Microeconomics 13 Flashcards

Terms Definitions
Command System
-homo or hetero product(oil/cars)-barriers to entry(econ of scale, brand loyalty, scarcity of resources, licenses)
Where is profit maximization reached?
Define: Productivity
Output produced per unit
Supply Curve
A curve illustrating supply.
Profit maximizing rule(perf comp)
produce where mc=mr
Corporation disadvantages
-double taxed-separation of ownership and management-typical owner(stockholder) has little or no voice in decisions-failure to earn a normal rate of return can endanger the existence of a firm-profits provide funds for expansion
Chapter 3
Stock and flow variablesCeteris Paribus or "other things being equal"Quantity DemandedDemand schedule and demand curveChange in quantity demanded versus change in demandQuantity suppliedSupply schedule and supply curveChange in quantity supplied versus change in supplyEquilibrium, equilibrium price, and disequilibriumComparative staticsRelative price
An example of a bad is
Complementary resources-
Productive inputs that are used jointly with other inputs in the production process; resources for which a decrease in the price of one leads to an increase in the demand for the other. Most Immigrants are complementary resources.
charachteristics of ppf
-2 goods -fixed resources/ technology-full employment -full efficiency -fixed period of time -no $value
The body of skills and knowledge available to produce and /or distribute a good or service. An advance in technology commonly refers to the ability to produce more output with a fixed amount of resources or the ability to produce the same output with fewer resources.
income rises = drop in demand 
income drops = rise in demand 
Price War
Successive and continued decreases in the prices charged by firms in an oligopolistic industry. Each firm lowers its price below rivals' prices, hoping to increase its sales and revenues at its rivals' expense.
Demand Curve
The graphical representation of the relationship between quantity demanded and the price of a commodity, other things being equal
Economists normally assume that the goal of a firm is to...
maximize profit
Capital or Capital Goods
Human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; also called capital goods.
any senificant improvement in a good or in the means of producing a good
Renewable natural resources-
forests, wildlife, Solar energy, the atmosphere, the ocean. Able to renew itself and leaves the possibility of providing its benefits in perpetuity.
elasticity of supply
the different outcomes arise from differing degrees of responsiveness of the quantity supplied to a change in price
FED funds rate
(.17%) interest rate banks charge other banks for overnight loan of $1,000,000 or more.
Income Effect
The change in consumption that results when a price change moves the consumer to a higher or lower indifference curve 
the study of how people make choices under conditions of scarcity and of the results of those choices for society.
Partnership definition
exist when two or more persons together own a business enterprise and make a formal or informal agreement b/t the partners as to how the business is to be operated and how profits are to be distributed.
Demand Shifters (5)
Income, number of buyers, expectations of higher prices, taste and preferences, and price of substitutes and compliments
Exogenous Variable
A variable that is determined outside the theory. Sometimes called an autonomous variable or an independent variable
Price Discrimination
when a firm charges different groups of customers different prices for the same good or service
Who Will Get the Output?
nConsumers’ ability and willingness to pay the price charged
nAmount of income that consumers have (budget constraint), compared with prices, and preferences, determines what is purchased.
Quasi-public goods
A good or service to which excludability could apply but that has such a large positive externality that government sponsors its production to prevent an under-allocation of resources.
Comparative advantage
Ability of an individual, firm, or country to produce a good or service at a loer opportunity cost than competitors.
Extraction costs-
Cost of production. In a coal company, all costs associated with running the mine, digging out the coal, and preparing the coal for sale
The effect of a transaction on a third party
change in Qs
point to point movement along single supply curve
Price Floors
minimum price below which the price of a good or service is not permitted to drop
"Other Things Equal Assumption"
all other relevant factors remain the same
Barrier to entry
anything that impedes the ability of firms to begin a new business in an industry in which             existing firms are earning positive economic profits
Durable Goods
A consumer good with an expected life (use) of three or more years.
all sellers are price takers, no one can influence market price
perfect competition
Opportunity Cost
The value of the next best alternative to an action
The uninsured-
15% of Americans. Most of who live in poverty have excellent health; have very poor health, workers for small firms, and the unemployed.
When does a surplus occur?
Whenever quantity supplied is greater then quantity demanded
Giffen Good 
A good for which an increase in the price raises the quantity demanded 
what is the relative price?
differs from the ordinary price in terms of dollars, because buying one more R requires giving up PR/PM quantity of M we can interpret the relative price PR/PM as the rate at which one R trades for one M in the market
at the optimal consumption bundle, the marinal rate of substitution between two goods is equal to their relative price
a change in relative price will lead to a change in slope of the budget line
If MR < MC, then __ q to max profit.
Average Variable Cost (AVC)
Total variable costs divided b the number of units of output
Productive Efficiency
The production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs
Price floor must be
above the equilibrium price to be effective
Fallacy of Composition
What is true for one is not always true for the whole.
Marginal Rate of Substitution 
The rate at which a consumer is willing to trade one good for another 
Marginal Revenue Product (MRP)
The change in a firm's total revenue when it employs 1 additional unit of a resource (the quantity of all other resources employed remaining constant); equal to the change in total revenue divided by the change in the quantity of the resource employed.
Functional distribution of income
The manner in which national income is divided among the functions performed to earn it (or the kinds of resource provided to earn it); the division of national income into wages and salaries, proprietors’ income, corporate profits, interest, and rent.
kink to demand curve theory
everyone will follow if you lower but not higher prices
Diminishing marginal product suggests that the marginal...
product of an extra worker is less than the previous worker's marginal product
law of diminishing marginal returns
as the use of an input increases in equal increments (other inputs fixed), a point will eventually be reached at which the resulting additions to output decrease
2 characteristics of supply and demand equilbria
1) a market at equilibrium will stay at equilibrium unless distrubed by outside forces that shift the supply or demand curves 2) a market not at equilibrium will move toward equilibrium
The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses and many sellers have left the industry. Economic theory suggests that these conditions will....
cause the market supply to decline and the price of textiles to rise.
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