Microeconomics Midterm Flashcards

Terms Definitions
Define: Profit
Attracts resources
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did the portfolio make money
Factors of production (a.k.a. inputs)
income (IA1)
primary resources available for current consumption
represents ownership in a corporation; the more stock one owns, the larger the amount of the company owned
Intersection of supply and demand. Most efficient point.
Production Possibilities Model
nFixed amount resources
nFixed technology
nOnly two goods are produced
nFull employment of all resources
free market
market with few government restrictions on how a good or service can be produced or sold or how a factor of production can be employed.
Demand Schedule
A table showing the relationship between the price of a good and the quanity demanded per period of time, (ceteris paribus).
lack of enough resources to satisfy all desired uses
A level of performance that describes a process that uses the lowest amount of inputs to create the greatest amount of outputs. Efficiency relates to the use of all inputs in producing any given output, including personal time and energy.
Partnership advantages
-relatively easy to set up-provides easier access to funds than a proprietorship-not double taxed
ATC = P = profit __ 0.
Equity capital
ownership; funds investors or owners put into a firm
Circular Flow Model
Describes how goods/services and income flows in a Market System

Two major components:
n  Resource Market
n  Product Market
A unit used to measure utility- arbitrary
After all long run adjustments have been completed, a firm in a competitive industry will produce that level of output where average total cost is at a minimum
The economics of what is. This is descriptive of fact and theory without opinion.
Accounting Profit
TR - (explicit + depreciation) = Profit
minimum price at which a seller is willing to sell a good
is the study of how these economic actors make decisions and are impacted by the allocation of resources.
rise in demand when rice in income 
variable costs (VC)
vary with the level of output
Law of Diminishing Return
marginal product always eventually declines
Elastic Demand
Following a given percentage change in price, there is a greater percentage change in quantity demanded; elasticity less than 1
Elasticity of Demand
Measures how much the quantity demanded responds to a change in price; how willing consumers are to buy less of a good as the price of that good rises
Public goods
A good or service that is characterized by non-rivalry and non-excludability; a good or service with these characterized provided by government.
Quantity Supplied
amount that sellers are willing and able to sell.
barrier to entry
something that prevents others firms from entering the industry (monpolies need one)
_____ and ______ combine to create consumer and producer goods
capital and labor
producer surplus
the price received for a good minus its minimum supply-price (or marginal cost), summer over the quantity sold
Constant Returns to Scale
the property whereby long-run average total cost stays the same as the quantity of output changes
Pure Competition
A market structure in which a very large number of firms sells a standardized product, into which entry is very easy, in which the individual seller has no control over the product price, and in which there is no nonprice competition; a market characterized by a very large number of buyers and sellers.
Total Net Benefits =
All Marginal Net Benefits Added up.
Imitation Problem
The potential for a firm's rivals to produce a close variation of (imitate) a firm's new product or process, greatly reducing the originator's profit from R&D and innovation.
State-Owned Enterprise
A firm that is owned by the government. In Canada, these are called Crown Corporations
Economies of Scale
LR ATC falls as production increases; input
Property taxes
A tax on the value of property (capital, and, stocks and bonds, and other assets) owned b firms and households.
The more time consumers have to adjust
The more elasticity
total product curve
shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input
Market Equilibrium
A situation in which the quantity of a product demanded equals the quantity supplied, so there is no pressure to change the price
front load
pay fee when buy share of the mutual fund
Short-Run Supply Curve
A supply curve that shows the quantity of a product a firm in a purely competitive industry will offer to sell at various prices in the short run; the portion of the firm's short-run marginal cost curve that lies above its average-variable-cost curve.
marginal revenue product (MRP)
Theadditional revenue a firm earns by employing one additional unit of input, ceteris paribus.
Marginal Product of Labor
the additional output a firm produces as a result of hiring one additional worker
Economic efficiency
the situation in which the price of a good or service just covers the marginal cost of         producing that good or service and people are getting the goods and services that they want
Sale taxes
A tax levied on the cost (at retail) of a broad group of products.
long-run average total cost curve
shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output
Price of Substitutes
an increase in the price of a good’s substitute will increase demand for the good
Elastic Demand and the Law...congress' mistake
in 1991, congress overestimated the elasticity of luxury items. They passed a 10% tax on some specific luxury goods thinking they would earn $1.5 billion, in the end they only raised less than $30 million
Terms of Trade
The ration of the average price of a country's exports to the average price of its imports
If the price elastisity of supply is greater than one the good
has price elastic supply
How do you maximize total utility?
by focusing on marginal utility and considering the change in total utility from consuming one more unit of something
ex: Cassie likes clams and is at an all you can eat cafe. If the most clams she can eat without feeling sick is 8, then if she's rational she won't eat the 9th clam. Adding that additional clam actually makes Cassie worse off: it would lower her total utility.
When she chooses how many clams to consume, she will make the decision by considering the change in her total utility from consuming one more clam. To maximise total utility she must focus on marginal utility.
economic cost to a firm
the payment it must make to attract the resources it needs away from alternative production opportunities. opportunity cost
Why stay in business if your economic profits are zero?
