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51 Cards in this Set

  • Front
  • Back
salary changes and effects demand
Ceteris Paribus is out
normal good
as income increases you buy more of good. ie, cars, clothes
inferior good
as income increases you buy less of good. ie, hamburder helper
luxury good
as income increases you buy a greater % than the increase in income. ie, BMW, jewlery
economic expansion
an increase in income for society as a whole. (increase in Y)
economic contraction
a decrease in income for society as a whole. (decrese in Y).
Demand for goods during an expansion/contraction
D for normal goods shifts to the right during an expansion.
D for inferior goods shifts to the righ during a contraction.
price ceiling
a government mandated price above which it is illegal to transact. ie, rent control
price floor
a government mandated price below which it is illegal to transact. minimum wage
min. wage
as it rises, unemployment increases by .001%
elasticity
how responsive one variable is to a change in another. this is usually applied to price, how much q changes when price goes up.
elastic demand
buyers are more responsive to change in price.

change in Q > change in P:
E>1

P up, TR down
unitary elastic Demand
change in Q = change in P:
E=1
Inelastic Demand
buyers are relatively unresponsive to P changes.

change in Q < change in P:
E<1

P up, TR up
Perfectly Inelastic
buyers are completely unresponsive to change in P.

Chnage in Q = 0:
E=0
elasticity along a D curve
as price increase, buyers become more responsive, or elastic.
determinats of Elasticity
Price, availability of substitutes, and income of elasticity.
cross price elasticity
measures buyers relative responsiveness to a change in P of one good in terms of QD of another good. how markets affect one another.

E=+ substitute
E=- Compliment
surplus of benefit
when someone was willing to pay a lot for a good, but got it at Pe.
Total Surplus(TS)=
Producer surplus(PS) + Consumer Surplus(CS)
Market clearing Price
Supply and Demand equilibrium.
Most social welfare.
TS is at maximum.
Market Failure happens when:
insufficient competition
good is not purely private
externalities
Benefit or Cost of an individual activity that is not recieved
types of externalities
Positive consumption: xmas lights
Negative Consumption: Loud Stereo
Positive Production: Research and Development
Negative Production: Pollution
how to address externalities:
piguvian Tax, Piguvian Subsidy
public good
common resource, benefits everyone, non excludable, non rival. ie, Park, national defense, grass.
firm
an organization that produces output for outsiders
Profit =
TR-TC
Variable inputs
inputs that can be changed.
labor, utilities, parts
fixed inputs
inputs that can not be changes.
always at least one.
capitol=buildings
fixed costs
costs associated with the fixed inputs.
can not be changed
variable costs
costs associated with the variable inputs.
can be changed.
total cost=
Total fixed cost + total variable cost
production function
depicts maximum amount of output a firm can produce for a given set of inputs. (Cobb Douglas function)
law of deminising returns of labor
if there exist as least one fixed input, than as the employment of remaining inputs increase, eventually the rate at which outputs rise will deminish.
Decresing return to scales
as capital increases, LRATC increases
increasing return to scales
as capital increases, LRATC decreases
constant return to scale
as capital increases, LRATC stays the same.
Competitive firms
Homogeneous goods
many buyers and sellers
free exit and entry
no transaction cost
perfect information
firms are price takers
conduct of competitive market
will produce up to where MC=MR
supply curve is MC curve (as long as it is above shutdown point).
short run shutdown point
firm will not sell anywhere below this point.
lowest point of AVC curve
performance of Competitive markets
economic profits tend towards 0
firms can only make a profit in the short run (this is why they have an incentive to innovate).
monopolistic firms
only seller of a good
no free entry
no close substitutes
price setters
no incentive to innovate
natural monopoly
too expensive for firms to get into. electric
pure monopoly
not allowing other firms to get into market, illegal.
anti-trust law`
economy functions best when competitors have limits
sherman anti-trust act
1880,
prevents ind. from deciding how the market will be run
there are no more pure monopolies
collusion
rival companies joining for benefit
price fixing
aggrement to sell at same price
price descrimination
charging different prices
mlb
antitrust exemption