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Micro
Midterm 2
98
Economics
Undergraduate 1
10/27/2009

Additional Economics Flashcards

 


 

Cards

Term
Opportunity Cost
Definition
All things that you give up to get something.
Term
Explicit Costs
Definition
Costs that require an outlay of money by the firm. (paying workers, rent etc...)
Term
Implicit Costs
Definition
Costs that don't require an outlaying of money. These are like the opportunity cost of what you're doing... You could making x dollars doing something else.
Term
Economic Profit
Definition
Total Revenue minus total costs. (including implicit costs)
Term
Accounting Profit
Definition
Total revenue minus explicit costs. (stuff thats on the books)
Term
Fixed Costs
Definition
Costs that don't change with the quantity of output produced.
Term
Variable Costs
Definition
Costs that do vary with the quantity of output produced. (workers, ingredients, raw materials, etc...)
Term
Total Cost
Definition
The market value of all the inputs that a firm uses in production.
Term
Average Fixed Cost
Definition
Fixed cost divided by quantity of output. (generally goes down)
Term
Average Variable Cost
Definition
The Variable cost divided by the quantity of output. (Usually curves down)
Term
Average Total Cost
Definition
Total cost over quantity of output. Slopes down when marginal cost is lower and up when marginal cost is higher. (bottom of "U" is the Efficient Scale)
Term
Efficient Scale
Definition
The bottom of the U shaped ATC curve where ATC meets MC. This is the most efficient place for the firm to produce at because it costs the least per product.
Term
Marginal Cost
Definition
The increase in total cost that arises from making one more unit of a good.
Term
Competitive Market
Definition
A market in which one firm cannot influence market prices.
Term
2 Characteristics of a Competitive Market
Definition
There are many buyers and many sellers

The goods offered by these sellers are largely the same
Term
Average Revenue
Definition
Total Revenue divided by quantity sold. Average revenue equals the price of the good.
Term
Marginal Revenue
Definition
The change in total revenue from an additional unit sold. Marginal revenue equals the price of the good.
Term
If marginal revenue is greater than marginal cost the firm should...
Definition
Increase its output
Term
Profit-Maximizing Level of Output
Definition
Marginal Revenue-Marginal Cost
Term
In essence because the firm's marginal cost curve determines the quantity of the good the firm is willing to supply at any price.
Definition
The marginal cost-curve is that firms supply curve.
Term
Shutdown
Definition
if TR < VC
P < AVC
Term
Sunk Cost
Definition
A cost that has been committed and cannot be recovered.
Term
Firm Exits
Definition
If the revenue it would get from producing is less than its total costs.
Term
Firm Exits if...
Definition
TR < TC
P < ATC
Term
Profit is
Definition
TR-TC
(TR/Q-TC/Q) * Q
(P-ATC) * Q
Term
Profit on a Graph
Definition
If ATC curve falls below P line... The rectangular box defined by the profit maximizing quantity, and its intercepts on P and ATC is profit
Term
Loss on a graph
Definition
If ATC curve falls aboe P line... The rectangular box defined by the profit maximizing quantity, and its intercepts on P and ATC is loss
Term
Profit Maximization in a Monopoly
Definition
Intersection of Marginal Revenue and Cost
Term
Monopoly Marginal Revenue in Relation to Price
Definition
Marginal revenue is always less thanprice
Term
Natural Monopoly
Definition
A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms.
Term
Monopoly
Definition
A firm that is the sole seller of a product with out close substitutes
Term
3 ways to be a monopoly
Definition
Monopoly Resources: Ownership of key resource
Government Regulation: Government gives right to one firm

The Production Process: A single firm can produce at a lower output cost than a large number of firms.
Term
Price in competitive vs Monopolized Markets
Definition
Price equals marginal cost in a competitive
Price exceeds marginal cost in monopoly
Term
Monopoly Profit on a graph
Definition

[image]

The area of a box made of a line through the profit maximization point that goes from demand to average total cost... Than to the left from where these points meet 

Term
Profit Equation
Definition
= (P-ATC) X Q
Term
Social Efficiency Quantity
Definition
Where demand and marginal cost intersect
Term
Monopolist and Social Efficient Quantity of Output
Definition
Monopolists produce less than the socially efficient quantity of output because this makes them the biggest profit.
Term
Deadweight Loss in Monopolies
Definition

[image]

The triangle between where the monopolist produces and the socially efficient quantity of output

Term
Price Discrimination
Definition
The business practice of selling the same product at different prices to different customers.
Term
Arbitrage
Definition
Buying a good at a low price in one market and selling it at a higher price in a different market.
Term
Perfect Price Discrimination
Definition
A situation in wich the monopolists knows exactly the willingness to pay of each customer and can charge each customer a different price.
Term
Monopolist with Single Price VS Price Discrimination
Definition

[image]

 

Different prices has no consumer surplus but no deadweight loss

Term
Comparing and Contrasting Monopolies and Competitive Markets
Definition
[image]
Term
Oligopoly
Definition
A market structure in which only a few sellers offer similar or identical products.
Term
Monopolistic Competition
Definition
A market structure in which many firms sell products that are similar but not identical.
Term
Characteristics of Monopolistic Competition
Definition

Many Sellers

Product Differentiation (each product is slightly different)

 

Free entry and exit

Term
Examples of Monopolistically Competitive Markets
Definition
CDs, Movies, Games, Restaurants, Books, Cookies, Furniture... etc...
Term
The Four Types of Market Structure
Definition
[image]
Term
Demand Curve of a Firm in a Perfectly Competitive Market
Definition
It's a flat line.
Term
Monopolistic Competition in the Long Run
Definition

