Defining total revenue, total cost, and profit.
Distinguishing between explicit and implicit costs, and economic vs.
accounting profit. Understanding fixed and variable costs, average costs
(AFC, AVC, ATC), and marginal cost. Analyzing typical cost curves and
economies/diseconomies of scale.
 Firms in Competitive Markets: Characteristics of competitive markets,
profit maximization for competitive firms (P=MR=MC), short-run decisions
(shutdown), long-run decisions (exit/entry), and the long-run supply curve
(zero economic profit).
 Monopoly: Reasons for monopolies (resource ownership, government-
created, natural monopoly), profit maximization for a monopolist (MR=MC,
P>MC), welfare cost of monopoly (deadweight loss), and public policies
toward monopolies (antitrust laws, regulation, public ownership, doing
nothing). Discussing price discrimination.
 Oligopoly: Market structure with a few sellers offering similar/identical
products. Understanding firm interdependence, collusion, cartels, and the
prisoner's dilemma as applied to oligopolies.
 Monopolistic Competition: Market structure with many firms selling
differentiated products. Understanding short-run profit/loss, long-run zero
economic profit, deadweight loss, and the role of advertising and brand
names.
 The Markets for the Factors of Production: Understanding demand for
labor (derived demand, marginal product of labor, value of marginal
product), supply of labor (work-leisure trade-off), and equilibrium in the labor
market. Discussing determinants of wage differences (compensating
differentials, human capital, signaling, superstar phenomenon, efficiency
wages, unions, discrimination).
 The Theory of Consumer Choice: How consumers make decisions given
budget constraints and preferences, illustrated by indifference curves.
Concepts like marginal rate of substitution, perfect substitutes/complements,
normal/inferior goods, income/substitution effects, and Giffen goods.
 Asymmetric Information: Market situations where one party has more
information than another (moral hazard, adverse selection) and how markets
cope with these problems (signaling, screening).
 Political Economy: Applying economic tools to understand political
decision-making. Topics include Condorcet paradox, Arrow's impossibility
theorem, median voter theorem, and behavioral economics (irrationality,
fairness).

Quiz: Ten Short-Answer Questions

Answer each question in 2-3 sentences.

1. Explain the concept of "opportunity cost" using an example not

explicitly mentioned in the provided text.
2. How does the "invisible hand" described by Adam Smith coordinate
economic activity in a market economy?
3. What is the primary difference between a "negative externality" and
a "positive externality"? Provide one example for each.
4. According to the text, why do economists generally prefer Pigouvian
taxes over direct regulation as a solution to pollution?
5. Distinguish between a "public good" and a "common resource"
based on the characteristics of rivalry and excludability. Give an
example of each.
6. What does the "deadweight loss" of taxation represent, and how
does market elasticity influence its size?
7. Briefly explain why the Consumer Price Index (CPI) might overstate
the true cost of living.
8. What is the "natural rate of unemployment," and what are two
factors that contribute to it, according to the provided material?
9. How does the concept of "comparative advantage" explain the
benefits of international trade, even if one country has an "absolute
advantage" in producing all goods?
10. Explain Fisher's effect in the context of nominal and real
interest rates. What does it imply about the long-run relationship
between inflation and nominal interest rates?

