Home > Flashcards > Economics > Intro to Microeconomics

Details Title: Intro to Microeconomics Description: intro class, easy Total Flash Cards: 59 Created: 04/25/2006 18:05:32	To study from this set of flash cards, or to create your own your own study flash cards, register HERE. If you are already a registered user, CLICK HERE.
Cards Term scarcity Definition 1 Term opportunity cost Definition 1 Term disutility Definition 1 Term Production Possibility Frontier (PFP) Definition Represents the possible combinations of the two goods that can be produced in a certain period of time, under the conditions of a given state of technology and fully employed ressources Term comparative advantage Definition the situation where someone can produce a good at lower opportunity cost than someone else can Term economic system Definition the way in which society decides to answer key economic questions - in particular those questions that relate to production and trade Term Demand Definition The willingness and ability of buyers to purchase different quanitities of a good at different prices during a specific time period. Term Law of Demand Definition As the price of a good rises, the quantity demanded of the good falls, vice versa Term realative price Definition The price of a good in terms of another good Term Law of Diminishing marginal Utility Definition For a given time period, the marginal (additional) utility or satisfaction gained by consuming equal successive units of a good will decline as the amount consumed increases Term Normal Good Definition A good for which the demand rises (falls) as income rises (falls). Term Innferior Good Definition A good for which the demand falls (rises) as income rises (falls) Term Neutral Good Definition A good for which the demand does not change as income rises or falls Term Substitutes Definition The demand for one rises as the price of the other rises, vice versa. Term Complements Definition Two goods that are used jointly in consumption. If two goods are complements, the demand for one rises as the price of the other falls, vice versa Term Supply Definition The willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period. Term Law of Supply Definition As the price of a good rises, the quantity supplied of the good rises, and as the price of a good falls, the quantity supplied of the good falls Term Consumer Surplus Definition The difference between the maximum price a buyer is willing and able to pay for a good or service and the price actually paid. CS = Maximum buying price - price paid. Term Producer surplus Definition The difference between the price sellers receive for a good and the minimum or lowest price for which they would have sold the good. PS = Price received - minimum selling price. Term Total Surplus Definition The sum of consumer surplus and producer surplus Term price ceiling Definition A government-mandated maximum price above which legal trades cannot be made Term Tie-in-sale Definition A sale whereby one good can be purchased only if another good is also purchased Term Price floor Definition A government-mandated minimum price below which legal trades cannot be made Term Price elasticity of Demand Definition A measure of the responsivenenss of quantity demanded to changes in price Ed = (change in Q / Q average) / (change in P / P average) Term Elastic Demand Definition THe percentage change in quantity demanded is greater than the percentage change in price. Quanitity demanded channges proportionately more than price changes. Ed > 1 Term Inelastic Demand Definition The percentage change in quantity demanded is less thann the percentage change in price. Quantity demanded changes proportionately less than price changes. Term Unit Elastic Demand Definition The percentage change in quantity demanded is equal to the percentage change in price. Quantity demanded changes proportionately to price changes. Term Perfectly Elastic Demand Definition A small percentage change in price causes an extremely large percentage change in quantity demanded (from buying all to buying nothing) Term Perfectly Inelastic Demand Definition Quantity demanded does not change as price changes. Term Total Revenue (TR) Definition Price times quantity sold Term Income elasticity of Demand Definition Measures the responsiveness of quantity demanded to changes in income Ey + (percentage change in quantity demand) - (percentage change in income) Ey > 0 = normal good Term Price elasticity of Supply Definition Measures the repsonsiveness of quantity supplied to changes in price Es = (percentage change in quantity supplied / percentage change in price) Term Law of Diminishing Marginal Utility Definition The marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases Term Consumer equilibrium Definition Occurs when the consumer has spent all income and the marginal utilities per dollar spent on each good purchased are equal. MUa/Pa = MUb/Pb = ... = MUz/Pz Term Real income Definition Income adjusted for price changes. A person has more (less) real income as the price of a good falls (rises) Term Substitution effect Definition The portion of the change in the quantity demanded of a good that is attributable to a change in its relative price. Term Income effect Definition The portion of the change in the quantity demanded of a good that is attributable to a change in real income (brought about by a change in absolute price) Term giffen good Definition a product for which a rise in price of this product makes people buy even more of the product. Term Proprietorship Definition a form of business that is owned by one individual who makes all the business decisions, receives teh entire profits and is legally responsible for the debts of the firm - easy to form and dissolve -all decision making power resides with one person -the profit is only taxed once - unlimited liability -limited ability to raise funds -ends with death of owner Term Partnership Definition A form of business that is owned by two or more co-owners who share any profits the business earns; each of the partners is legally responsible for all debts incurred by the firm - easy to organize -effective where team is needed -benefit of specialization -profit only taxed once -unlimited liability -decision making complicated -ends with death or withdrawel of one Term Corporations Definition A legal entity that can conduct business in its own name the way an individual does; ownership of the corporation resides with stockholders who have limnited liability in the debts of the corporation -are not personally responsible coporate shiedl -continue to exist after death of members -able to raise large sums of capital -taxed twice Term Accounting profit Definition The difference between total revenue and explicit cost Term explicit cost Definition A cost that is incurred when an actual payment is made Term Implicit cost Definition A cost that represents the value of resources used in production for which no actual payment is made Term Economic Profit Definition THe difference between total revenue and total cost, including both explicit and implicit costs. Term Marginal Physical Product Definition The change in output that results from changing the variable input by one unit, holding alll other inputs fixed Term Law of Diminishing Marginal Return Definition As ever-larger amounts of a variable input are combined with fixed inputs, eventually the marginal physical product of the variable input will decline Term Marginal Cost Definition Change in total cost divided by Change in Quantity Term Long-Run Average Total Cost Curce Definition A curve that shows the lowest unit cost at which the firm can produce any given level of output Term Ressource Allocative Efficiency Definition The situation that exists when firms produce the quantity of output at which price equals marginal cost: P = MC Term Short-Run (Firm) Supply curce - Price taker Definition The portion of the firms marginal cost curve that lies above the average variable cost curve Term Short-Run Market (industry) SUpply curve Definition The horizontal addition of all existing firms short run supply curves Term Long-Run Competitive Equilibrium Definition The condition where P=MC=SRATC=LRATC. There are zero economic profits, firms are producing the quantity of output at which price is equal to marginal cost and no firm has an incentive to change its plant sice Term Productive Efficiency Definition The situation that exists when a firm produces its output at the lowest possible per unit cost Term Deadweight Loss of Monopoly Definition The net value (value to user over and above costs to supplier) of the difference between the monopoly quantity of output (where P>MC) and the competitive quantity of output (where P=MC). THe loss of not producing the competitive quantity of output Term Perfect Price Discrimination Definition Occurs when the seller charges the highest price each consumer would be willing to pay for the product rather than go without it Term Marginal Revenue Product Definition The additional revenue generated by employing an additional factor unit Term Value Marginnal Product Definition THe price of the good multiplied by the marginal physical product of the factor: VMP=P*MPP Term Marginal Factor Cost Definition The additional cost incurred by employing an additional factor unit