Microeconomics Test Flashcards

Terms Definitions
stock and bonds
Technology Increases
supply increases 
state taxes
income,sales used for education,highways,police
Relationship between variables is implied
The physical and intellectual effort of people engaged in producing goods and services.
Human resources
Labor (wages)
Entrepreneur (profit & loss)
Indirect Relationship
As one rises, other falls
focuses on a specific economic unit, 
nAn individual household, firm, or industry
perfectly competitive market
market meets conditions-
1 many buyers and sellers
2 all firms sellig identical products
3 no barriers to new firms entering the market
consumer surplus
The difference between a consumer’s willingness to pay for a product and the pricethat he or she pays for the product.
Average Fixed Cost
fixed cost divided by quantitiy
Changes in supply and demand
Single changes
Complex changes
Agricultural products
Pure Monopoly
One firm controls the marketBlock entry
If Marginal Product (MP) < Average Product (AP), then AP ___.
increase or decrease
Producer surplus
the difference between the price firms would have been willing to accept for their products and the price they actually receive
Public goods
those that everyone can simultaneously consume and from which no one can be excluded, even if they do not pay
When price does not reflect scarcity and is relative to the desire to own something
The marginal revenue product curve of a purely competitive seller declines solely because of the law of diminishing returns
Circular Flow Chart
shows the relationship between what people want to buy and what firms are willing to sell.
Variable Cost (VC)
Cost that varies as output varies.
normal goods
if income increases, consumer will buy more of that good
Law of Supply
states that producers will only produce a good that will yield them profit because it is something that consumers want.
quantity of goods at various prices
short run
too brief for some inputs/resources to be varied
Average Product
output per worker, (Q/L)= slope of line from (0,0) to total product curve
Differentiated Product
A group of commodities that are similar enough to be called the same product but dissimilar enough that all of them do not have to be sold at the same price
Determinants of Supply
Factors otyher than price that determine the quantities suppolied of a good or service.
Inelastic Demand
Product or resource demand for which the elasticity coefficient for price is less than 1. This means the resulting percentage change in quantity demanded is less than the percentage change in price.
production possibilities curve (PPC)
a graphical representation showing the maximum quantity of goods and services that can be produced using limited resources to the fullest extent possible
marginal revenue
the change in total revenue generated by an additional unit of output
What causes surpluses & shortages?
shortage= more demanded than suppliedsurplus= more supplied than demanded (price then lowered)
Marginal Cost (MC)
Increase in cost resulting from the production of one extra unit of output.
implicit costs
input costs that do not require an outlay of money by the firm($$ given up working job to work elsewhere)
"let if fall where it may" free market system.
What do opponents of advertising say is bad about it?
It raises costs
Very Long Run
A period in which technology can change and in which firms can introduce new products.
Excess Supply
A situation in which, at the given price, quantity supplied exceeds quantity demanded
A person may have the absolute advantage in how many goods?
Zero, One, Two
Transfer payments
A payment of money (or goods and services) by a government to a household or firm for which the payer re-buying no goods or service directly in return. They provide relief to the destitute, the dependent the disabled, and older citizens; unemployment compensation payments provide aid to the unemployed.
Free good
a good for which there is no scarcity
minimum- cost output
the quantity of output at which average total cost is lowest -- the bottow on the U-shaped average total cost curve
Real Value
The value of an amount of money in terms of what it can buy
MR = MC Rule
The principle that a firm will maximize its profit (or minimize its losses) by producing the output at which marginal revenue and marginal cost are equal, provided product price is equal to or greater than average variable cost.
Adverse selection
if you don’t know if a product is good or bad, you are not willing to pay a high price – this pushes good products out of the market (aka hidden characteristics).
Socially responsible fund
a group of stocks or bonds of companies that meet specified requirements for ethical behavior or environmental behavior
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.
free entry and exit
when new producers can easily enter into an industry and existing producers can easily leave it.
Price of compliments
an increase in the price of the good complement will increase demand for the good
Consumer's prefrences are defined by...
indifference curves, whos slope is the marginal rate of substitution.
Front-end load
a fee that you pay when you purchase a mutual fund
profit and the allocation of resources
when good/service(it) seems to have the potential to generate a profit, entrepreneurial will put together the resources need to produce good/services
If the ATC curve is rising, then the MC curve must be
Above the ATC curve
Price Elasticity of Supply; short run
nPeriod is too short to change plant capacity but long enough to use fixed plant more or less intensively; supply of a product is more elastic than the market period.
What is the definition of Perfect Competition
The market has perfect mobility and Perfect knowledge about the market exist
The flatter the D curve through a given point, the...
greater the price elasticity of demand at that point
If the absolute value of the price elasticity of demand is equal to zero
then we say that the demand for the good is perfectly inelastic
Oligopoly: Game Theory
dominant strategy equilibrium
Price Floor
minimum buying price
ceteris paribus
holding everything else constant/unchanged
Perfect competition:
Max profit where P __ MR.
marginal social benefit*the only ppl who benefit from the good are the people who buy it
All natural resources, such as minerals, forests, water and unimproved land. Land is paid rent.
