# Shared Flashcard Set

## Details

Final Flash Cards
Flash card for Gresik's principles of micro
76
Economics
05/02/2008

Term
 Production Function
Definition
 It determines how much output a firm can get from any combination of inputsF(K,L)=Q
Term
 Isoquant Curves
Definition
 help organize production information by identifying all input combinations that generate the same output
Term
 Marginal Product
Definition
 measure the rate of change in production with respect to a change in a single factor
Term
 Marginal Rate of Technical Substitution
Definition
 measures the rate of change at which a firm would be willing to give up one input for another input so that total output does not change
Term
 Isocost Curves
Definition
 describe the cost trade-offs associated with each possible budget levelit is all the budget allocations that cost the same
Term
 Technological Efficiency
Definition
 producing without waste
Term
 Economic Efficiency
Definition
 using the lowsest cost technologically efficient combination
Term
 Marginal Value Equation
Definition
 describes input combinations for which the last dollar spent on each good increases utility by the same amountMU1/P1=MU2/P2
Term
 Substitution Effect
Definition
 a change in relative factor prices creates an incentive for firms to substitute away from the factor that has become relatively more expensive
Term
 Economic Cost
Definition
 are forward looking costsEconomic cost=accounting cost+ opportunity cost-sunk cost
Term
 Budget Line
Definition
 the set of all affordable bundles whose cost equals incomeI= p1q1+p2q2
Term
 Relative Price
Definition
 ratio of one product's price to another to measure how expensive that good is relative to the other good
Term
 Utility Fuction
Definition
 a way of measuring benefit of any combination of goods a systm of quantifying the benefits one gets from a bundle of choicesit is a system to ran alternative bundlesU(q1,q2)=
Term
 indifference curves
Definition
 organizes information about different combinations of goods that give the same benefit are the curves that compare benefiteach point on the curve the benefit is the same (hence the name "indfference curves")
Term
 Marginal Utility
Definition
 measure the rate of change in utility with respect to a change in how much we have of just one good
Term
 Marginal Rate of Substitution
Definition
 measures the rate at which a consumer would trade one good for another to keep utlity constant
Term
 Marginal Value Equation
Definition
 describes the combination of goods in whuch the last dollar spent on each good increases utlity by the same amount
Term
 Income Effect
Definition
 is the consumer's response to a change in real income
Term
 Substitution Effect
Definition
 is the consumer response to change in relative prices
Term
 Economic Profit
Definition
 is what a firm gets after everyone else is satisfiedEconomic Profit= Revenue-Economic Cost
Term
 Perfect Competition
Definition
 many buyers and sellers without market influence or powerall products are identical (homogeneous products)free entry and exit of firmsperfect information
Term
 Average Total Cost
Definition
 The total cost of producing a certain amount of goods over the amount of goods produced
Term
 Average Variable Cost
Definition
 is the variable cost of producing an amount of goods divided by the amount of goods produced
Term
 Marginal Cost
Definition
 the rate of change of a cost function with respect to a change in a single factor of production
Term
 Aevrage Product
Definition
 average ouptput over units of input
Term
 Sunk Cost
Definition
 are costs already incurred that cannot be recovered
Term
 Fixed Costs
Definition
 are costs that you will incur but are independent of the use of an output
Term
 Variable Costs
Definition
 are costs that vary with the use of an input
Term
Definition
 is the highest price that a buyer is willing to spend to buy an extra unit of a good or service
Term
 Quantity Demanded
Definition
 is the amount of a good or service that buyer are willing to buy at a given price
Term
 Substitute Goods
Definition
 When the price of one good goes up the demand for its substitute increases. Exp. hondas and toyotas
Term
 Market Equilibrium
Definition
 is the price at which the quantity supplied equals the quantity demanded
Term
 Producer Surplus
Definition
 is the gains from trade that accrue to sellers
Term
 Consumer Surplus
Definition
Term
Definition
 is the net loast gains from trade caused by market inefficency
Term
 Excise Tax
Definition
 is a tax that is the legal responsibility of sellers to pay
Term
 Sales Tax
Definition
 is a tax that is the legal responsibility of buyers to pay
Term
 Pareto Efficiency
Definition
 An allocation is pareto efficient if there is no other allocation that makes some better off without making others worse off
Term
 Externality
Definition
 is a cost or benefit arising from a private activity that falls on others
Term
 Rival Goods
Definition
 a good is rival if one person's consumption of the good restricts anyone else's consumption of the same good
Term
 Nonrival Goods
Definition
