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78 Cards in this Set
- Front
- Back
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Elasticity
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%^Qd/%^P or ^Qd/ ^P * P/Qd
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Marginal Revenue
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Extra Revenue earned from the sale of the next/last unit
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Cross Price Elasticity of Demand
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Shows the % change quantity demand of good for a 1% change in the price of another good
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Income Elasticity of Demand
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The % change in the quantity demand for a 1% change in income
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Price Elasticity of Supply
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The % change in the quantity for a 1% change in price
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Consumer Theory Assumptions
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1. Preferences are complete
2. Preference are Transitive 3. More is Better |
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Indifference Curve
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Shows all possible combs of two good and services which yield equal satisfaction to the consumer
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Utility
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Satisfaction gained from the consumption of goods and services
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Marginal Rate of Substitution
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MRSxy of X for Y shows the max. amount the sonsumer will give up to obtain 1 additional unit of X1 maintaing constant utility
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Diminishing MRSxy
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Indifference curves are convex to the origin
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Model of Consumer Behavior
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Max utility subjected to budet constraints
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Equilibrium
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1. Comb of x & y is affordable
2. There is no offer affordable combo of x & y that yields higher utility |
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Price Consumption Curve
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Shows all equilibrium combos of two goods and services on an indifference app as the price of one good changes.
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Sub. Effect
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Change in consumption resulting form the change in relative price fo the good.
(Px/Py changes as Px changes) |
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Income Effect
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Shows teh change in consumption resulting from the change in p.p of the consumer income
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The production Function
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Show max amount of output attainable for a given combination of inputs
Q=fn(L,K,M) |
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Total Production
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TP of the input is the amount of o.p produced as the level of the input changes
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Average Product of Input
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AP= TP1/I
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Marginal Product
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Margina product of the I.P shows the extra O.P producted when we increase out I.P by 1 I.P
MPi- ^TP1/^I |
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Law of Diminishing Returns
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Returns say as we increase the use of 1 input only, eventually output increases at a decreasing rate. (MP falls)
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Isoquant
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shows different combs of two variable inputs which will product the same amount of output
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Marginal Rate of Technical Substitution
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of K for L is the measure of for the amount of Labor than can be substitute with K without changing output
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Short Run
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A period of time where at least 1 input is fixed
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Long Run
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A period of time where all inputs may var
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Increasing to Scale
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Increasing all inputs, outputs more than double
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Constant-Returns to Scale
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Doubles all inputs but output does not double
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Value of Marginal Product
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VMPi shows the value of the output produced by the last/next unit of output
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Long Run Total Cost
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LR total cost shows the relationship between output & the mini cost of producing when all inputs may vary
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Long Run Average Cost
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Shows the lowest average cost of producing different levels of output when all inputs vary
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Aquring Input
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1. Spot Markets
2. Contracts 3. Vertical Integration |
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Transactional costs
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- are costs in excess of the amount paid to the input of the supplier
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Specialized Investments
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1. Site specificity
2. Physical asset specificity 3. Dedicated asset 4. Human Capital-skills acquired by people |
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Horizontal, Vertical and Conglomerate Merger
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H- firms selling in the same markets
V- firms producer-supplier relationships C- merger of firms in unrelated markets |
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Market Schedule
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# of size of firms
Nature of products Entry/Exit possibilites Forms of competition |
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Implicit Cost
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A cost that is represented by lost opportunity in the use of a company's own resources
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Present Value
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The current worth of a future sum of money or stream of cash flows given a specified rate of return.
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Supply parameters
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Not sure??
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Market
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A place where buyers and sellers exhange goods and services
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Normal Good
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A normal good is one that experiences an increase in demand as the real income increases.
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5 forces of frame work
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Suppler Power
Threat of new entrants Threat of substitutes Buyer Bower Rivalry |
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Producer Surplus
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he difference between the amount that a producer of a good receives and the minimum amount that he or she would be willing to accept for the good
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Deadweight loss
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The costs to society created by market inefficiency
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Principle Agent Problem
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Difficulties in motivating one party to act in the best interest of another party rather than his or her own interest
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Substitution Effect
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as prices rise (or incomes decrease) consumers will replace more expensive items with less costly alternatives.
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Marginal Product of Labor
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is the change in output that results from employing an added unit of labor
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Kinked Demand Model
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Rivals will follow all price decreases
Rivals will not follow any price increase |
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Oliogpoly
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Few Sellers
Some barriers to entry Homogenous or differentiated products |
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Market power
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Ability to influence market price
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Marginal revenue
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Additional revenue that is earned when 1 additional unit is old
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Perfect Competition
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Many buyers and sellers
Mobile Resources Perfect information No public goods or externalities No barriers to entry/exit Homogenous Product |
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Oligolpolistic interdependence
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A firm must take their rival behavior into account in thier own decision making
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Dominate strategy
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One where the strategy is optimal regardless of what the rival does
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Payoff Matrix
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A tool used to help determine the best strategy for a firm to use when given their rivals strategy
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Trigger Strategy
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Taking rival past behavior into account when making decisions
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Long Run Competitive Equilibrium
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Exists when all incentives for expansion and contraction by existing firms exit/entry has vanished
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Monopoly
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1 seller, unique product, strict barrier to entry
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Cournot Oligopoly
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Rivals output is fixed
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Stackelberg Oligopoly
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One firm choose its output first & then the rest of the firm choose their output
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Bertrand Oligopoly
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Few firms
Homogenous Products Firms assume rival prices remain fixed |
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Cartel
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Firms collude to max. industry profit
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Monopolistic Competition
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Many B&S
Each Firm produces differentiated product Free exit/entry from industry |
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Barriers to Entry
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Are any factors which prevent potential competition from entering the industry on an equal footing with existing firms
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Dominate Strategy
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One where the strategy is optimal regardless of what the rival does
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Secure Strategy
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One that guarantees the highest payoff given the worst case senario
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Nash Equilibrium
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Occurs when no player can improve there outcome unilaterally by changing there strategy given their rival strategy
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Reservation Price
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Shows the max price a consumer will pay to buy the good
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Price Discrimination
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Practice of charging different prices for the good when the price differential does not reflect cost differences
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1st degress price discrimination
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Charge each consumer his/her reservation price
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2nd degree price discrimination
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Charge a price based on quantity purcahsed
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Third Degree Price Discrimination
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Charge different customer groups different prcies
To be successful: Must be abel to distinguish the demands No resale allowed |
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Two-part pricing
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Upfront fee for the privilege of purchasing the good
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Block Pricing
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Identical Products are packaged together and sells as a unit
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Bundling
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Bundle two or mroe different products together and sell as a package
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Peak Load Pricing
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High demand
Low Demand |
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Cross-Subsidization
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Cost complementaries
Intercalated Demand |
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Transfer Pricing
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Vertically Integrated
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Intense Pricing
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Price matching
Randomly Pricing |
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Limit Pricing
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Monopolist Lowers Price to deter entry
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