MP curve increases, MC curve __.
In the long run monopolistically competitive firms make normal profits by producing at that level of output where the difference between price and average total cost is at a maximum
Elastic Demand
The percentage change in quantity demanded is greater than the percentage change in price. Quantity demanded changes proportionately more than price changes. >1
perfect market assumptions
1) price taking2) product homogeneity3) free entry and exit
The part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy
economic profit = 0
revenue = opportunity
"normal" profit
Statistical discrimination
discrimination that results when an indicator of group performance is incorrectly applied to an individual member of the group
Free-rider problem
The inability of potential providers of an economically desirable good or service to obtain payment from those who benefit, because of non-excludability.
association as causation
themistaken assumption that because two events seem to occur together, one causes the other
Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces up to an efficient allocation of economic resources
perfectly inelastic demand
Price elasticity of demand equals zero.
Protective Tariffs
A tariff designed to shield domestic producers of a good or service from the competition of foreign producers
Invisible Hand
the collective actions of all buyers and sellers will adjust the price of good in market to an equilibrium level
Natural Monopoly
An industry in which economies of scale are so great that a single firm can produce the product at a lower average total cost than would be possible if more than one firm prodcued the product.
the price at which consumers want to buy a certain quantity
Economies of Scale
Typically, heavy industry - iron, steel, copper, aluminum, and automobiles -
General-Equilibrium Analysis
The analysis of all the economy's markets simultaneously, recognizing the interactions among the various markets
Complementary Good
Products and services that are used together. When the price of one falls, the demand for the other incresases (and conversely).
Determinants of Demand
Factors other than price that determine the quantities demanded for a good or service.
Fallacy of composition
the mistaken assumption that what applies in the case of one applies to the case of many
A competitive firm will produce in the short run so long as its price exceeds its average fixed cost
Comparative Advantage
A country's ability to produce a good at a lower opportunity cost than the country with which it trades.
go together. Two goods (such as cars and gas) are complements if an increase in the price of one good decreases the demand for the other. Buying a good’s compliment increases the liklihood that the consumer with purchase the other.
labor productivity
the average product of labor for an entire industry or for the economy as a whole
Opportunity Cost
The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.
If (MUx/Px)=(MUy/Py), then ___.
max utility (when spend all income)
A situation in a market in which there is excess demand or excess supply
Marginal Buyer
the buyer who would leave the market is the price were any higher
Substitute Goods
Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.
sole proprietorship
a business owned by one person, who receives all the profits and is responsible for all the debts incurred by the business
long run
the time period in which all inputs can be varied
Marginal Product of Labor  
The change in output from one additional worker
3 kinds of market failure
1. Presence of public goods2. Externalities3. Market power
Is a steeper demand curve more or less elastic?
Less elastic.
total cost (TC)
sum of the total fixed and total variable costs.TC=TFC+TVC
Income Effect
The change in the quantity of a good demanded resulting from a change in real income (holding relative prices constant)
Renewable (nonexhaustible) natural resources
natural resources whose supply can be replenished
Foreign Exchange Market
A market in which the money (currency) of one nation can be used to purchase (can be exchanged for) the money of another nation; currency market.
a product that may be used in place of another
e.g. a top hat instead of a baseball cap
North American Free Trade Agreement (NAFTA)
An agreement establishing, over a 15-year period, a free-trade zone composed of Canada, Mexico, and the US
Explicit Cost (For making a chair)
Price of materials (wood, nails, glue). Cost of labor.
Dominant Strategy
A player will do the same thing and be better off regardless of the actions of the rival
Define Compartive Advantage
a person can perform an activity at a lower opportunity cost than anyone else
unit elastic demand
% change in QD = % change in the P.
What are two ways to calculate average total cost?
average fixed cost plus average variable cost; total cost over output level
10 PRINCIPLES 9 Prices Rise When Too Much Money is Printed
aka inflationthe more quantity of something, the less value able it is
What would happen to the equilibrium price and qty of peanut butter is the price of peanuts went up, the price of jelly fell, fewer firms decided to produce peanut butter, and health officials announced that eating peanut butter was good for you?
Price will rise and the effect on quantity is ambiguous..
what is the marginal rate of substitution?
of good R in place of good M is equal to MUR/MUM
the ratio of the marginal utility of R to the marginal utility of M
this happens because as you move down the indifference curve, the slope changes and the condition changes. ex: at one point high on the curve you may have all M and no R, so it increases your utility greatly to get some R and you don't mind giving up M(steep slope), but at a certain point you won't want to give up as much M for R because you won't have as much of it (flatter slope)
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