[image]

with entry and exit demand is eventually driven to equilibrium and zero economic profit where demand is tangent to ATC

Term
Marginal Cost Monopolistic Competition
Definition
Price exceeds marginal cost
Term
The Product Variety Externality
Definition
A positive externality created by the introduction o a new product or new firm.
Term

The Business-Stealing Externality 

 

Definition
Entry of a new firm creates a negative externality on existing firms. 
Term
Market Structures
Definition
[image]
Term
Profit After Entry and Exit
Definition
After entry and exit of a market has run its course economic profit should be zero. 
Term
Efficient Scale
Definition
The production point with the lowest Average Total Cost 
Term
Long Run Equilibrium in a Competitive Market
Definition
Eventually firms operate at their efficient scale.
Term
Zero Economic Profit
Definition
The company is still making money because economic profit takes into account the opportunity cost of doing other things. 
Term
Zero Economic Profit Example
Definition

Farmer

A farmer puts down 1 million to start a farm. He could have deposited the money and made 50,000 a year or gotten a job for 30,000. So this 80,000 of implicit cost is economic loss. So if the farmer makes 1.08 million he will make zero economic profit even though he gained 80,000 dollars.

Term
Short Run Increase in Demand Graph
Definition
[image]
Term
Explanation of Short Run Increase in Demand
Definition
Entry and Exit of a market happens in the long run. So if something's increase occurs quickly (Oprah, health benefits etc...) the demand curve shifts right in response to greater demand. The firms will produce at a higher point on their supply curve for a higher price. In the long run more firms will enter and produce more so price will be lowered. Afterwards you'll have an increase in supply and the same price.
Term
Long Run Supply Curve
Definition
The long run supply curve is usually more elastic because of entry and exit. It has more time to respond to change in demand.
Term
Economic Profit VS Accountant Profit
Definition
[image]
Term
Total Revenue
Definition
The amount a firm receives for the sale of its output.
Term
Total Cost
Definition
THe market value of the inputs a  firm uses in production.
Term
Profit
Definition
Total revenue minus total cost.
Term
Economic Profit
Definition

Total revenue minus total cost, including both explicit and implicit costs.

TR - TC = EP

TR - (EC +IC) = EP

Term
Accounting Profit
Definition
Total revenue minus total EXPLICIT cost.
Term
Production Function
Definition
The relationship between the quantity of inputs used to make a good and the quantity of output of that good.
Term
Marginal Product
Definition
THe increase in output that arises from an additional unit of input.
Term
Marginal Cost as relative to Average Total Cost
Definition
Whenever marginal cost is less than average total cost the average total cost is falling. Whenever marginal cost is greater than average total cost the average total cost is rising.
Term
Marginal Cost Crossing Average Total Cost Curve
Definition
The Marginal Cost Curve crosses the ATC curve at the lowest point. Because marginal cost drags it down when below and pulls it up when above. 
Term
Economies of Scale
Definition
The property whereby long-run average total cost falls as the quantity of output increases.
Term
Diseconomies of Scale 
Definition
The property whereby long-run average total cost rises as the quantity of output increases.
Term
Constant Returns to Scale
Definition
THe property whereby long-run average total cost stays the same as the quantity of output changes.
Term
Reasons for economies of scale
Definition
Higher production levels allow specialization where workers can become better at a specific task.
Term
Reasons for Diseconomies of Scale
Definition
Diseconomies of scale come from coordination problems that arise as an organization gets bigger.
Term
Tax Wedge Graph
Definition
[image]
Term
Tax Revenue Graph
Definition
[image]
Term
Deadweight Loss
Definition
The fall in total surplus that comes from a market distortion. (Taxes, Monopoly etc...)
Term
Why Taxes create Deadweight Loss
Definition
Taxes cause deadweight loss because they prevent buyers and sellers from realizing some of the gains from trade. Also people respond to incentives so people will buy at a point on the demand curve to the left of equilibrium. 
Term
Elasticity and Deadweight Loss
Definition
More elasticity makes more deadweight loss.[image]
Term

Tax Size and Its Effects

(Laffer Curve)

Definition

A tax thats too large will make the same revenue as a tax that is proportionally too small.

[image]

Term
Supply-Side Economics
Definition

Reaganomics and SHIT

 

Basically high taxes discourage hard work so lowering taxes would create increased productivity and a more productive economy.

Term
Willingness to Pay
Definition
The maximum amount that a buyer will pay for a good
Term
Consumer Surplus
Definition
The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. 
Term
Consumer Surplus
Definition
The area below the demand curve and above the price measures the consumer surplus in a market.
Term
Consumer Surplus Graph
Definition
[image]
Term
Cost
Definition
The value of everything a seller must give up to produce a good.
Term
Producer Surplus
Definition
The amount a seller is paid for a good minus the seller's cost of producing it. 
Term
Producer Surplus Graph
Definition
The area below the price and above the supply curve.[image]
Term
Total Surplus
Definition
Value to Sellers - Cost to Producers
Term
Efficiency
Definition
The property of a resource allocation of maximizing the total surplus received by all members of society.
Term
Equality
Definition
The property of distributing economic prosperity uniformly among the members of society.
Term
Market Power
Definition
The ability to influence prices. This is inefficient because it keeps the price and quantity away from equilibrium. 
Term
Externality
Definition
An outside force that causes change in demand or supply.
Term
Market Failure
Definition

The inability of some unregulated markets to allocate resources efficiently. 

 

Externalities and Market Power are examples.

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