# Shared Flashcard Set

## Details

Microeconomics
Chapters 7-13
73
Economics
11/14/2010

Term
 goal of a consumer
Definition
 maximize utility given a budget
Term
 Budget Line
Definition
 Line describing limit to consumption possibilities given income and prices
Term
 Marginal Utility
Definition
 utility from one more unit of good = (change in U/ change in Q)
Term
 Law of Diminishing Marginal Utility
Definition
 MU always eventually decreases
Term
 If (MUx/Px) > (MUy/Py), then Qx __. increase or decrease
Definition
 increase
Term
 If (MUx/Px) < (MUy/Py), then Qy __. increase or decrease
Definition
 increases
Term
 If (MUx/Px)=(MUy/Py), then ___.
Definition
 max utility (when spend all income)
Term
 income effect
Definition
 change in Qd from change in "purchasing power" or "real income" (change to a new IC)
Term
 substitution effect
Definition
 change in Qd from a change in "relative prices" (change in slope of a budget line)
Term
 max utility is wher marginal rate of subtitution (MRS) =
Definition
 Px / Py
Term
 for normal goods, income and substitution effects __.
Definition
 reinforce one another
Term
 Giffen good
Definition
 if income effect > substitution effect for an inferior good
Term
 goal for a consumer
Definition
 maximize profit
Term
 econmic profit =
Definition
 revenue - cost
Term
 economic profit > 0
Definition
 revenue > opportunity cost - value of best alternative
Term
 accounting profit =
Definition
 revenue - explicit cost
Term
 economic profit < 0
Definition
 revenue < opportunity cost - value elsewhere   -firms exit
Term
 economic profit = 0
Definition
 revenue = opportunity   "normal" profit
Term
 short run
Definition
 any period where at least one input is fixed
Term
 Long run
Definition
 any period of time where all inputs are variables
Term
 Marginal Product
Definition
 change in output from one additional unit of labor
Term
 Law of Diminishing Return
Definition
 marginal product always eventually declines
Term
 Average Product
Definition
 output per worker, (Q/L)= slope of line from (0,0) to total product curve
Term
 If Marginal Product (MP) > Average Product (AP), then AP ___. increase or decrease
Definition
 increases
Term
 If Marginal Product (MP) < Average Product (AP), then AP ___. increase or decrease
Definition
 decreases
Term
 If Marginal Product (MP) = Average Product (AP), then AP ___.
Definition
 no change in AP
Term
 fixed cost
Definition
 costs that do not vary with output
Term
 variable cost
Definition
 costs that do vary with output
Term
 Average Fixed Cost (AFC)
Definition
 fixed cost / quantity, (FC/Q)
Term
 Average Variable Cost
Definition
 Variable Cost/Q, (VC/Q)
Term
 Average Total Cost
Definition
 TC/Q = (FC+VC)/Q
Term
 If Marginal Cost (MC) > Average Total Cost (ATC), then ATC ___. increase or decrease
Definition
 increases
Term
 If Marginal Cost (MC) < Average Total Cost (ATC), then ATC ___. increase or decrease
Definition
 decreases
Term
 If Marginal Cost (MC) = Average Total Cost (ATC), then ATC ___.
Definition
 no change min ATC
Term
 MP curve increases, MC curve __.
Definition
 decreases
Term
 AP curve increases, AV curve __.
Definition
 decreases
Term
 max MP is same point as...
Definition
 min MC
Term
 max AP is same point as...
Definition
 min AVC
Term
 marginal cost =
Definition
 change TC / change Q
Term
 Perfect Competition: Characteristics
Definition
 1. Lots of firms 2. Producing goods that are perfect substitutes 3. No barrier to enter or exit
Term
 Firm concentration ratio:
Definition
 percent of sales accounted for by 4 largest firms
Term
 Herfindohl-Herschman Index (HHI)
Definition
 sum of squared market shares of all firms (up to 50)
Term
 Perfect Substitutes:
Definition
 -no single firm has control over market price-demand facing each firm is horizontal
Term
 If MR > MC, then __ q to max profit.
Definition
 increase
Term
 If MR < MC, then __ q to max profit.
Definition
 decrease
Term
 If MR = MC...
Definition
 max profit
Term
 ATC < P = profit __ 0. <,>,=
Definition
 >
Term
 ATC > P = profit __ 0. <,>,=
Definition
 <
Term
 ATC = P = profit __ 0. <,>,=
Definition
 =
Term
 changing fixed costs changes...
Definition
 total cost (NOT marginal cost)
Term
 if P > AVC...
Definition
Term
 P<= AVC
Definition
 cannot cover cost. shut down point.
Term
 Perfect competition: Max profit where P __ MR.
Definition
 =
Term
 Perfect Competition:long run profit __ 0
Definition
 profit = 0 P=ATC min ATC
Term
 Perfect competition: production or allocative efficiency?
Definition
 both
Term
 Monopoly: characteristics
Definition
 one firm no close substitutes barriers to entry
Term
 Monopoly: P __ MR
Definition
 >
Term
 Monopoly: long run profit __ 0
Definition
 does not equal
Term
 Monopoly: production or allocated efficiency?
Definition
 neither
Term
 Monopolistic Competition: Characteristics
Definition
 lots of firms slight differentiation in products no barriers to entry or exit
Term
 Monopolistic Competition: max profit, P __ MR
Definition
 >
Term
 Monopolistic Competition: long run  profit __ 0
Definition
 profit = 0 P=ATC does not = min ATC
Term
 Monopolistic Competition: production or allocative efficiency?
Definition
 neither
Term
 Oligopoly: Characteristics
Definition
 small # firms  could be related or differentiated significant barriers to entry
Term
 Oligopoly: Kinked Demand 1.competitors match price __, but not price ___. 2. max profit where MR__MC
Definition
 1. decrease, increase 2. = -MR has a gap!!
Term
 Oligopoly: Game Theory characteristics:
Definition
 -strategies -rules -payoffs dominant strategy equilibrium
Term
 Oligopoly: Game Theory Nash Equilibrium
Definition
 no best strategy. best option is whichever the other chose
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