Economics Final :(

Front 1

scarcity

Back 1

the good available are too few to satisfy individual's desires

Front 2

productive efficiencies

Back 2

producing as much output as possible with fixed inputs

Front 3

allocative efficiency

Back 3

produce combination of outputs with highest value

Front 4

distributive efficiency

Back 4

good are given to those who value them most

Front 5

opportunity cost

Back 5

the value of the next best alternative to producing a good

Front 6

marginal analysis

Back 6

consumer stops consuming when MB=MC

Front 7

Production Possibility Curve (PPC)

Back 7

relationship of outputs produced with resources available, given: full and efficient use, fixed resources, specific technology

Front 8

Law of Comparative Advantage

Back 8

largest gain is had when specialization (producers produce product w/ lowest OP) and trading are utilized

Front 9

Law Of Demand

Back 9

all else equal, quantity demanded is inversely related to price

Front 10

Responsiveness of Demand to a Price Change

Back 10

The greater the quantity demanded changes and the flatter the demand curve: the higher the responsiveness

Front 11

Factors that shift demand curve

Back 11

income, price of substitute, price of complement, expectations, demographic, taste

Front 12

Normal Good

Back 12

Good that when income increases, demand increases

Front 13

Inferior Good

Back 13

Good that when income increases demand decreases

Front 14

Law of Supply

Back 14

All else equal, quantity supplied is directly related to price

Front 15

Factors that shift supply curve

Back 15

technology, price of input, price expectations, number of firms/producers

Front 16

Price Support (Floor)

Back 16

Price set by government that is higher than the natural market value. Often creates a surplus which is bought back by govt. with tax payer's money aka income redistribution

Front 17

Price Control (Ceiling)

Back 17

Price that is set below the natural market value that often creates a shortage.

Front 18

Own Price Elasticity of Demand

Back 18

%change in Qdemanded for 1% change in price: =%change Qd/%changeP

Front 19

Arc Price

Back 19

Elasticity between two points on a demand curve

Front 20

Elatic

Back 20

e>1

Front 21

Inelastic

Back 21

e<1

Front 22

Perfectly Inelastic

Back 22

e=0, no response to change in price, creates a vertical demand curve

Front 23

Cross-Price Elasticity

Back 23

% change in Qd for one product with 1% change in price of another product. Positive e = substitue. Negative e = complement

Front 24

Income Elasticity

Back 24

% change in Qd for 1% change in income. Normal good = positive. Inferior good= negative. Luxury > 1. Nessecity less than 1 but greater than 0

Front 25

Unit elastic

Back 25

e=1

Front 26

Revenue with Elastic Demand

Back 26

Price up, Quantity down - Revenue Down. Price and revenue move in opposite directions

Front 27

Revenue with Inelastic Demand

Back 27

Price up, Quantity down - Revenue up.
price and revenue move in same direction.

Front 28

Revenue with Unit Elasticity

Back 28

Price up, Quantity down - Revenue stays the same bc of the 1 to 1 ratio

Front 29

Perfectly Elastic

Back 29

horizontal demand curve, e = infinity. quantity responds enormously to price

Front 30

Revenues with Linear Demand

Back 30

midpoint of demand curve is where e=1 (unit elastic) to the left of midpoint is elastic, to the right of the midpoint is inelastic. creates an upside-down parabola w/ midpoint at midpoint quantity

Front 31

Factors that effect elasticity

Back 31

number and ease of obtaining substitutes. Factors that affect # of substitutes are: time period, degree to how much it is a luxury, market definition and importance of the good in one's budget

Front 32

Consumer Surplus

Back 32

Amount of value a consumer recieves from purchasing a good lower than its value. area above the market price and below the demand curve. TWP - Actual Payment

Front 33

Producer Surplus

Back 33

Dollar measure of a producer's benefit form participating in a transaction. Amount received - WTA. Area above the supply curve, under the market price.

Front 34

Tax on Producers

Back 34

Causes the Supply curve to shift to the right. Space between curves is equal to the tax. Elasticity determines who will receive more burden: less elastic - more burden

Front 35

Passing on the Tax Burden

Back 35

Consumers receive entire tax is demand curve is vertical aka perfectly inelastic. Also if supply curve is perfectly elastic (horizontal supply curve)

Front 36

Tax on Consumers

Back 36

Demand curve is shifted downward to reflect a pseudo demand curve representing the tax as a decrease in income. Quantity is determinded by new equil., price is determinded by that quantity on old demand curve. Producers get P2-tax, so orig. market price

Front 37

Effect of Price Ceiling on Surplus

Back 37

Consumer surplus = area under demand curve, above price, to the quantity suppliers are willing to supply.

