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IndexCardTemplate Exam2

# Consumer equilibrium is located where the

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Consumer equilibrium is located where the indifference curve is tangent to the budget line. 3 things change the budget line: change in price of product A or B or income. Stocks are actual shares of the ownership of a company. Usually pays dividends to stockholders. Infinite life. Gain: dividends or capital gains. PE ratio =price/earnings. PE=33, then for every \$1 of earnings, investors are willing to pay \$33. DIV YLD% =dividend/pricex100. Market cap represents the price X issued shares. When you invest in a mutual fund , you are giving somebody else your money to invest for you. Short selling refers to borrowing stock, selling it, hoping the price will drop, and then buying it at the lower price to re-pay the shares you owe. Put options give the holder the right (but not the obligation) to sell a share of stock at a given price during a specified period. Only useful if you think the stock price is going to rise. Options trading is riskier, but it has the potential to yield great rewards. Stock prices are affected by two things: expected return and perceived risk. Both S and D curve shift. Stock market is an efficient market , meaning all available info is incorporated into stock prices. Only new info can affect stock prices. In the short run , the only way firms can increase production is by increasing labor. In the long run , they can achieve this by changing L or K. TC=FC+VC. AFC=FC/Q. AVC=VC/Q. ATC=TC/Q. ATC=AFC+AVC or TC/Q=FC/Q+VC/Q. MC=change in total cost/change in quantity. MP L =change in quantity/change in labor. MR=TR 2 -TR 1 . When Q=0, VC=0 and TC=FC. Graph: MC curve crosses through ATC curve at min. Exemplifies the Avg/Marginal relationship - if MC>ATC, then ATC will rise. Vertical distance b/w ATC and AVC=AFC. This amt decreases as we increase the quantity. Min for MC comes before min for AVC, which comes before min for ATC. All
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