Quiz Answer Key

1. Explain the concept of "opportunity cost" using an example not
explicitly mentioned in the provided text. Opportunity cost is what must
be given up to obtain some item. For instance, if you choose to spend an
evening studying for an economics exam, your opportunity cost might be
missing a social event or a favorite TV show. It represents the value of the
next best alternative forgone.
2. How does the "invisible hand" described by Adam Smith coordinate
economic activity in a market economy? The invisible hand guides
households and firms, acting in their self-interest on markets, to desired
market outcomes. Prices, which reflect both the value of a good to society
and the cost of producing it, are the instrument through which this invisible
hand operates. This leads individual decision-makers towards outcomes that
often maximize the well-being of society as a whole.
3. What is the primary difference between a "negative externality" and
a "positive externality"? Provide one example for each. A negative
externality occurs when the production or consumption of a good imposes a
cost on a third party not involved in the market transaction (e.g., air pollution
from a factory). A positive externality occurs when an activity yields benefits
to a third party (e.g., a vaccinated individual reducing disease spread for
others).
4. According to the text, why do economists generally prefer Pigouvian
taxes over direct regulation as a solution to pollution? Economists
prefer Pigouvian taxes because they can reduce pollution more efficiently
and at a lower cost to society. Unlike regulation, which mandates a specific
 reduction, a pollution tax incentivizes firms to reduce pollution up to the
point where the cost of further reduction equals the tax, allowing for
flexibility and cost-effectiveness across different firms.
5. Distinguish between a "public good" and a "common resource"
based on the characteristics of rivalry and excludability. Give an
example of each. A public good is neither excludable nor rivalrous (e.g.,
national defense), meaning no one can be prevented from using it, and one
person's use does not diminish another's. A common resource is rivalrous but
not excludable (e.g., fish in the ocean), meaning one person's use reduces
another's enjoyment of it, but no one can be easily prevented from using it.
6. What does the "deadweight loss" of taxation represent, and how
does market elasticity influence its size? Deadweight loss is the fall in
total surplus that results from a market distortion, such as a tax. It arises
because taxes prevent buyers and sellers from realizing some of the gains
from trade. The more elastic the supply and demand curves, the larger the
deadweight loss, as a tax causes a greater reduction in the quantity traded.
7. Briefly explain why the Consumer Price Index (CPI) might overstate
the true cost of living. The CPI might overstate the true cost of living due
to several biases. Substitution bias occurs because the fixed basket does not
account for consumers substituting towards cheaper goods. The introduction
of new goods and unmeasured quality changes also lead to an
overestimation, as they increase the value of money without being fully
captured by the index.
8. What is the "natural rate of unemployment," and what are two
factors that contribute to it, according to the provided material? The
natural rate of unemployment is the normal rate of unemployment around
which the unemployment rate fluctuates. Two factors contributing to it are
"job search," the time it takes for workers to find appropriate jobs due to
diverse skills and job characteristics, and "minimum wage laws," which can
raise wages above equilibrium levels, leading to a surplus of labor.
9. How does the concept of "comparative advantage" explain the
benefits of international trade, even if one country has an "absolute
advantage" in producing all goods? Comparative advantage refers to
producing a good at a lower opportunity cost. Even if one country can
produce everything more efficiently (absolute advantage), both countries
can benefit from trade by specializing in goods where they have a
comparative advantage. This specialization increases total production and
allows all countries to enjoy a greater variety and quantity of goods.
10. Explain Fisher's effect in the context of nominal and real
interest rates. What does it imply about the long-run relationship
between inflation and nominal interest rates? Fisher's effect states that
the nominal interest rate adjusts one-for-one with changes in the inflation
rate, leaving the real interest rate unaffected. In the long run, this implies
that if the central bank increases the money supply and causes higher
inflation, nominal interest rates will rise by the same amount, while the real
 interest rate, determined by supply and demand for loanable funds, remains
constant.

Essay Format Questions

1. Analyze the fundamental trade-off between efficiency and equity in
economic policy. Discuss how various government interventions (e.g.,
taxation, social welfare programs, price controls) attempt to address one or
both of these goals, and evaluate the potential unintended consequences or
challenges that arise.
2. Critically assess the statement: "Trade always makes everyone better off."
Using the concepts of consumer surplus, producer surplus, and deadweight
loss, illustrate how international trade, and conversely, trade restrictions like
tariffs or quotas, affect different groups within an economy.
3. Discuss the various forms of market failure identified in the text (e.g.,
monopolies, externalities, public goods, common resources, asymmetric
information). Choose two distinct types of market failure and, for each,
explain why the free market fails to allocate resources efficiently, and
propose potential government solutions, evaluating their strengths and
weaknesses.
4. Explain the short-run and long-run aggregate supply curves. How do
technological advancements and changes in expected price levels affect
each of these curves? Using the aggregate demand-aggregate supply model,
analyze the short-run and long-run effects of a significant increase in
government spending.
5. Examine the challenges in measuring key macroeconomic variables like GDP
and the cost of living (CPI). Discuss the limitations of these measures as
indicators of economic well-being or inflation. How do economists and
policymakers attempt to account for these limitations when making
decisions?

