Shared Flashcard Set

Details

Microeconomics
Midterm
76
Economics
Undergraduate 1
03/09/2011

Additional Economics Flashcards

 


 

Cards

Term
economics
Definition
soc. science that studies production, distribution, and consumption of g/s (allocation of resources among competing users)
Term
factors of production
Definition
Capital- final g used in production of other g
Entrepreneurship- assembling of tings/tech/ideas in *innovative* way
Land- the nat'l resources and its ground
Labor- employed individuals and their skill set
Term
scarcity
Definition
lack of enough resources to satisfy all desired uses
Term
rare
Definition
limited amount of something
Term
opportunity cost
Definition
the most desired g/s that are forgone in order to obtain something else
Term
production possibilities
Definition
the alt. combos of final g/s that could be produced in a given time period w/ all the available resources/tech ceteris paribus
Term
ceteris paribus
Definition
holding everything else constant/unchanged
Term
PPF Model
Definition
efficient, inefficient, impossible
Term
Law of Increasing Opportunity Costs
Definition
1. Resources don't transfer perfectly from production of one good to another.
2. Increasing quantities of any good can be obtained only by sacrificing ever increasing quantities of other good.
Term
economic growth
Definition
increase in potential output, an expansion of production possibilities; facilitated by increase in resources and/or advancement in technology
Term
economic contraction
Definition
shrinkage of PPF b/c of loss of resources (destroyed)
Term
marginal rate of transformation
Definition
the amount of 1 good that must be given up to produce 1 additional un. of another good
Term
demand
Definition
the ability and willingness to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus (negative slope)
Term
Law of Demand
Definition
as price of product decreases, the quantity demanded increases
Term
2 intuitive reasons behind Law of Demand
Definition
1. Substitution Effect- if price of good increases, the opp cost increases and it becomes more likely that consumer will substitute some other good instead
2. Income effect- as price of good increases, the consumer's real income decreases, leading to decrease in quantity demanded for all normal goods
Term
real income
Definition
income adjusted for price changes; the purchasing power of income
Term
normal goods
Definition
if income increases, consumer will buy more of that good
Term
income determinants
Definition
1. normal goods
2. inferior goods
Term
inferior goods
Definition
income decreases, buy more (top ramen)
Term
other goods determinants
Definition
1. complements
2. substitutes
Term
demand determinants
Definition
1. Taste and preferences
2. Income
3. Expectations
4. Other goods
5. Number of buyers
Term
supply
Definition
the willingness and ability for producers to sell specific quantities of a good at alternative prices ina given time period, ceteris paribus
Term
Law of Supply
Definition
as price of good increases, quantity supplied increases
Term
2 intuitive reasons behind Law of Supply
Definition
1. Price of product increases, each producer has an increased incentive to up production (capture higher profits)
2. Diff producers have diff production costs as price of good increases, more producers can enter market b/c that higher price covers their costs
Term
supply determinants
Definition
1. Number of sellers
2. Expectations
3. Factor costs
4. Technology
5. Taxes and subsidies
Term
market
Definition
the interaction btwn consumers and producers for a specific goal
Term
equilibrium
Definition
price and quantity where quantity supplied = quantity demanded; compromise btwn actual buyers willing/able to buy product @ equil. price and actual sellers w/a to produce @ equil. amount; OPTIMAL
Term
3 core economic questions
Definition
1. What to produce?
2. How to produce?
3. For whom to produce?
Term
Invisible Hand
Definition
the collective actions of all buyers and sellers will adjust the price of good in market to an equilibrium level
Term
laissez-faire
Definition
the idea that gov't should stay out of the market so the invisible hand can create an equilibrium
Term
command economy
Definition
gov't controls every aspect of the economy
Term
complete market economy
Definition
gov't not intervene; free market
Term
mixed economy
Definition
combo of command and complete market; some regulation for fairness and some freedom
Term
price ceiling
Definition
gov't set max price for a good; if set below EP = shortage
Term
price floor
Definition
gov't set minimum price for a good; if set above EP = surplus
Term
externalities
Definition
costs/benefits of the market activity borne by a third party; the diff btwn soc. and private costs/benefits of a market activity
Term
third party
