Econ 2020 Exam 3

Front 1

Utility

Back 1

a measure of satisfaction (expressed in utils)

Front 2

Total Utility

Back 2

total satisfaction obtained by consuming all units of a commodity

Front 3

Marginal Utility

Back 3

satisfaction for every additional unit of a commodity

Front 4

Law of Diminishing Marginal Utility

Back 4

marginal utility decreases as supply increases

Front 5

Budget constraint/line

Back 5

the limit on consumption bundles a consumer can afford

Front 6

Optimal consumption bundle

Back 6

Bundle with maximum utility given budget contraints

Front 7

Indifference Curves

Back 7

a graph that shows all bundles of good between which the consumer has no preference of one over the other

Front 8

Marginal Rate of Substitution

Back 8

the rate at which a consumer is willing to give up one good for another while maintaining the same level of utility

Front 9

Principle of Diminishing MRS

Back 9

the more of good x a person consumes in proportion to good y, the less of y the consumer is willing to substitute for x; MRS decreases as Qx increases (this explains why MRS changes along an IC)

Front 10

Perfect Substitutes

Back 10

goods for which the marginal rate o substitution is constant no matter how much of each is consumed

Front 11

Perfect Compliments

Back 11

goods that the consumer consumes at the same rate regardless of price

Front 12

Implicit Costs

Back 12

Opportunity Costs

Front 13

Plant Capacity

Back 13

size of a building and amount of capital equipment

Front 14

Marginal Product of Labor

Back 14

additional output produced by one more unit of variable input

Front 15

Economies of Scale/Increasing Returns of Scale

Back 15

as q rises, long run average total cost falls

Front 16

Diseconomies of Scale/Decreasing Returns of Scale

Back 16

as q rises, long run average total cost rises

Front 17

Utility and Quantity Demand/Willingness to Pay

Back 17

Higher utilities= more demand/more willing to pay

Front 18

Factors that change Budget Line

Back 18

1. Change in Income
2. Change in Price of a specific good
3. Change in price of all other goods

Front 19

Properties of (most) Indifference Curves

Back 19

1. all bundles on a curve give you the same total utility
2. if you raise the curve, you add utility
3. Along an IC, total utility is constant, but the slope changes

Front 20

Special Indifference Curves

Back 20

1. Perfect Substitutes: Optimal consumption will be at an endpoint (all of the cheaper good, none of the other)
2. Perfect Compliments: IC is shaped like a right angle, Optimal consumption will be at the point (equal numbers of both good!)

Front 21

economic vs accounting profit

Back 21

Economic profit is total revenue minus both implicit and explicit costs
Accounting profit is total revenue minus explicit costs only.

Front 22

Normal Profit

Back 22

In a competitive market, and economic profit of $0 is considered a normal profit.
At normal profit your firm is doing just as well as it could in another market and your implicit costs are equal to your accounting profit.

Front 23

Long run vs Short run

Back 23

Short run is the amount of time to allow plant capacity to vary. In the short run a firm may shut down but it can't entirely exit the market.
At long run all costs become variable and a firm is able to enter and exit a market.

Front 24

Fixed vs Variable COsts

Back 24

Fixed Costs:
-cant be varied in the Short Run
-do not change as output changes
-still exist when the output is 0
-usually associated with capital
-examples: leases, payments (anything contractual)

Variable Costs: changes as output changes, go to zero at shut down

Front 25

Law of Diminishing Marginal Returns

Back 25

1. as successive units of a variable resource are added to a fixed resource, a marginal product of the variable resource eventually decrease
2. explains why short run cost curves increase as q increases
3. only applies in the short run (there are no fixed resources in the long run)

Front 26

Factors that shift Cost Curves

Back 26

1. Input prices (price and cost move together)
2. Regulations/Taxes (taxes and costs move together)
3. Technology (technology and costs move opposite)

Front 27

Marginal Utility Equation

Back 27

MU=^TU

Front 28

Total Utility Equation

Back 28

TU= Sum of all MU

Front 29

Opportunity Cost Formulas

Back 29

Cost of Nth unit of x= quantity of y at (n-1) - quantity of y at n

Front 30

Marginal Utility per dollar Equation

Back 30

MUx/Px

Front 31

Utility Maximization Rule

Back 31

MUx/MUy=Px/Py
or
MUx/Px= MUy/Py
or
MRS= Px/Py

Front 32

MRS (slope of an IC)

Back 32

^Qy/^Qx

Front 33

Utility Along an IC Equations

Back 33

along an IC : ^TUx=^TUy=0
= MUx * ^Qx + MUy*^Qy=0
=MUx*^Qx= - MUy*^Qy
^Qx/^Qy= -MUx/MUy

Front 34

Relative Price

Back 34

the ratio of one price to another
RP= Px/Py

Front 35

Relative Price Rule

Back 35

To find Optimal Bundle set MRS=RP
or MUx/MUy=Px/Py

Front 36

Profit (general)

Back 36

TR-Costs=Profit

Front 37

Economic Profit

Back 37

TR- Implicit Costs - Explicit Costs= Economic Profit

Front 38

Accounting Profit

Back 38

TR- Explicit Costs= Accounting Profit

Front 39

Total Cost

Back 39

TC= Fixed Costs (TFC) + Variable Costs (TVC)

Front 40

Average Fixed Cost

Back 40

= TFC/Q

Front 41

Average Variable Costs

Back 41

=TVC/Q

Front 42

Average TOtal Cost

Back 42

=TC/Q=AFC+ATC

Front 43

Marginal Costs

Back 43

=^TC/^Q
or Wage/MPL

Front 44

Marginal Product of Labor Equation

Back 44

MPL=^Q/^L

Front 45

Total Product Equation

Back 45

Q= Sum of MPL