Glossary of Key Terms

 Agregatna Ponuda (Aggregate Supply): A curve showing the total
quantity of goods and services that firms produce and sell at any given price
level.
 Agregatna Tražnja (Aggregate Demand): A curve showing the total
quantity of goods and services demanded in the economy at any given price
level.
 Apsolutna Prednost (Absolute Advantage): The ability to produce a
good using fewer inputs than another producer.
 Arbitraža (Arbitrage): The process of taking advantage of price differences
in different markets.
 Asimetrična Informisanost (Asymmetric Information): A situation in
which one party in an economic transaction has more or better information
than the other party.
 Bekstvo Kapitala (Capital Flight): A large and sudden reduction in the
demand for assets located in a country.
 Bruto Domaći Proizvod (BDP) (Gross Domestic Product - GDP): The
market value of all final goods and services produced within a country in a
given period of time.
 Budžetsko Ograničenje (Budget Constraint): The limit on the
consumption bundles that a consumer can afford.
 Cena Zakupa (Rental Price): The price a person pays to use a factor of
production for a limited period of time.
 Cist Gubitak (Deadweight Loss): The fall in total surplus that results from
a market distortion, such as a tax.
 Ciklična Nezaposlenost (Cyclical Unemployment): The deviation of
unemployment from its natural rate.
 Depresija (Depression): A severe recession.
 Depresijacija (Depreciation): A decrease in the value of a currency as
measured by the amount of foreign currency it can buy.
 Diverzifikacija (Diversification): The reduction of risk achieved by
combining many individual risks.
 Dohodni Efekat (Income Effect): The change in consumption that results
when a price change moves the consumer to a higher or lower indifference
curve.
 Dominantna Strategija (Dominant Strategy): A strategy that is best for
a player in a game regardless of the strategies chosen by the other players.
 Ekonomija Obima (Economies of Scale): The property whereby long-run
average total cost falls as the quantity of output increases.
 Ekonomski Profit (Economic Profit): Total revenue minus total cost,
including both explicit and implicit costs.
 Elastičnost (Elasticity): A measure of the responsiveness of quantity
demanded or quantity supplied to a change in one of its determinants.
 Efekat Istiskivanja (Crowding-Out Effect): The reduction in aggregate
demand that results when a fiscal expansion raises the interest rate and
thereby reduces investment spending.
 Efikasne Nadnice (Efficiency Wages): Above-equilibrium wages paid by
firms to increase worker productivity.
 Eksternalija (Externality): The uncompensated impact of one person’s
actions on the well-being of a bystander. Can be positive or negative.
 Eksplicitni Troškovi (Explicit Costs): Input costs that require an outlay of
money by the firm.
 Erouova Teorema Nemogućnosti (Arrow's Impossibility Theorem): A
mathematical result showing that, under certain assumed conditions, no
 voting system can aggregate individual preferences into a valid set of social
preferences.
 Filipsova Kriva (Phillips Curve): A curve that shows the short-run trade-
off between inflation and unemployment.
 Fiskalna Politika (Fiscal Policy): The setting of the level of government
spending and taxation by government policymakers.
 Fizički Kapital (Physical Capital): The stock of equipment and structures
that are used to produce goods and services.
 Fiksni Troškovi (Fixed Costs): Costs that do not vary with the quantity of
output produced.
 Fundamentalna Analiza (Fundamental Analysis): The study of a
company's accounting statements and future prospects to determine its
value.
 Gifenovo Dobro (Giffen Good): A good for which an increase in the price
raises the quantity demanded.
 Granica Proizvodnih Mogućnosti (Production Possibilities Frontier):
A graph that shows the various combinations of output that the economy can
possibly produce given the available factors of production and the available
production technology.
 Granična Sklonost Potrošnji (Marginal Propensity to Consume -
MPC): The fraction of extra income that a household consumes rather than
saves.
 Granični Proizvod Rada (Marginal Product of Labor): The increase in
the amount of output from an additional unit of labor.
 Horizontalna Pravičnost (Horizontal Equity): The idea that taxpayers
with similar abilities to pay taxes should pay the same amount.
 Idiosinkratski Rizik (Idiosyncratic Risk): Risk that affects only a single
economic actor.
 Implicitni Troškovi (Implicit Costs): Input costs that do not require an
outlay of money by the firm.
 Indeks Cena Na Malo (ICM) (Consumer Price Index - CPI): A measure
of the overall cost of the goods and services bought by a typical consumer.
 Indeks Cena Proizvođača (Producer Price Index): A measure of the cost