Front 38

Per Unit Tax on Producers

Back 38

Causes supply curve to shift the the left: space between S curves is tax: Consumers Pay new equil. price, producers get P1-P0 so CS is above P1 below D curve, PS is below P0 above Orig. S curve. Rectangle in between is deadweight loss

Front 39

Short Run

Back 39

Period of time in which the amount of at least one input is fixed in the production process and firms cannot enter or exit a market

Front 40

Long Run

Back 40

long enough for a producer to adjust all input uses and firms can enter and exit

Front 41

Horizontal Integration

Back 41

Firms operating at different sites but producing the same thing w/ similar methods

Front 42

Vertical Integration

Back 42

firms operate on different production levels w/in an industry e.g oil company owning gas stations

Front 43

Proprietorship

Back 43

owned by one person
advantage: profit taxed only once, easy to organize, simple decision making
disadvantage: unlimited liability, limited financial resources, no specialization

Front 44

Partnership

Back 44

owned by 2 or more people
advantage: easily organized, specialization possible, increased financial resources, profits taxed as personal income only
disadvantage: unlimited liability, limited financial resources, could be disagreement

Front 45

Corporation

Back 45

legal entity distinct from its individual owners. organization that acts as "legal person"
advantage: easier to raise money (stock), limited liability, mass production possible, life span is independent of owners
disadvantages: complex management, corporation profit and personal income taxed, owner and control are separate

Front 46

Business Goal

Back 46

economic profit = total revenue - total cost

Front 47

Explicit Cost

Back 47

costs of production: wages, rent, resources, etc

Front 48

Implicit Cost

Back 48

Opportunity Cost!

Front 49

Production Function

Back 49

relationship of input and max output that each input combination can produce. Labor + Capital

Front 50

Total Product

Back 50

total quantity produced. TP curve shows max output given variations in variable input (L in SR)

Front 51

Average Product of Labor

Back 51

average amount produced by one unit of reliable input given a fixed amount of some fixed input aka productivity APL=TP/L

Front 52

Marginal Productive of Labor

Back 52

additional output resulting from adding oneunit of variable input, given a fixed amount of some fixed input. MPL= change in TP/ change in L

Front 53

Product Curves

Back 53

When AP=MP, AP will be at its highest.

Front 54

SR Law of Diminishing Returns

Back 54

as a firm uses more of a variable input with the presence of a fixed input, its marginal product will eventually diminish

Front 55

SR TFC

Back 55

costs that do not vary w/ output level, i.e costs of fixed input

Front 56

SR TVC

Back 56

cost that varies with output level i.e labor

Front 57

SR TC

Back 57

TFC +TVC

Front 58

Average Fixed Cost

Back 58

average amount of fixed cost to make 1 output. TFC/TP

Front 59

Average Variable Cost

Back 59

average amount of variable cost needed to make 1 output unit TVC/TP

Front 60

Average Total Cost

Back 60

average cost of producing one unit. TC/TP = (TVC+TFC)/TP = AFV + AVC

Front 61

Marginal Cost

Back 61

additional cost of additional output. change in TC/ change in TP

Front 62

Relationship of AVC + APL

Back 62

AVC = wages/APL thus AVC and APL are inversely related

Front 63

Relationship of MC and MP

Back 63

MC = wages/MP thus MC and MP are inversely related

Front 64

Relationship of MPL and APL

Back 64

MPL and APL are directly related, Intersect at max of APL. When MP @ highest - MC @ lowest. When AP @ highest - AVC @ lowest. MC and AVC intersect at AVC lowest pt.

Front 65

Principle of Equal Marginal Productivities per dollar

Back 65

economically efficient production is achieved when MPL/w = MPk/r. r=interest

Front 66

Relationship between LR and SR costs

Back 66

LR ATC curve is the sum of all SR ATC curves

Front 67

Constant Returns to Scale

Back 67

double all inputs - outputs will be doubled. MC and ATC will be fixed.

