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45 Cards in this Set
- Front
- Back
Total Utility
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the total satisfaction a consumer receives from the consumption of a good or service
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Diminishing marginal Utility
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at aome point in the consumption parrern of a good, each additional unit consumed yiealds less additional satisfaction (utility)
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INcome effect
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as the price of a particular good decreases, a consumer can afford more of it and other goods
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Substitution Effect
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as the price of a particular good decreases, a consumer may buy more of this food relative to the price of substitute good
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Consumer surplus
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the difference between the utitlity gained and the price paid by the consumer. THe utility gained would measure the value of the product to the consumer. The price paid by the consumer would be the market price.
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Externalities
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either the buyer or the seller does not "capture" all of the benefits of a transaction
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Social costs
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those costs which are incurred by the public, ie, polluted waterways; these are costs not captured by the market
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Social benefits
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those benefits wich are realized by the public or outside the buyer/seller exchange
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Pure private good
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a good that has exclusion and distributive characteristics
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Technoloical efficiency
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the identification of those inputs that have the greatest effet on output per $ of input expenditure
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Allocative efficiency
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the channeling of resoures to their most productive and desired uses
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Pareto efficiency
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the optimal point (efficient point) for society when any further improvement for some comes at the expense of others
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Pure public goods
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goods which have non-exclusion and non-distributive characteristics
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Quasi-Public Goods
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goods which have some limited private good characteristics such as contestable public goods and price-excludable public goods
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Marginal social cost
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MSC = Private marginal cost + Negative Externality
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F: MSC
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= MCp + Tax where tax equals the value of the neative externality
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F: Marginal Social Benefits
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Private Marginal Benefits + positive externality
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Law of Diminishing Marginal Productivity
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the range of output over which smaller and ssmaller additional units of output are produced as successive equal increments of a varaible input are added to fixed quantities of other inputs in the short run
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Economies of scale
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savings per unit costs of production as output increases
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Short run
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period of time over which supply cannot fully adjust to changes in demand
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Long Run
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period of time over which supply can fully adjust to changes in demand
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Opportunity costs 2
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the cost incurred whn resources are engaged in one activity are not as productive as they would have been in a forgone activity
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F: Total Costs =
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TVC + TFC
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F: Average Total Costs =
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AVC(TVC/Q) + AFC(TFC/Q)
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F: Marginal Costs
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the change in the TC with one additional unit of output
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Perfect competition
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this structure is characterized by a larager number of sellers with a homogeneous product, infinitely elastic demand, and no barriers to entry or exit (a price-taker)
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Monopoly
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one firm constitutes themarket (industry) selling a product for which there are no close substitutes
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Monopolisitic competition
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this structure is characterized by many medium-sized firms who need to be innovative and differentiate their products in price and non-price ways
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Oligopoly
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this market structure is characterized by relatively few sellers who at interdependently an/or collusively to be price-makers and to control markets
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Economic Efficiency
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the allocation of resources to most productive nad sesire users
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Profit maximizing (loss minimizing) criterion> Golden RULE!
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the level of output at which marginal revenue (MR) equals marginal cost (MC)
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Shut down Criteria
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in the shor run, the firm should shut down when price does not cover average variable cost (AVC)
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P< AVC
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Firms shust down in the short run
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P = MR
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Perfectly competitive firm's demand function
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MC = MR
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PRofit Max. criterion
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P = MC
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socially optimal price (under perfect competion in the long run); efficiency
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P (for perfect competition)
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minimum average cost in the loong run for a perfectly competitvive firm
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Herfindahl index
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the sum of the squares of market shares of firms in a partiular market or industry. this is used to measure the level of concentrated power of firms in an industry
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Monopoly
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one firm constitutes the market or industry where there are no close substitutes available for consumers. A monopolist is a price maker.
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Dead-weight loss
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the loss to society in the form of a reduction of consumer surplus from a competitve norm beyond any surplus reduction from a monopoly profit
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PRice-discrimination
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this practice charges different customers with different prices for the same product
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Natural monopolies
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these are monopolies for which competition would prevent the benefits of economies of scale
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F: Lerner index
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= (P-MC)/p
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Regulated monopolies pricing at a fair rate of return
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P = AC at intersection of demad curve and average cost curve
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Regulated monopolies pricing at socially optimal price:
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Price = MC (at the intersection of demand curve and margibal cost curve)
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