# Shared Flashcard Set

## Details

Microeconomics
final
31
Economics
05/08/2011

Term
 Price elasticity of demand
Definition
 % change in quantity demanded/ % change in price elastic with respect to price if the absolute value of elasticity >1 inelastic if <1 unit elasticity= 1
Term
 if demand is elastic a price increase will a.___ total expenditure and a price reduction will b.___ total expenditure if demand is inelastic a price increase will c___ total expenditure and a price reduction will d.___ total expenditure
Definition
 a. reduce b. increase c.increase d. reduce
Term
 Income elasticity of Demand
Definition
 percentage change by which quantity demanded changes in response to a 1 percent change in income
Term
 Marginal Utility
Definition
 change in utility/ change in consumption the change that occurs as we move from one quantity (subtract quantities)
Term
 What affects compliment and substitute goods?
Definition
 Complements: an increase in price of one causes leftward shift in demand curve for the other substitutes: increase in price of one causes rightward shift in demand curve for the other
Term
 Factors that cause an increase in demand (rightward shift) (6 things)
Definition
 1) decrease in price of compliments 2) increase in price of substitutes 3) increase in income (for a normal good) 4) increase in preference by demanders for goods 5) increase in population of potential buyers 6) expectation of higher prices in the future
Term
 6 factors that increase supply (rightward shift)
Definition
 1) decreae in cost of materials, labor or other inputs used in production of goods 2) improvement in technology 3) improvement in weather 4) increaes in number of suppliers 5) expectation of lower future prices
Term
 Rational Spending Rule
Definition
 spending should be allocated across goods so that marginal utility per dollar is the same for each good MUc/Pc=MUv/Pv
Term
 Difference between real and nominal price
Definition
 Real price: the \$ price of a good relative to the average dollar price of all other goods nominal price: the absolute price of a good in \$ terms
Term
 law of diminishing returns
Definition
 a property of the relationship between the amount of a good or service produced and the amount of a variable factor required to produce it - when some factors of production are fixed, increased production of a good eventually requires even larger increases in the variable factor
Term
 fixed factor of production vs variable factor of production
Definition
 fixed input: an input whose quantity cannot be altered i nthe short run variable input: input whose quantity can be altered in the short run
Term
 fixed, variable, total, and marginal costs
Definition
 fixed cost: sum of all payments made to the firms fixed input variable cost: sum of all payments made to the firms variable input total cost: FC+VC marginal cost: as output changes from one level to another => change in TC/ change in output
Term
 Profit equation
Definition
 total revenue- total cost (VC+FC)
Term
 Average variable cost, average total cost, and the short run shutdown condition
Definition
 AVC=VC/Q ATC=TC/Q Shutdown condition: P< min value of AVC curve
Term
 Price and Marginal cost relationships (3 conditions)
Definition
 1) when price= marginal cost= the perfectly competitive firm's profix maximizing supply rule 2) p>MC firm can increase profit by expanding production and sales 3) P
Term
 Profit equation
Definition
 (p-ATC)*Q
Term
Definition
 reduction in total economic surplus that results from the adoption of a policy
Term
 three types of profit and their differences
Definition
 accounting profits= total revenue- explicit costs (actual payments a firm makes to its factors of production and other suppliers) economic profits= total revenue- explicit costs- implicit costs (opportunity costs of resources supplied by firm's owners) normal profit= economic profit- accounting profit
Term
 Pure monopoly
Definition
 the only supplier of a unique product with no close substitutes
Term
 constant and increasing returns to scale
Definition
 constant: all inputs are changed by a given proportion, output changes by same proportion increasing: all inputs are changed bya given proportion, output changes by more than proportion economies of scale
Term
 Finding TC and ATC with economies of scale
Definition
 TC= FC+ MC*Q ATC= FC/Q +MC
Term
 Profit Maximization rule for Monopolies
Definition
 when MR=MC
Term
 Perfectly discriminating monopoly
Definition
 firm that charges each buyer exactly their reservation price
Term
 hurdle method of price discrimination and the perfect hurdle
Definition
 - the practice by which a seller offers a discount to al buyers who overcome some obsticles - a threshold that completely segregates buyers whose reservation price lie above it from others whose reservation price lies belw it imposing no cost on those that jump the hurdle
Term
 Prisoner's dilema
Definition
 game in which each player has a dominating strategy and when each plays it the resulting profits are smaller than if each had played a dominated strategy
Term
 cartel
Definition
 a coalition of firms that agree to restrict output for the purpose of earning economic profit
Term
 Social marginal cost and private marginal costs equation
Definition
 social MC= private MC+XC(externalities) difference between private MC and social MC results in deadweight loss
Term
 Asymmetric Information
Definition
 situation in which buyers and sellers are not equally informed about the characteristics of the goods and services fro sale in the marketplace
Term