Front 68

Increasing Returns to Scale/ Economics of Scale

Back 68

double all input - more than double output. MC and ATC decrease

Front 69

Decreasing Returns to Scale/ dis economics to scale

Back 69

Double all input- less than double output. MC and ATC increase

Front 70

Factors that cause cost curves to shit in LR

Back 70

price of inputs

Front 71

Conditions of Perfect Competition

Back 71

buyers & sellers are price takers
# of firms is large
no barriers to entry
identical products
complete information
selling firms are profit maximizing

Front 72

Perfect Competition MR

Back 72

MR = Market Price

Front 73

Demand Faced by Perfectly Competitive Firms

Back 73

Individual firm's demand curve is horizontal, price is determined by market demand. Market demand is downward sloping

Front 74

Economic Profit

Back 74

occurs when point where MC=MR is above the ATC curve

Front 75

Zero Economic Profit

Back 75

Occurs when the point where MC=MR is tangent to the ATC curve

Front 76

Econimic Loss

Back 76

occurs when point where MC=MR is below ATC curve

Front 77

Shut Down Point in SR

Back 77

P< min AVC then shut down bc not enough profit to cover labor costs. Produce so long as the fixed costs are covered.

Front 78

Perfectly Competitive Firm's Supply Curve in the SR

Back 78

section of the firm's MC curve above the minimum AVC (shut down point)

Front 79

Constant Cost Industry

Back 79

Input prices remain constant as output increases. results in horizontal LR supply curve

Front 80

Increasing Cost Industry

Back 80

input prices increase as output increases. results in upward sloping LP supply curve

Front 81

Decreasing Cost Industry

Back 81

input prices decrease as output increases. results in downward sloping LP supply curve. ex. computer chips.

Front 82

Creation of Monopolies

Back 82

extreme barrier to entry. natural ability: unique ability to produce a good more efficiently than all other firms. Economics of scale: one firm can produce at a lower cost than two more more firms can. Government created monoploies

Front 83

Demand Curve faced by Monopolies

Back 83

Demand curve is average revenue curve and is downward sloping.

Front 84

Four Defects of Monopoly

Back 84

monopolies are inconsistent with freedom, the distributional effects of monopolies are unfair, monopolies encourage people to waste time and money trying to get monopolies, there is a welfare loss to society

Front 85

First Degree Price Discrimination

Back 85

Firm charges each consumer their max. willingness to pay for each unit. MR is D curve. Consumer surplus goes to zero bc price is lower, quantity is higher. MC=P at profit max. output thus resource allocation is effictient

Front 86

Second Degree Price Discrimination

Back 86

sell different amounts at different price e.g bulk. Consumer surplus is decreased.

Front 87

Third Degree Price Discrimination

Back 87

Charge different people different price e.g student discount. The market that has inelastic demand will pay higher price. Requires market power, segregation and no resale.

Front 88

Price Regulatoin

Back 88

set by govt. to control price. Socially Optimal Price - P=MC. Fair Return Price - P=ATC so monopoly had zero economic profit.

Front 89

Characteristics of Monopolistic Competition

Back 89

many sellers, differentiated product, low barrier to entry.

Front 90

Demand Curve of MonoComp

Back 90

will not face the entire market demand curve but has some control over price bc they are the sole producer of the product.

Front 91

Profit Max. Output for MonoComp

Back 91

MR=MC

Front 92

Profit for MonoComp

Back 92

May be positive in SR is price is higher than ATC, in LR profit is competed away

Front 93

Characteristics of oligopoly

Back 93

small # of large firms, interdependence among firms

Front 94

Measure of Market Concentration

Back 94

Total sales of 4 largest firms in an industry as a percentage of the total sales of the industry. Add 4 firms sale, divide by total sales of industry

Front 95

Collusion

Back 95

Agreement among firms to avoid certain competitive practices. Cartel: an organization of sellers designed to coordinate supply decisions to maximize profits.

Front 96

Obstacles to Collusion

Back 96

Legal obstacles, the larger number of firms the harder it is to collude, secret price cuts and over producing, low barriers to entry for market

Front 97

Price and Output of Oligopoly

Back 97

Price charged will be lower than monopolist but higher than competitive. Strong incentive to cheat on agreements so price and quantity will even out

Front 98

Sherman Antitrust Act

Back 98

1890- law designed to regulate the competitive process by making monopolizing and restraint of trade illegal

Front 99

Clayton Act

Back 99

1914 - Law that made four specific monopolistic practices illegal: price discrimination, tie in contracts, interlocking directorships, buying stock in competitor's company to reduce competition

Front 100

Horizontal Merger

Back 100

to combining of two companies in the same industry.

Front 101

Vertical Merger

Back 101

a combination of two companies that are involved in different phases of producing a product

Front 102

Federal Trade Commission Act

Back 102

1914 - law that made it illegal for firms to use "unfair methods of competition" and to engage in "unfair or deceptive acts or practices"

Front 103

Robinson-Patman Act

Back 103

1936 - made it illegal for many firms to lower prices