Definition
not part of transaction btwn consumer and producer but are impacted by production/consumption of product
Term
externalities rule
Definition
market tends to underproduce goods that have a posi externality and overproduce goods that have a negative externality
Term
willingness to pay
Definition
consumer's max price at which they'll buy a good
Term
individual consumer surplus
Definition
net gain to an individual buyer from the purchase of a good; equal to the diff btwn buyer's willingness to pay and price paid
Term
individual producer surplus
Definition
net gain to a seller from selling a good; diff btwn price received and seller's cost
Term
cost
Definition
minimum price at which a seller is willing to sell a good
Term
quota
Definition
the upper limit on the amount of g/s that can be bought/sold
Term
The Wedge
Definition
the potential per un. revenue accrued by a holder of a license by a supply price
Term
excise tax
Definition
a tax on the sales of a g/s
Term
pigouvian tax
Definition
aimed at reducing negative externality
Term
3 kinds of market failure
Definition
1. Presence of public goods
2. Externalities
3. Market power
Term
public good
Definition
product that is nonexcludable and nonrivaled
Term
private good
Definition
excludable and rivaled
Term
common resources
Definition
not excludable but rivaled
Term
artificially scarce goods
Definition
excludable but nonrivaled
Term
merit goods
Definition
society deems everyone should have a minimum of this
Term
free riders
Definition
individuals that have no incentive to pay for their own consumption of a good and instead will take a free ride on anyone who does pay
Term
product differentiation
Definition
features that make 1 product appear different from competing products in the same market
Term
monopolistic competition
Definition
1. many producers
2. producers have monopoly over their brand
3. low entry barriers
4. product differentiation
5. short run profits, 0 in long run
6. some market power
7. close substitutes
Term
natural monopoly
Definition
an industry in which 1 firm can achieve economies of scale over entire range of mkt supply
Term
natural monopoly characteristics
Definition
1. downward sloping ATC curve
2. high entry barriers b/c of fixed costs
3. low variable costs
4. very low marginal cost
5. for some levels of output, firm requires gov't subsidy
Term
monopoly market structure characteristics
Definition
1. only ONE producers of entire supply of g/s
2. no close substitutes
3. higher barriers to entry
4. demand is downward
5. producer has total market pwr
6. price setter
Term
zero market power
Definition
no firm can impact price of product no matter how much it produces
Term
profit maximizing rule
Definition
if P > MC, increase production; if P < MC, decrease production; want P=MC
Term
perfect competition characteristics
Definition
1. many firms
2. perfect info
3. identical products
4. low barriers to entry
5. 0 economic profit
6. all firms are price takers
Term
economies of scope
Definition
reductions in min avg costs for the production of related multiple products
Term
economies of scale
Definition
reductions in minimum acg costs that come about thru increase of size of plant and equipment
Term
2 reasons for diseconomies of scale
Definition
1. coordination and communication probs
2. inefficiency due to increased level of bureaucracy
Term
total cost
Definition
fixed cost + variable cost
Term
marginal cost
Definition
change in total cost / change in output
Term
marginal physical product
Definition
change in total output / change in input quantity
Term
Law of Diminishing Returns
Definition
the MPP of a variable input declines as more of it is employed with a given quantity of other inputs
Term
marginal rate of substitution
Definition
the rate at which a consumer is willing to exchange one good for another
Term
2 properties of an ordinary good
Definition
1. consumer requires more of 1 good to compensate for another good
2. consumer experiences a diminishing marginal rate of sub. when substituting 1 good for the other
Term
optimal consumption mix
Definition
the mix of consumer purchases that maximizes the utility attainable from available income
Term
utility maximizing rule
Definition
one should purchase the item that gives more marginal utility per dollar until income is exhausted
Term
Law of Diminishing Marginal Utility
Definition
each successive unit of a g/s consumed adds less to total utility than the previous unit
Term
2 kinds of utility
Definition
cardinal- size matters!
ordinal- order matters!
Term
price elasticity of demand
Definition
the % change in quantity demanded / % change in price
Term
3 things impact elasticity
Definition
1. availability of substitutes
2. necessity or luxury?
3. time
Supporting users have an ad free experience!