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Econmics Second Exam
Second Exam Defenitions
43
Economics
Undergraduate 2
11/16/2008

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Term
Total utility
Definition
the total satisfaction a consumer derives from consumption' it could refer to either the total utility of consuming a particular good or the total utility from all consumptions.
Term
Marginal utility
Definition
the change in total utility derived from a one unit change in consumption of a good.
Term
law of diminishing marginal utility
Definition
more of a good a person consumes/ period, the smaller the incresase in total utility from consuming one more unit.
Term
consumer equilibrium
Definition
the condition in which an individual consumers budget or spent and the last dollar spent on each good yields the same marginal utility therefore utility is maximized [ water, water, everywhere}
Term
marginal valuation
Definition
the dollar value of the marginal utility derived from consuming each additional unit of a good.
Term
consumer surplus
Definition
the difference between the maximum amount that a consumer is willing to pay for a given quantity of a good and what the consumer actually pays.
[marginal value of free medical care]
Term
indifference curve
Definition
shows all combinations of goods that provide this consumer with the same satisfaction or the same utility (the consumer finds all combination on a curve equally preferred)
Term
Marginal rate of substitution
Definition
the number of "A" you are wiling to give up to get more of "B", neither gaining nor losing utility in the process.
Term
Law of diminishing rate of substitution
Definition
...states that as your consumption of "A" increases, the amount of "B" you are willing to give up to get another "A" declines.
Term
indifference map
Definition
a graphical representation of a consumer's taste, each curve reflects a different level of utility.
Term
explicit cost
Definition
opportunity cost of resources employed by a firm that takes, the form of cash payments.
Term
accounting profit
Definition
a firms total revenue minus it's explicit cost.
Term
implicit cost
Definition
a firms opportunity cost of using it's own resources or those provided by its owners without a corresponding cash payment.
Term
economic profit
Definition
a firms total revenue minus its explicit and implicit costs.
Term
normal profit
Definition
the accounting profit earned when all resources earn their opportunity cost.
Term
variable resources
Definition
any resource that can be varied in the short one to increase or decrease production.
-Labor most easy to vary!
Term
fixed resources
Definition
any resources that cannot be varied in the short run.
Term
short run
Definition
a period during which at least one of a firms resources is fixed
Term
long run
Definition
a period during which all resources under the firms control are variable
Term
total product
Definition
the total output produced by a firm
Term
production function
Definition
the relationship between the amount of resources employed and a firms total product.
Term
marginal product
Definition
the change in total product that occurs when the use of a particular resource increases by one unit, all other resources constant.
Term
increasing marginal returns
Definition
the marginal product of a variable resources increases as each additional unit of that resource is employed
Term
increasing marginal returns
Definition
the marginal product of a variable resources increases as each additional unit of that resource is employed.
Term
law of diminishing marginal returns
Definition
as more of a variable resource is added to a given amount if a fixed resource marginal product eventually declines and could become negative.
Term
Fixed cost
Definition
any production cost that is independent of the firms rate of output.
Term
variable cost
Definition
any production cost that changes as the rate of output changes
Term
total cost
Definition
the sum of fixed cost and variable cost, or TC=FC+VC
Term
average variable cost
Definition
variable cost divided by output, or AVC= VC/q
Term
Average total cost
Definition
total cost divided by output or ATC= TC/q; the sum of average fixed cost and AVC or atc=afc+avc
Term
Long run average cost curve
Definition
A curve that indicates the lowest average cost of production at each rate of output when the size, or seal, of the firm varies, also called the planning curve.
Term
Economics of scale
Definition
forces that reduce a firm's average cost as the seal of operation in the long run.
Term
constant long run average cost
Definition
a cost that occurs when, over some range of output, long run average cost neither increases nor decreases with changes in firm size.
Term
production function
Definition
identifies the maximum quantities of a particular good or servise that can be produced per time period with various combinations of resources for a given level of technology. [The PF can be represented by an equation, a graph or a table. ]
Term
isoquent curve
Definition
a curve that shows all the technologically efficient combination of 2 resouces, such as labor and capital that produce a certain rate of output.
Term
Marginal rate of technical substitution
Definition
the rate at which later substitutes for capital without affecting output.
Term
isocost line
Definition
identifies all combinations of capital and labor the firm can hire for a given total cost.
Term
expansion path
Definition
the line formed by connecting tangency points.
Term
constant cost industry
Definition
an industry that can expand a contract without affecting the long run per unit cost of production; the long run industry supply curve horizontal
ie. pencil industry
Term
increasing cost industry
Definition
an industry that faces higher per unit production costs as industry output expands on the long run the long run industry supply curve slopes upwards
Term
producer efficiency
Definition
the condition that exists when market output is produced using the least cost combination of inputs; minimum average cost in the long run.
Term
allocative efficiency
Definition
the condition that exists when firms produce the output most preferred by consumers; marginal benefit equals marginal costs.
Term
Producer surplus
Definition
a bonus for producers in the short run; the amount by which total revenue from production exceeds variable costs.
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