of a basket of goods and services bought by firms.
 Indeksiranje (Indexing): The automatic correction by law or contract of a
dollar amount for the effects of inflation.
 Inflacioni Porez (Inflation Tax): The revenue the government raises by
creating money.
 Inflacija (Inflation): An increase in the overall level of prices in the
economy.
 Informaciono Efikasno Tržište (Informationally Efficient Market): A
market in which asset prices reflect all publicly available information about
the value of an asset.
 Investicije (Investment): Spending on new capital, such as equipment and
structures.
 Isključivost (Excludability): The property of a good whereby a person can
be prevented from using it.
 Izvoz (Exports): Goods and services produced domestically and sold
abroad.
 Javna Dobra (Public Goods): Goods that are neither excludable nor
rivalrous.
 Javno Vlasništvo (Public Ownership): A policy of government owning and
operating a monopoly.
 Kartel (Cartel): A group of firms acting in unison.
 Komparativna Prednost (Comparative Advantage): The ability to
produce a good at a lower opportunity cost than another producer.
 Kompetitivno Tržište (Competitive Market): A market with many buyers
and sellers trading identical products, so that each buyer and seller is a price
taker.
 Kriva Agregatne Ponude (Aggregate Supply Curve): See Agregatna
Ponuda.
 Kriva Agregatne Tražnje (Aggregate Demand Curve): See Agregatna
Tražnja.
 Kriva Indiferencije (Indifference Curve): A curve that shows
consumption bundles that give the consumer the same level of satisfaction.
 Kriva Ponude (Supply Curve): A graph of the relationship between the
price of a good and the quantity supplied.
 Kriva Tražnje (Demand Curve): A graph of the relationship between the
price of a good and the quantity demanded.
 Kupovna Cena (Purchase Price): The price a person pays to own a factor
of production indefinitely.
 Kvantitativna Teorija Novca (Quantity Theory of Money): A theory
stating that the quantity of money available determines the price level and
that the growth rate in the quantity of money available determines the
inflation rate.
 Kvote (Quotas): A quantitative limit on imports.
 Ljudski Kapital (Human Capital): The accumulation of investments in
people, such as education and on-the-job training.
 Maksimin Kriterijum (Maximin Criterion): The claim that the
government should aim to maximize the well-being of the worst-off person in
society.
 Manjak (Shortage): A situation in which quantity demanded is greater than
quantity supplied.
 Marginalna Stopa Supstitucije (Marginal Rate of Substitution - MRS):
The rate at which a consumer is willing to trade one good for another.
 Marginalni Proizvod (Marginal Product): The increase in output that
arises from an additional unit of input.
 Marginalni Trošak (Marginal Cost): The increase in total cost that arises
from an extra unit of production.
 Meni Troškovi (Menu Costs): The costs of changing prices.
 Minimalna Nadnica (Minimum Wage): The lowest wage per hour that a
worker may be paid.
 Monetarna Neutralnost (Monetary Neutrality): The proposition that
changes in the money supply do not affect real variables.
 Monetarna Politika (Monetary Policy): The setting of the money supply
by policymakers in the central bank.
 Monopol (Monopoly): A firm that is the sole seller of a product without
close substitutes.
 Monopolistička Konkurencija (Monopolistic Competition): A market
structure in which many firms sell products that are similar but not identical.
 Moralni Hazard (Moral Hazard): The problem that arises when one
person, the agent, is performing some task for another person, the principal,
and the principal cannot perfectly monitor the agent's behavior.
 Multiplikativni Efekat (Multiplier Effect): The additional shifts in
aggregate demand that result when expansionary fiscal policy increases
income and thereby increases consumer spending.
 Nacionalna Štednja (National Saving): The total income in the economy
that remains after paying for consumption and government purchases.
 Negativna Selekcija (Adverse Selection): A problem that arises in a
market when the seller has more information about the attributes of a good
than the buyer does.
 Nenovčani Transferi (In-Kind Transfers): Aid to the poor in the form of
goods and services rather than cash.
 Nepovratni Trošak (Sunk Cost): A cost that has already been committed
and cannot be recovered.
 Neto Izvoz (Net Exports): The value of a nation's exports minus the value
of its imports; also called the trade balance.
 Neto Odliv Kapitala (Net Capital Outflow): The purchase of foreign
assets by domestic residents minus the purchase of domestic assets by
foreigners.
 Nezaposlenost (Unemployment): The state of being without a job but
actively searching for one.
 Nominalna Kamatna Stopa (Nominal Interest Rate): The interest rate
