Microeconomics 2 Flashcards

Terms Definitions
Nikki(japan)
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Positive Economics
Absolute facts.
Define: Utility
Value or Benefit
price too low its a..
shortage
MC = MR
Profit Maximization Point
_______ goods and services are consumed in the current period (IA1)
consumer
Externality 
The uncompensated impact of one person's actions on the well-being of bystanders 
Electricity cost. Implicit or Explicit
Explicit
universal ecnoomic problem
limited income; unlimited wants
circular-flow diagram
model that illustrates howparticipants in markets are linked.
The Physical PPF
Illustrates the (1) different combinations of goods the economy can produce given the physical constraints of (2) finite resources and (3) the current state of technology
externalities rule
market tends to underproduce goods that have a posi externality and overproduce goods that have a negative externality
Economics
A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants. Economics can generally be broken down into: macroeconomics, which concentrates on the behavior of the aggregate economy; and microeconomics, which focuses on individual consumers. Economics is often referred to as "the dismal science".
Corporation advantages
-can continue indefinitely w/o and change in its legal status-if one of the owners dies or decides to sell his interest in the firm, it will NOT affect the status of the corporation.-access to large amounts of capital necessary for efficient operation
if P > AVC...
good. stay in business.
Deadweight loss
the reduction of consumer surplus without a corresponding increase in profit when a perfectly competitive firm is monopolized
For negative externalities
 direct controls (pass legislation limiting an activity) and specific taxes can be used to counter the spillover costs
Jeremy Bentham
developed a philosphy known as utilitarianism which said that society should act to provide the greatest good for the greatest number. They hoped to invent a utilometer to measure utility
If economic theories are solidly based on relevant facts, then appropriate economic policy becomes obvious and uncontroversial
FALSE
Incentive
That they weigh the costs and benefits rationally
Economic Profit
TR - (explicit + implicit + depreciation) = Profit
mixed economy
combo of command and complete market; some regulation for fairness and some freedom
Business
is an individual or group that works to produce a certain good or service.
 
SUBSTITUTES 
 
price rises = drop in demand but increases demand for substitute 
explicit costs
input costs that require a monetary payment
Law of Diminishing Marginal Utility
MU always eventually decreases
Short-Run Equilibrium
For a competitive industry, the price and output at which industry and demand equals short-run industry supply, and all firms are maximizing their profits. Either profits or losses for individual firms are possible
If CPE is positive, the goods are ______.
Substitutes
Doha Round
The latest, uncompleted (as of All 2006) sequence of trade negotiations by members of the World Trade Organization; named after Doha, Qatar, where the set of negotiations began.
Normal Good
an INCREASE in income leads to INCREASE in demand.
optimal consumption bundle
the consumption bundle that maximizes the consumer's total utility given his or her budget constraint.
government infrastructure... 3 parts
legal system for private property, contracts, and corporations, physical infrastructure of roads and sanitation, and nation defense and police protection
positive/negative income elasticity
*Greater than 1 (normal good, income elastic)*Positive and less than 1 (normal good, income inelastic)*negative (inferior good)
Variable Costs
costs that do vary with the quantity of output produced
Pure Monopoly
A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.
Net Present Value =
$ X (1/((1+r)^t) = Real Value
Fast-Second Strategy
An approach by a dominant firm in which it allows other firms in its industry to bear the risk of innovation and then quickly becomes the second firm to offer any successful new product or adopt any improved production process.
Consumption
The act of using goods or services to satisfy wants
Factors that shift Demand
Income, Prices of substitutes or compliments, Tastes, expectations, number of buyers
Payroll taxes
A tax levied on employers of labor equal to a percentage of all or part of the wages and salaries paid by them and on employees equal to a percentage of all or part of the wages and salaries received by them.
If income elasiticity of demand is greater than zero, the good is
a normal good
marginal utilty per dollar
the additional utility frm spending one more dollar on that good or service
Production Possibilities Table
A table that shows all combinations of goods and services that can be produced given the resources of societ and the existing state of technology
price leadership(tacit collusion)
firm that can survive price war sets the price(saudi arabia in opec)
Break-Even Point
An output at which a firm makes a normal profit (total revenue = total cost) but not an economic profit.
An indifference cuve shows
the different combinations of 2 goods that generate the same level of utility or satisfaction
Average Variable Cost (AVC)
variable cost divided by the quantity of output produced.
 
AVC = VC / Q 
Most-favored customer (MFC)
a customer who receives a guarantee of the lowest price and all product  features for a certain period of time
Income Effect
A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product’s price.
fixed input
an input whose quantity is fixed for a period of time and cannot be varied
Government's war on drugs
-large Q of illegal drugs were seized and traffickers arrested. decreasing the supply of illegal drugs.-P went up causing more less-severe crimes to occur to make up for the P change.
Price Elasticity of Supply (ns)
A measure of the responsiveness of quantity supplied to a change in the product's own price
Price elasticity of Demand
Shows how sensitive quanity is to a change in priceShows the approximate percentage change in quantity demanded per one per cent change in price
what goods and services does the substitution effect influence?
the majority of goods and services
 
most market demand curves slope downward soley because of the substitution effect
Change in Quantity Supplied
A change in the amount of a product that producers offer for sale because of a change in the product's price.
What are the characteristics of a Perfectly Competitive Market?
Number of firms: Has the most firmsControl over Price: NoneProduct Differences: NoneBarriers to Entry: NoneExample: Wheat
What are necessary characteristics of a monopoly?
The firm is the sole seller of its product.The firm's product does not have close substitutes
How is price determined for firms in a competitive market?
The market sets the price at the intersection of S and D, and the firm follows.
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