Vocabulary Microeconomics and Flashcards

Terms Definitions
Inelastic
E
Chapter 5
Partial-equilibrium analysisGeneral-Equilibrium analysisPrice controls: floors and ceilingsAllocation by sellers' preferences and by black marketsRent controlsShort-run and long-run supply curves of rental accommodationsEconomic surplusMarket efficiency Inefficiency of price controls and production quotas
equation of accounting profit
TR-EC
other goods determinants
1. complements2. substitutes
econmic profit =
revenue - cost
elasticities of supply
*perfectly elastic- infinite*elastic- less than infinite but >1*inelastic- >0 but *perfectly inelastic- zero
Determinants of supply
Resource prices
Technology
Taxes & Subsidies
Price of other goods
Price expectations
Number of sellers
Utility
the enjoyment or satisfaction that people receive from consuming goods and services
Firm
An organization that employs resources to produce a good or service for profit and owns and operates one or more plants.
Generally speaking, the larger the number of firms in an oligopolistic industry, the more difficult it is for those firms to collude
TRUE
elasticity of supply
(percentage change in quantity supplied)/(percentage change in price)
total cost
total economic cost of production, consisting of fixed and variable costs
microeconomics
the study of individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets
Capital Goods
Human-made resources used to pruduce goods and services; goods that do not directly satisfy human wants; also called capital
ATC < P = profit __ 0.
<,>,=
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Offshoring
the process in which one firm purchases services from another firm in another country (rather than having the services performed in-house)
Bond
A financial device through which a borrower (a firm or government) is obligated to pay the principal and interest on a loan at a specific date in the future.
exports
products that a country sells to other countries
When a consumer is maximizing total utility, he or she cannot increase total utility by reallocating expenditures among different products
FALSE
perfectly elastic supply
Price elasticity of supply is infinite.
Open economy
an economy that trades with other countries
3 things impact elasticity
1. availability of substitutes2. necessity or luxury?3. time
Marginal Revenue
The change in total revenue that results from the sale of 1 additional unit of a firm's product; equal to the change in total revenue divided by the change in the quantity of the product sold.
 
PROPERTY RIGHTS
 
a system in which valuable items in the economy have specific owners who can dispose of them as they choose
Elastic
E is greater than one (Change in quantity> change in price)
Law of Demand
the inverse relationship between price and quantity demanded. As the price of a good falls (will everything assumed to be held constant), the quantity demanded increases.
Minimum Wage
The lowest wage that employers may legally pay for an hour of work.
Normal Goods
A good or service whose consumption increases when income increases and falls wehn income decreases, price remaining constant.
flow or resources
competitive firms produce in the manner that minimizes costs and maximizes profits
In the short run a pure monopolist will charge the highest price the market will bear for its product
FALSE
Opportunity Cost
The quantity of other goods that must be given up to obtain a good.
Exchange Rates
The rate of exchange of one nation's currency for another nation's currency.
marginal cost using the wage rate
MC=w/MPLw=wage rageMPL=(change in L)/(change in q)
Marginal value
Height of demand curve at point at which the last unit was purchased.
implicit costs
do not represent an explicit outlay of money, but they are still real, representing the implicit opportunity costs of alternatives that must be forgone (road not taken)
Absolute Advantage
the ability to produce a good or service with fewer resources than another person, country or region.
Partial-Equilibrium Analysis
The analysis of a single market in isolation, ignoring any feedbacks that may come from induced changes in other markets
Variable costs are
costs that do change with quantity; ex. labor
Positive Economics
The analysis of facts or data to establish scientific generalizations about economic behavior.
Equimarginal Principle orConsumer Equilibrium
to maximize utility, consumers must allocate their scarce incomes among goods so as to equate the marginal utilities per dollar of expenditure on the last unit of each good purchased.1~(MU)/P= 2~(MU)/P
budget constraint
requires that the cost of a cnsumer's consumption bundle be no more than the consumer's income
Law of Demand  
The higher the price, the smaller the quantity demanded, (everything else held fixed)
2 reasons for diseconomies of scale
1. coordination and communication probs2. inefficiency due to increased level of bureaucracy
Opportunity cost of production
Sum of producer's cost of each resource used to produce a good, including the alternative uses for those resources--buildings, equipment, financial resources.
diminishing marginal product
stems from the crowding of the fixed input/resource with more and more of the variable input/resource
Substitution Effect
The change in the quantity of a good demanded resulting from a change in its relative price (holding real income constant)
Transfer earnings
the amount that must be paid to a resource owner to get him or her to allocate the resource to another use
Efficiency Losses (or deadweight losses)
Reductions in combined consumer and producer surplus caused by an under-allocation or over-allocation of resources to the production of a good or service.
Determinants of PED
- number of substitutes: high number more elastic
- necessity of the product: the more necessary more inelastic like food people are still going to buy it even if expensive
- the time period considered: short term things are more inelastic
Credible threat
a threat to take action that is in the threatener's interest to take out
What are the three total costs?
Total Cost (TC)Fixed Cost (FC)Variable Cost (VC)
Assuming that oligopolists do not have the opportunity to collude, once they have reached the Nash Equilibrium, it always in their best interest to...
leave their quantities supplied unchanged
short-run industry supply curve
shows how the quantity supplied by an undustry dpends ont eh market price given a fixed number of producers
4 Things for Perfect Competition to Occur
1: Many (Infinite) Buyers and Sellers2: All firms are price takers (Can't set their own price)3: homogenous products4: Free entry and exit into industry
How do you calculate average variable cost?
total variable cost over output level
A market demand curve shows...
how much of a good all buyers are willing and able to buy at each possible price.
When the amount added to total cost is less than the current average total cost
ATC will fall, and vice versa
What is the Price elasticity for the situation below?$2.00 - $3.00 = 40% Change in price100 – 200 67% Change in quantityIs this Elastic or Inelastic?
Es= %change in q / % change in p67/40= 1.675 if elasticity is greater than or equal to one, the curve is considered to be elastic. If it is less than one, the curve is said to be inelastic.So this is Elastic
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