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79 Cards in this Set
- Front
- Back
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Demand
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A family of numbers that lists the quantity demanded corresponding to each possible price
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Does a change in price lead to a change in demand or in quantity demanded?
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quantity demanded
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Supply
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A family of numbers giving the quantities supplied at each possible price
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What does a sales tax do to the equilibrium quantity?
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reduces it
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If a sales tax is imposed of 5 cents per item, by how much does the equilibrium price fall?
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less than 5 cents per item
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Economic incidence
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Division of a tax burden according to who actually pays the tax
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Legal incidence
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Division of a tax burden according to who is required under the law to pay the tax
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True or False: The division of the tax burden will be the same under an excise tax as it is under a sales tax
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True
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In microeconomics, the single word price refers to...
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Relative price
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Inflation
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An ongoing rise in the average level of absolute prices
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Comparative advantage
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The ability to perform a given task at a lower way; also known as being more efficient
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In general, do people in society benefit from specializing in areas in which they are more efficient then trading with others?
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Yes
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Goods
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Items of which the consumer would prefer to have more rather than less
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Indifference Curve
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A collection of baskets, all of which the consumer considers equally desirable
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Marginal Value of X in terms of Y
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The number of Y's for which the consumer would be just willing ot trade over X
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The steeper the IC, the (greater or smaller) the marginal value of an egg
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greater
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What are four facts about IC's?
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They slope downward, the fill the plane, they never cross, and are convex
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Budget Line
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The set of all baskets that the consumer can afford, given prices and his or her income
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Consumer's Optimum
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Basket at the point where the budget line is tangent to an indifference curve
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Corner Solution
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An optimum occurring on one of the axes when there is no tangency between the budget line and an indifference curve
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What do nonconvex indifference curves lead to?
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corner solution
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If two different indifferent curves cross between two different people, can they have the same taste?
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No
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Utility
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A measure of pleasure or satisfaction
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Marginal utility of X (MUx)
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The amount of additional utility derived from an additional unit of X when the quantity of Y is held constant
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What does MUx/MUy equal?
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Px/Py
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Normal Good
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A good that you consumer more of when your income rises
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Inferior Good
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A good that you consumer less of when your income rises
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Engel Curve
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A curve showing, for fixed prices, the relationship between income and the quantity of a good consumed
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Which way do Engel curves slope for normal goods?
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upward
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Which way do Engel curves slope for inferior goods?
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downward
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A rise in the price of X causes the budget line to pivot (inward or outward)
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inward
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A fall in the price of X causes the budget line to pivot (inward or outward)
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outward
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Giffen good
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A good that violates the law of demand
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Non-giffen good
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A good that follows the law of demand
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Substitution effect of a price increase
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A change in consumption due to the fact that you won't buy goods whose marginal value is below the new price
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When the price of a good goes up, the substitution effect leads you to consume (more or less) of it
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less
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Income effect of a price increase
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A change in consumption due to the fact that you can no longer afford your original basket and are therefore effectively poorer
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When the price of a good goes up, the income effect leads you to consumer either less of this (if the good is...) or more of it (if the good is...)
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normal...inferior
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Compensated budget line
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parallel to new budget line and tangent to the original indifference curve
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When is an inferior good non-Giffen?
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When the substitution effect exceeds the income effect
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An inferior good is Giffen if...
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the income effect exceeds the substitution effect
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What two conditions must a Giffen good satisfy?
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It must be inferior and the income effect must exceed the substitution effect
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Income elasticity of demand (definition)
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The percent change in consumption that results from a 1% increase in income
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Income elasticity of demand (formula)
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(change in Q/Q)/ (change in I/I)
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Price elasticity of demand (definition)
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The percent change in consumption that results from a 1% increase in price
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Price elasticity of demand (formula)
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(change in Q/Q) / (change in P/P)
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When would we say a good is highly elastic?
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when there is a price elasticity of demand for a good that has a large absolute value
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When there are many substitutes for a good, does demand tend to be elastic or inelastic?
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elastic
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Cross elasticity of demand (definition)
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percent change in consumption that results from a 1% increase in the price of a related good
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Substitutes
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Goods for which the cross elasticity of demand is positive
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Complements
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Goods for which the cross price elasticity of demand is negative
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Are large cross elasticities evidence for competition or monopolies?
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competition
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Firm
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An entity that produces and sells goods, with the goal of maximizing its profits
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Marginal benefit/cost
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The additional benefit/cost gained/associated from the last unit of an activity.
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Equimarginal principle
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The principle that an activity should be pursued to the point where marginal cost equals marginal benefit
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Marginal cost is the slop of what curve?
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Total cost curve
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Fixed costs
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Costs that don't vary with the quantity of output
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Sunk Cost
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A cost that can no longer be avoided
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Whenever a worker's marginal product is greater than the average product, adding that worker causes average product to...
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rise
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Whenever a worker's marginal product is below the average product, adding that worker causes average product to...
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fall
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What is the only variable cost in the short run?
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cost of labor
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Capital
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physical assets used as factors of production
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AVC= ...
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Pl / APL
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MC = ...
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Pl / MPL
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Technologically inefficient
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A production process that uses more inputs than necessary to produce a given output
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Unit isoquant
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the set of all technically efficient ways to produce one unit of output
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Marginal rate of technical substitution of labor for capital (MRTS(lk))
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The amount of capital that can be substituted for one unit of labor, holding output constant
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When much labor and little capital are employed, MRTSlk is (small or large)?
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small
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When little labor and much capital are employed, MRTS(lk) is (small or large)?
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large
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MRTS(lk) = ...
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MPL/MPK
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Production Function
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The rule for determining how much output can be produced with a given basket of inputs
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Isocost
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The set of all baskets of inputs that can be employed at a given cost
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In order to minimize the cost of producing a given level of output, the firm always chooses a point of...
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tangency between an isocost and the appropriate isoquant
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A firm should seek to equate marginal cost with marginal benefit which looks like what formula?
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MRTS(lk) - Pl / Pk
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Expansion path
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The set of tangencies between isoquants and isocosts
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Long-run total cost
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The cost of producing a given amount of output when the firm is able to operate on its expansion path
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Long-run average cost
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Long-run total cost divided by quantity
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Long-run marginal cost
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That part of long-run total cost attributable to the last unit produced
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Short run total cost is always at least as great as...
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long run total cost
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