 a good is nonrival if one person's consumption of the good does restrict anyone else's consumption of the same good
Term
 Excludable Goods
Definition
 a good is excludable if you can control who benefits from consuming the good
Term
 Nonexcludable Goods
Definition
 a good is nonexcludable if no one can be excluded from benefitin from the good once it is produced exp. public radio
Term
 Public Goods
Definition
 Are goods that are nonexcludable to some degree Examples: defensepublic schoolparksneighborhood poolpublic television
Term
 Commons
Definition
 Commons are public rival goods. (This means they are somewhat nonexcludable and rival)
Term
 Free Rider Problem
Definition
 People who have incentive to pay less than their marginal value (others pay for the public good, so you don't have to)
Term
 Tragedy of the Commons
Definition
 refers to the overuse of a common good or resource (The each use of a common public good reduces the amount that others can use and derive benefit from it)
Term
 Willingness to Pay
Definition
Term
 Marginal Revenue
Definition
Term
 Natural Monopoly
Definition
 They have a decreasing average costthere are efficency gains by using less resources, but they have less incentive to innovateWhat should be done to these types of monopolies? They should be regulated. The Demsetz Competition is usually used to regulate them.
Term
 Production Possibility Frontier
Definition
 describes the set of goods and services an economy can produce efficiently
Term
 Opportunity Cost
Definition
 the value of the best possible alternative when a decision or choice is made
Term
 Marginal Cost
Definition
 opportunity cost of increasing production of a good by one unit
Term
Definition
 A country has a comparative advantage of producing if it has the lowest marginal cost of production.  Countries tend to have the comparative advantage in producing good in which they have a large endowment of the intensive inputs of production.
Term
Definition
 in producing a good if it can produce a product using fewer resources than the other country
Term
Definition
 refers to the amount an exported product a coutry pays for imported products. It is measured by the ratio of the amount of the exported product to the amount of the imported product.
Term
 Demand
Definition
 the relationship between the quantity of a good consumers are willing to buy and the price of the good
Term
 Inverse Demand
Definition
 the relationship between the price of a good and the quantity consumers are willing to buy
Term
 Determinants of Demand
Definition
 the determinants of demand are income (normal vs. inferior), relative price of other goods (substitutes and complements), and preferences
Term
 Normal Goods
Definition
 demand changes in the same direction as income
Term
 Inferior Goods
Definition
 demand changes in the opposite direction as income
Term
 Complements
Definition
 when the price of one complement goes up  the demand for the complement goes down  exp. hamburger patties and buns
Term
 Supply
Definition
 the relationship between the quantity of a good producers are willing to sell and its price
Term
 Inverse Supply
Definition
 the relationship betweem the price of a good and quantity producers are willing to sell
Term
 Quantity Supplied
Definition
 the amount of a good producers are willing to sell at a specific price
Term
 Determinants of Supply
Definition
 input prices, technology, and the number of firms in the market
Term
 First Welfare Theorem
Definition
 If,all traders have minimal market power,all goods and services can be traded in a market, andno one is uncertain about his/her valuation of each good and serviceThen, every market equilibrium allocation is pareto efficient. (all market equilibria maximize the sume of CS and PS)
Term
 Second Welfare Theorem
Definition
 Under the same conditions as the First Welfare Theoremevery pareto efficient allocation can be achieved through market equilibrium given the proper redistribution of resources prior to tradeThere is a legitimate role of government to increase social well-being, welfare, and wealth.
Term
 Ceilings
Definition
 an imposed limit on how high a price can go (a price cannot exceed a certain price)
Term
 Floors
Definition
 a minimum price a good can go to in a given market (a good/service cannot be lower than a certain level)
Term
 Quotas
Definition
 are restrictions on the amount of a good or service that is traded in a market acts the same way that a floor does
Term
 Legal Incidence
Definition
 is who has legal resposibilty for paying a tax
Term
 Economic Incidence
Definition
 is determined by price sensitivity of buyers and sellers in a market.It is independent of the legal incidence. It is how the tax burden is distributed amongst buyers and sellers.
Term
 Revenue Test
Definition
 tells the relationship between change in firms' prices and change in revenue.It depends on if you are at an elastic or inelastic point on the demand curve.
Term
 Price Elasticity of Demand
Definition
Term
 Price Elasticity of Supply
Definition
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