Term
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Definition
((delta quantity demanded)/quantity demanded)/((delta price)/price)
if elasticity= 0 perfectly inelastic
-1elasticity<-1 = elastic
inelastic -> if increase quantity sold, total revenue increases
elastic -> if decrease quantity sold, total revenue increases |
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Term
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Definition
| formula = ((delta quantity supplied)/quantity supplied)/((delta price)/price) |
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Term
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Definition
Input cost
Technology
Expectations |
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Term
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Definition
people's taste
# of buyers
competitor's price
people's income
related product's demand |
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Term
| Principles of how people make decisions |
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Definition
1. People face trade offs
2. The cost of something is what you give up to get it
3. Rational people think at the margin
4. People respond to incentives
5. Trade can make everyone better off
6. Markets are usually a good way to organize economic activity |
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Term
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Definition
| Totally Revenue+implicit costs+explicit costs or Accounting profit+implicit cost |
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Term
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Definition
Total Revenue - explicit costs or
Economic profit - implicit costs |
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Term
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Definition
((delta quantity demanded)/quantity demanded)/((delta income)/income)
if negative then inferior good
if positive then normal good |
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Term
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Definition
Price floor or price ceiling
binding = has effect
non-binding = has no effect |
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Term
| Binding price floor creates |
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Definition
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Term
| Binding price ceiling creates |
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Definition
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Term
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Definition
| Average Total Cost decreases as quantity produced increases |
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Term
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Definition
| Average Total Cost increases as quantity produced increases |
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Term
| Constant returns to scale |
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Definition
| Average Total Cost neither increases nor decreases as quantity produced increases |
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Term
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Definition
| new equilibrium price - old equilibrium price |
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Term
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Definition
| take the new equilibrium quantity and find the price of that quantity on the pre-tax supply curve, subtract that price from the old equilibrium price |
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Term
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Definition
| costs of labor + cost of supplies (basically think what you'd expect to cut from profit) |
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Term
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Definition
| Opportunity costs sort of, the cost of what you are giving up |
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Term
| Marginal product of labor |
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Definition
| (delta quantity)/(delta labor) |
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Term
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Definition
| (delta total cost)/(delta quantity) |
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Term
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Definition
| costs that don't vary with quantity output produced (thinking cost of machines or buying the factory etc...) |
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Term
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Definition
| costs that vary with the quantity produced |
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Term
| Perfect Competition description |
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Definition
1. Many buyers and many sellers
2. The goods offered are pretty much the same
3. Free exit and entrance to the market
Buyers and sellers are "price takers"
Profit maximized at Marginal Revenue = Marginal Cost
MR=P, Demand curve=flat |
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Term
| Perfect Competition reasons for exit/entry |
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Definition
Shut down in short term if P<AVC
Shut down in long term if P<ATC
Enter in long term if P>ATC |
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Term
| Perfect Competition long-run equilibrium |
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Definition
Price = minimum Average Total Cost
Profit = 0 (remember that's economic profit) |
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Term
| Monopoly (how its created) |
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Definition
Barriers to entry:
1. A single firm owns key resource
2. The gov't gives a single firm exclusive right to produce the good
3. Natural Monopoly: a single firm can produce the entire market quantity at lower cost than could several firms
(firms are price makers) |
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Term
| Monopoly profit maximization |
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Definition
| Take the quantity where marginal revenue = marginal cost and find the corresponding price for said quantity on the demand curve |
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Term
| Monopoly price discrimination |
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Definition
| selling same good at different prices to different buyers |
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Term
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Definition
| Higher output raises revenue, if output effect is greater than price effect, then firm will increase quantity increased quantity |
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Term
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Definition
| Lower price reduces revenue, if Price Effect is greater than Output Effect then firm will reduce quantity produced |
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Term
| Monopolistic Competition (description) |
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Definition
many firms sell similar but not identical sell similar but not identical products
1. Many sellers and buyers
2. Product differentiation
3. Free entry and exit |
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Term
| Monopolistic Competition (short vs. long term actions) |
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Definition
Short term: Monopolistically competitive firms act much like monopolistic firms with the same profit maximization
Long term: entry and exit drive economic profit to zero |
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Term
| Advertising in Monopolistic competition pros |
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Definition
signals quality
provides useful info
promotes competition
reduces market power |
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Term
| Advertising in Monopolistic competition cons |
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Definition
wastes resources
manipulate people's tastes
may create illusion that goods are more differentiated than in reality |
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Term
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Definition
few sellers offering similar or identical products,they act strategically, so we use game theory.
as number of firms increase in oligopoly, the oligopoly becomes more like competitive market. |
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Term
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Definition
| an agreement among firms in a market about quantities to produce or prices to charge |
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Term
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Definition
| a group of firms acting in unison, all colluding |
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Term
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Definition
| a situation in which economic participants interacting with another each choose their best strategy given the strategies that all others have chosen. |
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Term
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Definition
| shows how Nash equilibrium may not be best strategy overall because cooperation is difficult |
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Term
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Definition
| if interested, read last 5 slides of week 12, I don't think its too likely to be featured on exam. |
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Term
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Definition
The percentage of the market's total output supplied by its four largest firms.
higher the percentage, the less competition. |
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