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48 Cards in this Set
- Front
- Back
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Economics |
the study of how individuals and society choose to use scarce resources |
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capital |
something that has been produced in the past that can be used to produce something else in the future |
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investment |
use resources to produce capital |
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Why study Economics? |
to understand society and global affairs; to be a better-informed citizen |
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opportunity cost |
value of best alternative we give up when we make a choice/decision |
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marginalism |
"think at the margin" -- analyzing the incremental costs/benefits from a choice/decision |
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Cost benefit principle: |
take an action (if and only if) the benefits are at least as great as the (appropriately measured) costs of the nation |
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"efficient markets": |
extraordinary profit opp. are eliminated almost instantly |
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Marginal Benefit |
Change of Total Benefit over Change in quantity |
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Marginal Cost |
Change of Total Cost over Change in quantity |
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Positive Economics |
No opinion, no value; judgement, what is... |
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Normative Economics |
what should be... is an outcome good or bad |
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Equity |
fairness |
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stability |
steady economic growth |
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allocative efficiency |
producing what people want at the lowest possible cost |
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3 questions of Economics |
What gets produced? How does it get produced? Who gets it? |
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Determinants of household goods |
preferences, fads, tastes income/wealth expectation about future prices/income affect demand now prices of related goods |
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Cross-price elasticity of demand |
Ecped=%change of quantity of good x/%change of price of good y |
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Ecped > 0 Ecped<0 |
substitues complements |
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Marginal Revenue = |
change in total revenue over change in quantity |
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In Perfect Competition the Marginal Cost Curve above _______ is the supply curve? |
AVC |
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Shut down if |
Total Revenue is less than Total Variable Cost |
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If typical firms are earning profit > 0 what will happen to the market? |
*New firms will enter market *increasing market supply *MKT price decreases MR *Lowering profits of existing firms *this process will continue until profit = 0 |
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If typical firms are earning profit < 0 what will happen to the market? |
*Firms exit in LR *decrease market supply *MKT P increases *Increasing profits of remaining firms *This process will continue until profit = 0 |
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In Prefect Competition Price = |
Marginal Revenue |
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If price > mc from society's standpoint: |
more should be produced to raise efficiency |
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if price < mc from society's standpoint: |
less should be produced to raise efficiency |
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Public goods: |
goods that bestow collective benefits on members of society |
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Types of market failures |
imperfect info. externalities public goods imperfect mkt |
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Free-rider problem |
since its non excludable, people are unwilling to pay much/anything and firms are unwilling to produce much/any of it |
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drop-in-the-bucket |
one person's contribution is very small portion of cost provision/so people are unwilling to pay much/anything for it |
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Demand=MPB=MSB |
a |
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Supply=MPC=MSC |
a |
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Asymmetric information |
one party in a transaction has more of the revenant info. than the other party |
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Barriers to entry |
Government rules Patent Ownership of a scarce factor of production Network externalities Economics of scale |
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Government Rules |
limits the sale of certain goods/services |
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Patent |
gives exclusive rights for use/production of a product/process |
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Network externalities |
value of a product to consumer goes up with the number of units sold/used in market |
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Economies of scale |
average cost of production is cheaper as scale of production is increased |
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1st degree price discrimination |
each consumer is charged exactly the most they are willing to pay |
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2nd degree price discrimination |
sell off spare capacity more cheaply |
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3rd degree price discrimination |
segment the market into groups and change higher prices to groups with more inelastic demand |
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Characteristics of Monopolistic Competition |
Easy Entry/Exit Many firms Differentiated products |
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Horizontal differentiation |
better for some, worse for some |
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Vertical differentiation |
better for all, worse for all |
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Game matrix |
simultaneous games |
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game tree |
sequential games |
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Prisoner's Dilemma |
game in which both players have a dominant strategy that leaves them both worse off than if they could just cooperate |
