Microeconomics Final Flashcards

Terms Definitions
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elastic
Microeconomics
Individual Decision Making
DEMAND CHANGE:
TIPSE
 
TASTE INCREASE
 
demand increase 
economic profits
total rev-econ opp cost
Explicit
Shows exact relationship between variables
Capital
Goods used to make other goods
Economics and Efficiency
(maximize unlimited wants)
Full employment
Full production
Production efficiency
Allocation efficiency
accounting profit =
revenue - explicit cost
elastic
consumers are highly responsive to price changes; more horizontal
budget line
shows the consumption bundles available to a consumer who spends all of his or her income
opportunity Cost  
What you sacrifice to get something
expansion path
curve passing through points of tangency between firms isocost and isoquant lines
Determinants of demand
Tastes and preferences
Number of buyers
Incomes
Prices of related goods
Expectations
Government Agencies that enforce anti-trust laws
FTC and DOJ
P<= AVC
cannot cover cost. shut down point.
Facilitating practices
actions by oligopolistic firms that can contribute to cooperation and collusion even though the firms do not formally agree to cooperate
Economic theory
evolves from a hypothesis that accumulates favorable results after continued testing against the facts
Elasticity
is a measure of reponsiveness. It measures how sensitive an economic variable is to a change in anouther economic variable
Because of their large-scale level of production, pure monopolists over-allocate resources to their industry by producing beyond the P=MC output
FALSE
Normative
The economic of what should be. This is economics where one's opinion is offered.
Sunk Cost
Expenditure that has been made and cannot be recovered. Because it cannot be recovered it should not influence the firms decisions. No alternative use = No opportunity cost. (Ex. R & D)
merit goods
society deems everyone should have a minimum of this
People who impacted/shaped economics
Adam Smith
David Ricardo
John Stuart Mill
Karl Marx
John Mayhard Keynes
DEMAND CHANGE:
TIPSE
 
Substitute/Compliment
 
Sub price increase = increase in demand
 
com price increases = drop in demand
what is left over from accounting profits after a firm has subtracted its implicit cost
Economic Profits
fixed cost
costs that do not vary with output
Principle of Substitution
The principle that methods of production will change if relative prices of inputs change with relatively more of the cheaper input and relatively less of the more expensive input being used
Equilibrium Quantity
(1) The quantity demanded and supplied at the equilibrium price in a competitive market; (2) the profit-maximizing output of a firm
Utility
The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services).
normative analysis
analysis of what ought to be. conclusion based on opinion or value judgements do not advance one's understanding of events...hmmmm
An economy will always operate at some point on its production possibilities curve
FALSE
Diseconomies of Scale
The situation when a firm's long-run average costs rise as the firm increases output
Production Possibility frontier
Shows the trade-offs a country must make if it is already using all its productive resources but wants to make more of one good. In general, societies can not go past their production possibility frontier. Being with PPF is a waste of resources Points along the curve describe the opportunity cost between two goods
Total Revenue
the amount a firm receives for the sale of its output
Economic System
The way in which society decides what goods to produce, how to produce them, and for whom the goods will be produced.
Which type of Cost is zero when production is zero?
Variable Cost
Long run
any period of time where all inputs are variables
Traditional Economy
An economy in which behaviour is based mostly on tradition
Appreciation
An increase in the value of the dollar relative to the currency of another nation, so a dollar buys a larger amount of the foreign currency and thus of foreign goods.
Comparitive advantage
the ability to produce a good or service at a lower opportunity cost that someone else
average fixed cost
the fixed cost per unit of output
Normal Good
A good for which an increase in income increases demand
profit maximizing rule
if P > MC, increase production; if P
Fallacy of Composition
what is good for the individual is good or true for the group or society.
What is product differentiation?
is the process of distinguishing the differences of a product or offering from others, to make it more attractive to a particular target market.
Relative Price
The ratio of the money price of one commodity tot he money price of another commodity; that is, a ratio of two absolute prices
Index fund
a mutual fund that tries to match the performance of a broad market index
Personal distribution of income
The manner in which the economy’s personal or disposable income is divided among different income classes or different households or families.
elastic demand
PED1
and demand curve is not steep. leads to larger change in quantity demanded with change in price.
Law of supply
Firms produce less of a good as its price falls and more of a good as its price increases
Implicit Costs (For making a chair)
What's your Opportunity Cost? What's the next best thing you could've been doing?
When demand is inelastic, a decrease in price will cause....
a decrease in total revenue
Define Post Hoc Fallacy
Idea that the first event causes the second event to occurex: sending christmas cards causes christmas
How do you find the optimal bundle using the tangency condition?
1. use (QRxPR)+(QMxPM)=N
where N stands for income, R represents one good and M represents another good
2. to find the slope of the budget line, divide its vertical intercept by its horizontal intercept, the vertical intercept is the point where all income is spent on one good (QR=0), solve for QM and then do the opposite to solve for QR
3. slope of the buget line = -(vertical intercept)/(horizontal intercept)
((N/PM)/(N/PR))=-(PR/PM)
Change in Quantity Demanded
A change in the amount of a product that consumers are willing and able to purchase because of a change in the product’s price.
what are some Limits to Monopoly Power
the government or from the market itself
What is the formula for Income Elasticity?
% change in QD/ % change in income
If the absolute value of the price elasticity of demand is greater than one
then we say the demand for this good is elastic
total revenue(TR)
p*q
Tariff
tax on imported good
consumption
household spending. housing, transportation, food, entertainment, and other goods and services. $6.7tril in 2000
Ceteris Paribus
other things being equal.
Demand Curve
A curve illustrating demand.
MR
difference between next levels of TR
 
INCENTIVES
 
when changes in the available opportunities offer rewards to those who change their behavior 
Disparate treatment
different treatment of individuals because of their race, sex, color, religion, or national origin
Rational People
people who systematically and purposefully do the best they can to achieve their objectives.
Rule of reason-
Only combinations and contracts unreasonably restraining trade are subject to actions under the antitrust laws and that size and possession of monopoly power are not illegal.
tit-for-tat
a strategy for the repeated prisoner's dilemma, in which players cooperate on the first move, them mimic the other partners last move, for each successive move
Economics
Social science that deals with people & their decisions. Scarce resources & unlimited wants.
 
