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Macro Ecronomics
Exam 2 OU
53
Economics
Undergraduate 2
04/19/2010

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Term
Utility
Definition
the pleasure or satisfaction people get from doing or consuming something
Term
Total Utility
Definition
total satisfaction one gets from consuming a product
Term
Marginal Utility
Definition
the satisfaction one gets from consuming one additional unit of a product above and beyond what one has consumed up to that point
Term
principle of diminishing marginal utility
Definition
as you consume more of a good, after some point, the marginal utility from each additional unit consumed, other things equal
Term
principle of rational choice
Definition
spend the money on those goods that give you the most marginal utility per dollar
Term
utility maximizing rule
Definition
when the ratios of the marginal utility of the two goods are equal
Term
income effect
Definition
the reduction in quality demanded because we're poorer
Term
substitution effect
Definition
the reduction in quantity demanded because relative price has risen
Term
conspicuous consumption
Definition
the consumption of goods not for one's direct pleasure, but simply to show off to others
Term
ultimatum game
Definition
the first person only gets the money if the other person accepts the offer. if the second person does not accept, they both get nothing
Term
status quo bias
Definition
an individuals action are very much influenced by the current situation, even when that reasonably does not seem to be to be very important to the decision
Term
Production
Definition
transformation of factors into goods and services
Term
firm
Definition
an economic institution that transforms factors of production into goods and services
Term
profit
Definition
toatal revenue - total cost
Term
total cost
Definition
explicit payments to the facteors of production plus the opportunity cost of the factors provided by the owners of the firm
Term
Total Revenue
Definition
the amoutna firm recieves for selling its product or service plus any increase in the value of the assets owned by the firm
Term
Economic profit
Definition
(explicit and implicit revenue) - (explicit and implicit costs)
Term
Long-Run Decision
Definition
A frim chooses among all possible production techniques
Term
Short run decision
Definition
the firm is constrained in regard to what production decisions it can make
Term
Production table
Definition
a table showing the output resulting from various combinations of factors of production or inputs
Term
Marginal Product
Definition
the additional output that will be forthcoming from an additional worker, other inputs constant
Term
Average product
Definition
output per worker
Term
Production function
Definition
the relationship between the inputs (factors of production) and outputs
Term
Law of diminishing marginal productivity
Definition
as more and more of a veriable input are added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall
Term
Fixed costs
Definition
costs that are spent and cannot be changed in the period of time under consideration
Term
Variable costs
Definition
Costs that change as output changes
Term
Average Total costs
Definition
total cost divided by the quantity produced
Term
Marginal cost
Definition
the increase (decrease) in total cost from increasing (decreasing) the level of output by one unit
Term
Marginal Costs equation
Definition
MC= change in T
Term
Total Cost Equation
Definition
TC=FC+VC
Term
Average Total Cost
Definition
ATC=AFC+AVC=TC/Q
Term
Average fixed cost
Definition
AFC=FC/Q
Term
Average Variable costs
Definition
AVC=VC/Q
Term
Technical efficiency
Definition
as few inputs are needed to produce a given output
Term
economically efficient
Definition
when long run averaage total costs decrease as output increases
Term
Indivisible set up costs
Definition
the cost of an indivisible input for whic a certain minimum amount of production must be undertaken before the input becomes economically feasible to use
Term
minimum efficient level of production
Definition
amoutn of production that spreads setup costs out sufficiently for a firm to undertake production profitably
Term
Diseconomies of scale
Definition
when long run average costs increase as output increases
Term
Monitoring costs
Definition
costs incurred by the organizer of production in seeing to it that the employees do what they're supposed to do
Term
Team spirit
Definition
the feelings of friendship and being part of a team that bring out peoples best efforts
Term
Constant returns to scale
Definition
where long run average total costs do not change with an increase in output
Term
ENtrepeneur
Definition
an individual who sees an opportunity an item at a price higher than the average cost of producing
Term
Economies of scope
Definition
when the costs of producing products are interdependent so that its less costly for a firm to produce one good when its already producing another
Term
Learning by doing
Definition
as we do something we learn what works and what doesnt, and over time we become more profficient at it
Term
Depreciation
Definition
a measure of the decline in the value of an asset that occurs over time
Term
Price Taker
Definition
a firm who takes a price determined b market supply and demand as given
Term
barriers to entry
Definition
social, political, or economic impediments that prevent firms from entering the market
Term
MARGINAL revenue (Market Price)
Definition
the change in revenue associated with the change in quantity
Term
marginal cost
Definition
the change in cost associated with the change in quantity
Term
Profit maximizing condition
Definition
MC=MR
Term
Profit maximizing condition
Definition
MC=MR
Term
shut down point
Definition
the point below where a firm will be better off temporarily shutting down instead of staying in business
Term
market supply curve
Definition
horizontal sum of all the firms marginal cost curves
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