# Shared Flashcard Set

## Details

Final Exam
Review of Microeconomics
64
Economics
12/16/2009

Term
 Elasticity of Demand formula
Definition
 %change Quantity demanded / % change price demanded
Term
 If demand is elastic
Definition
 as price increases TR decreases(Ed>1)
Term
 if demand is inelastic
Definition
 as P increases TR increases(Ed<1)
Term
 %^Q > %^P
Definition
 Elastic
Term
 %^Q < &^P
Definition
 Inelastic
Term
 %^Q = %^P
Definition
 Unit Elastic
Term
 Income Elasticity
Definition
 -responsiveness of Qd to changes in Income-Ey= %^Qd / %^I
Term
 Income Elasticity-Normal Good
Definition
 Ey > 0
Term
 Income ElasticityInferior Good
Definition
 Ey<0
Term
 Determinants for Price Elasticity of Demand
Definition
 -More substitutes for a good-higher price elasticity of demand-More a good is considered a luxary instead of a necessity the higher the price Elasticity of Demand-the higher the % of one's budget goes to purchase a good the higher the price elasticity of demand-the more time that passes (w/o a price change) the higher the Price Elasticity of demand
Term
 Total Utility
Definition
 total satisfaction one receives from consuming a particular quantity of a good
Term
 Marginal Utility
Definition
 ^TU/ ^Q
Term
 If MU is negative
Definition
 less of the good
Term
 If TU>0
Definition
 MU>0
Term
 AVC=
Definition
 TVC/Q
Term
 AFC
Definition
 TFC/ Q
Term
 MC=
Definition
 ^TC/ ^Q
Term
 MC=
Definition
 ^TC/ ^Q
Term
 ATC=
Definition
 TC/Q
Term
 Fixed Costs
Definition
 cost of fixed inputs, things that don't change as quantity changes
Term
 sunk costs
Definition
 non refundable costs you've already invested
Term
 Economies of Scale
Definition
 When inputs are increased by some % and outputs are increased by a greater %, causing unit costs to fall
Term
Definition
 inputs increased to some % and outputs increase to the same %, unit costs remain constant
Term
 diseconomies of scale
Definition
 inputs increased to some percent and outputs increase to less %, unit costs rise
Term
 Short Run Supply Curve (firm)
Definition
 portion of the firms marginal costs curve that lies above AVC curve
Term
 Resource Allocative Efficency
Definition
 P=MC, perfectly competitive firms are
Term
 To make economic profits
Definition
 P> ATC > AVC
Term
 Conditions for Long run competitive equilibrium
Definition
 -no incentive for firms to enter /exit industry (Econ profit=0)-no incentive for firms to produce more or less output (firms produce at output where P=MC)-no incentive for firms to change plant size (SRATC=LRATC at quantity of output where P=MC)
Term
 Short Run- perfectly competitive firm shuts down when
Definition
 P < AVC (
Term
 Four assumptions behind the theory of perfect competition
Definition
 - many sellers and buyers, none of which is large in relation to total sales or purchases-each firm produces and sells homogenous product-buyers and sellers all have relevant information-easy entry and exit from industry
Term
 In short run firms maximize profit by producing when...
Definition
 P>ATC or P>AVC
Term
 Perfect comp... how many sellers?
Definition
 many
Term
 Monopoly (sellers)
Definition
 one seller
Term
 oligopoly (sellers)
Definition
 few sellers
Term
 4 firm concentration ratio
Definition
 % of industry sales accounted for by 4 largest firms
Term
 assumptions monopolistic competitor
Definition
 -many sellers and buyers-each firm produces and sells a slightly different product-easy entry and exit
Term
 demand curve of monopolistic competitor
Definition
 downward sloping
Term
 MRP
Definition
 =MR* MPP=^TR/^Q of the factor
Term
 MPP
Definition
 =^Q of output/ ^Q of the factor
Term
 VMP
Definition
 =P*MPP
Term
 MFC
Definition
 ^TC/ ^Q of the factor
Term
 2 factors require firm to purchase factors at a ratio where
Definition
 - (MPP1/P1)= (MPP2/P2)
Term
 MRP curve for a perfectly competitive firm
Definition
 same as VMP curve b/c P=MR
Term
 Price searcher firms (Monop, Monop comp, olig) MRP curve
Definition
 lies below VMP curve b/c P>MR
Term
 If P goes up
Definition
 MRP curve shifts right and vice versa
Term
 If MPP goes up
Definition
 MRP curve shifts right and vice versa
Term
 Factor Price Taker
Definition
 firm that can purchase all of the factor it wants at equilibrium price, horizontal supply curve of factor
Term
 Elasticity of Demand for Labor
Definition
 E L = %^Ql/ %^W- the higher the elasticity demand is for that product the higher the elasticity demand for labor that produces that product and vice versa-the higher the labor cost total ratio, the higher the El and vice versa-more substitutes for labor = a higher El
Term
 Individual Supply of Labor
Definition
 -depends on the degree of the income and substitution effects for each person
Term
 Substitution effect
Definition
 as you are offered a higher wage, you might want to work more hours to make more \$
Term
 Income effect
Definition
 as wage rate rises you might want to work less because you can make what you did before or more and buy more
Term
 4 assumptions for wages to remain the same for everyone
Definition
 -demand for every type of labor is the same-no special non pecuniary aspects to any job-all labor is homogeneous and can be trained for different types of employment at no cost-all labor is mobile at zero cost
Term
 Market Failure
Definition
 situation where market does not provide the ideal or optimal amount of a good
Term
 externality
Definition
 side effect of an action that affects the well being of 3rd parties
Term
 negative externality
Definition
 - person's or groups actions cause a cost felt by others-market overproduces
Term
 positive externality
Definition
 person's or groups actions cause a benefit felt by others-market underproduces
Term
Definition
 -persuasion-assignment of property rights-voluntary agreements-taxes and subsidies-regulations
Term
 Marginal Social Costs (MSC)
Definition
 = Marginal Private Costs + Marginal External Costs=MPC+MEC
Term
 Marginal Social Benefits MSB
Definition
 =MPB+MEB
Term
 Socially optimal amount (efficient amount)
Definition
 MSB=MSC
Term
 Public Good
Definition
 good that is non rivalry in consumption
Term
 excludable goods
Definition
 goods that while non rivalrous can be denied to people if they do not pay for them
Term
 non excludable
Definition
 cannot be denied to people who do not pay for them
Term
 free rider problem
Definition
 -anyone who receives goods with paying for them
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