You are still making accounting profits
Economies of scale occur when a firm's...
long run ATC are decreasing as output increases
If the absolute value of the price elasticity of demand is equal to one
then we day that the demand for the good is unit elastic
perfectly elastic
income distribution(mutual funds)
dividens/interest payments
situation of excess demand
Define: Monopolistic Competition
Lots of firms
How Progress Achieved?
ntechnological improvements
ncapital accumulation
3 types of taxes
progressive, flat, regressive
Equivalent Combinations
All combinations along the indifference curve gnerate the same utility as combination. So the consumer would be indifferent to all the points on the indifference curve
Chapter 9
Competitive behaviour and competitive market structurePerfect competitionPrice taking and a horizontal demand curveAverage revenue, marginal revenue, and price under perfect competitionRules for maximizing profitsThe relationship of supply curves to marginal cost curvesShort-run and long-run equilibrium of competitive industriesEntry and exit in achieving long-run equilibrium
Market Economy
allocates resources through the decisions of many firms and households as they interact in markets for goods and services
Illegal immigrants-
Immigrants who arrive illegally or enter legally on temporary visas but then fail to leave as stipulated. An average of 350,000 illegal immigrants enter the U.S. each year.
Allocative Efficiency
The apportionment of resources among firms and industries to obtain the production of the products most wanted by society; the output of each product at which its marginal cost and price or marginal benefit are equal.
(Production Possibility Frontier) 
to understand trade-offs by considering a simplified economy that produces on 2 goods
A situation in which firms act together and in agreement to fix prices, divide a market, or otherwise restrict competition.
Game Theory
The theory that studies decision making in situations in which one player anticipates the reactions of other players to its own actions
The market for land is _______
very inelastic
Scientific Method
The procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws.
study of household and firms make choice, how they interact in markets, and how the gov attemps to influence their choices
Horizontal mergers-
A merger between two competitors that sell similar products in the same geographic market. Susceptible of breaking anti-trust laws. It is likely to challenge a horizontal merger legally if the postmerger Herfindahl index would be high (about 1800) or substantially increased the index (added 100 or more points).
cause the demand of its complement to go down which caused negative elasticity
market bear/bull
ppl who think market will go up/down
Natural Monopoly 
Goods that are excludable but not rival in consumption 
marginal benefit
the increase in total benefit that results from carrying out one additional unit of an activity
Proprietorship definition
business enterprises owned by a single individual or household
Income Effect
If nominal income does not increase with rise price of object you cannot buy goods and services because real income decreased
Time-Series Data
A set of observations made at successive periods of time
What happens to producer surplus when price increases?
PS increases
Private goods
those that people individually buy and consume and that private firms can profitably provide because they keep people who do not pay from receiving the benefits
Inferior Goods
A good or service whose consumption declines as income rises (and conversely), price remaining constant.
demand curve
shows reltionship between price of a prodect and quntity demanded of the product
Wheeler-Lea Act of 1938-
amended the Federal Trade Commission Act to give the FTC the additional responsibility of policing "deceptive acts or practices in commerce."
What it did:
o Established the FTC as an independent antitrust agency
o Made unfair and deceptive sales practices illegal
Excess burden of a tax
another name for deadweight loss
factors of production
the resources needed to produce goods or services. ex. labor/capital
Supply Curve
tells how much of the product that sellers are willing to part with at various price levels.
What is non-rival consumption?
My consumption does not reduce yours
Rule #2
When the average curve is falling, the marginal curve is below it
Short Run
The period of time during which at least one of the firm's inputs is fixed.
Negative economic profit
total revenue is less than total costs, including opportunity costs
A group of (one or more) firms that produce identical or similar products.
The time line that the first Hi/Lo includes
past year
Strategic trade policy-
the use of trade barriers to reduce the risk inherent in product development by domestic firms, particularly that involves advanced technology. Potential for the nations put at a disadvantage with this policy will retaliate with tariffs of their own.
Quantity demanded
the amount of a good consumers want to purchase at a specified price over a specified time period. QD is simply a number of goods, such as 18,000 apples.
Lump-Sum Tax
A tax that is the same amount for every person 
Name four ways the government has dealt with externalities
Regulations; Marketable permits; taxes; subsidies; zoning
Monopolistic Competition: long run
 profit __ 0
profit = 0
does not = min ATC
Total Revenue (TR)
Total receipts from the sale of a product; price times quantity
Law of Supply
In increase in price will increase the quantity supplied
Price ceilings are irrelevant if
ceiling price is greater than equilibrium price
Changes in Supply- reasons to shift the curve
T- technology changesR- resource prices (wages, raw material)E-expectations of future pricesN- number of sellersT-taxes & subsidies
diseconomies of scope
joint output of a single firm is less than could be achieved by separate firms when each produces a single product
Least-Cost Combination of Resources
The quantity of each resource a firm must employ in order to produce a particular output at the lowest total cost; the combination at which the ratio of the marginal product of a resource to its marginal resource cost (to its price if the resource is employed in a competitive market) is the same for the last dollar spent on each of the resources employed.
Price Elasticity of Supply
The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of producers to a change in the price of a product or resource.
Expected value of a gamble
the sum of the possible outcomes of the game multiplied by the respected probabilities
If firms in a monopolistically competitive market are earning economic profits, what is a change they should expect to see as the market adjusts to the long-run equilibrium?
A decrease in demand for each firm
law of diminishing marginal utility
as you consume more of a good or service, your total utility increases. however, it grows at a slower rate because the extra utility added by the last unit consumed of a good diminishes as more of the good is consumed.
Name the chain of events that occurs when price is less than average total cost in a perfectly competition.
firms exit, supply decreases, market price increases
What is the difference in the long run equilibrium for perfectly competitive markets and monopolistic competitive markets?
Perfect - produces at the minimum point of ATCMonopolistic - does not produce at minimum point of ATC
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