Economy Sources:
 
land, labor, capital & human capital
Simultaneous Consumption
The same-time derivation of utility from some product by a large number of consumers.
Cost minimization
An implication of profit maximization that firms choose the production method that produces any given level of output at the lowest possible cost
Characteristics of Competitive Markets
many firms/many buyersidentical productsno barriers to entryeveryone is well informed
propertyrights
the rights individuals or firms have to theexclusive use of their property, the right to buy or sell it.
Compensating wage differential-
wage premium to compensate for undesirable work.
Price elasticity of supply
Measures the responsiveness of quantity supplied to changes in price
Total-Revenue Test
A test to determine elasticity of demand between any two prices: Demand is elastic if total revenue moves in the opposite direction from price; it is inelastic when it moves in the same direction as price; and it is of unitary elasticity when it doesn't change when price changes.
Utility-Maximizing Rule
The principle that to obtain the greatest utility, the consumer should allocate money income so that the last dollar spent on each good or service yields the same marginal utility.
In a Continuous Setting
Marginal Benefit = Marginal Cost
marginal cost
the change in total cost resulting from a one-unit change in output; the change in total cost divided by the change in output, or MC=
Non-Cooperative Outcome
An industry outcome reached when firms maximize their own profit without cooperating with other firms
Derived demand
demand stemming from what a resource can produce, not demand for the resource itself
Private Property
individuals and firms own and control land, capital, and other property
economic varible
something measureable that can have 2 different values&#13;&#10;ex. the wages of software programers
Standard Oil case (1911)-
found guilty of monopolizing the petroleum industry through abusive and anticompetitive actions. Is every monopoly in violation of section 2 of the Sherman Act of just those created or maintained by anticompetitive actions?
Complements
Two goods that are related in such a way that an increase in the price of one good decreases the demand for the other good.
change in Qd
point to point movement along single demand curve. just price changes
when does MUx/Px = MUy/Py?
at the optimal consumption bundle
 
where the two curves cross on a graph of marginal utility per dollar of the two goods over quantity of the goods
Rule #5
When the total curve is increasing at a decreasing rate, the marginal curve is falling
Marginal Product (MP)
The additional output produced when 1 additional unit of a resource is employed (the quantity of all other resources employed remaining constant); equal to the change in total product divided by the change in the quantity of a resouce employed.
Profit is maximized when ___ = ___
MR = MC
Supply Schedule
A schedule showing the amounts of a good or service that sellers will offer at various prices during some period.
If the marginal revenue is less than the marginal cost in a perfect competition, what should the firm do?
produce more
economic efficiency
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of produciton and in which the sum of consumer surplus and producer surplus is at maximum
Total fertility rate-
the average number of children that a woman is expected to have during her lifetime.
Increasing returns to scale
Situation in which output more than doubles when all inputs are doubled.
Marginal Utility per Dollar Spent
the additional utility from spending one more dollar on a good or service
 
am I better off by spending another dollar and, if so, by how much?
Inverted-U Theory Of R&D
A theory saying that, other things equal, R&D expenditures as a percentage of sales rise with industry concentration, reach a peak at a four-firm concentration ratio of about 50 percent, and then fall as concentration further increases.
Increasing Returns (to scale)
A situation in which output increases more than in proportion to inputs as the scale of a firm's production increases. A firm in this situation is a decreasing-cost firm
Diminishing marginal product
the point where MPL is no longer increasing, but actually decreasing
Per cent of budeget
Less expensive items tend to have more inelastic demand
Opportunity-cost ratio (the domestic exchange ratio)-
An equivalency showing the number of units of two products that can be produced with the same resources.
price ceiling
gov't set max price for a good; if set below EP = shortage
MARGINAL COSTy=mx + b
the slope of the horizontal good the mc of the vertical good is the inverse of the slop of the horizontal good I1/slopeI
What Will Be Produced?
The goods and services created at a continuing profit will be produced.  Those producing at a continuing loss will not
the labor market and minimum wage
*a decrease in the demand for low-skilled labor lowers the wage rate and reduces employment*lower wage rate encourages ppl w low skills to acquire more skills, in long run raises wages for low-skilled labor*a min wage set above the equilibrium wage rate creates unemployment*minimum wage hits low-skilled young ppl hardest
Average Total Cost (ATC)
the sum of the average fixed cost plus the average variable cost.
 
ATC = AFC + AVC 
Production Function - Special Case - Perfect Substitutes
When the isoquants are straight lines, the MRTS is constant. Thus the rate at which capital and labor can be substituted for each other is the same no matter what level of inputs is being used.
The particular price that results in QS being equal to QD is the best price because...
it maximizes the combined welfare of buyers and sellers
If marginal utility per dollar spent on X is high than marginal utility per dollar spent on Y then what should the consumer be comsuming more off and what should they consume less of?
they should consume less of Y and more of X
 
by spending more on X they can add a large number of utils to their total utility; meanwhile by spending less on Y they will decrease a small number of utils from their total utility because marginal utility per dollar spent is higher for good X than for good Y
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