as usually reported without a correction for the effects of inflation.
 Nominalni BDP (Nominal GDP): The production of goods and services
valued at current prices.
 Nominalni Devizni Kurs (Nominal Exchange Rate): The rate at which a
person can trade the currency of one country for the currency of another.
 Normalno Dobro (Normal Good): A good for which, other things equal, an
increase in income leads to an increase in quantity demanded.
 Oligopol (Oligopoly): A market structure in which only a few sellers offer
similar or identical products.
 Oportunitetni Trošak (Opportunity Cost): Whatever must be given up to
obtain some item.
 Paušalni Porez (Lump-Sum Tax): A tax that is the same amount for every
person, regardless of income or actions.
 Savršeni Komplementi (Perfect Complements): Two goods for which
the indifference curves are right angles.
 Savršeni Supstituti (Perfect Substitutes): Two goods for which the
consumer's indifference curves are straight lines.
 Signalizovanje (Signaling): Action taken by an informed party to reveal
private information to an uninformed party.
 Stopa Inflacije (Inflation Rate): The percentage change in the price index
from the preceding period.
 Stopa Nezaposlenosti (Unemployment Rate): The percentage of the
labor force that is unemployed.
 Stopa Učešća u Radnoj Snazi (Labor-Force Participation Rate): The
percentage of the adult population that is in the labor force.
 Strukturna Nezaposlenost (Structural Unemployment):
Unemployment that results because the number of jobs available in some
labor markets is insufficient to provide a job for everyone who wants one.
 Supstitucioni Efekat (Substitution Effect): The change in consumption
that results when a price change rotates the budget constraint around the
original indifference curve.
 Svetska Cena (World Price): The price of a good that prevails in the world
market for that good.
 Tragedija Zajedničkog Poseda (Tragedy of the Commons): A parable
that illustrates why common resources are used more than is desirable from
the standpoint of society as a whole.
 Tržišta (Markets): A group of buyers and sellers of a particular good or
service.
 Tržišna Moć (Market Power): The ability of a single economic actor (or
small group of actors) to have a substantial influence on market prices.
 Tražena Količina (Quantity Demanded): The amount of a good that
buyers are willing and able to purchase.
 Traženje Posla (Job Search): The process by which workers find
appropriate jobs given their tastes and skills.
 Ukupni Prihod (Total Revenue): The amount received by a firm from the
sale of its output.
 Ukupni Trošak (Total Cost): The market value of all the inputs a firm uses
in production.
 Utilitarizam (Utilitarianism): The political philosophy according to which
the government should choose policies to maximize the total utility of all in
society.
 Uvozna Kvota (Import Quota): A limit on the quantity of a good that can
be produced abroad and sold domestically.
 Uvoz (Imports): Goods and services produced abroad and sold
domestically.
 Veličina Poreskog Tereta (Tax Incidence): The manner in which the
burden of a tax is shared among participants in a market.
 Varijabilni Troškovi (Variable Costs): Costs that vary with the quantity of
output produced.
 Vertikalna Pravičnost (Vertical Equity): The idea that taxpayers with a
greater ability to pay taxes should pay larger amounts.
 Visak (Surplus): A situation in which quantity supplied is greater than
quantity demanded.
 Vrednost Marginalnog Proizvoda (Value of the Marginal Product):
The marginal product of an input multiplied by the price of the output.
 Zajednički Resursi (Common Resources): Goods that are rivalrous but
not excludable.
 Zakon Jedne Cene (Law of One Price): The notion that a good must sell
for the same price in all locations.
 Zakon Ponude (Law of Supply): The claim that, other things equal, the
quantity supplied of a good rises when the price of the good rises.
 Zakon Ponude i Tražnje (Law of Supply and Demand): The claim that
the price of any good adjusts to bring the quantity supplied and quantity
demanded for that good into balance.
 Zakon Tražnje (Law of Demand): The claim that, other things equal, the
quantity demanded of a good falls when the price of the good rises.
 Zatvorena Privreda (Closed Economy): An economy that does not
interact with other economies in the world.
 Zatvorenikova Dilema (Prisoner's Dilemma): A particular game between
two captured prisoners that illustrates why cooperation is difficult to
maintain even when it is mutually beneficial.
 Životni Standard (Standard of Living): The level of wealth, comfort,
material goods, and necessities available to a certain socioeconomic class or
a certain geographic area.

NotebookLM can be inaccurate; please double check its responses.

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