Micro Test 2

Front 1

Price Elasticity Of Demand

Back 1

Measures how responsive quantity demanded is to a price change; the percentage change in quantity demanded divided by the percentage change in price.

Price Elasticity of Demand=
Percentage change in quantity demanded
Percentage change in price

Front 2

Price Elasticity Formula

Back 2

Percentage change in quantity demanded divided by the percentage change in price; the average quantity and average price are used as bases for computing percentage changes in quantity and in price.

ED= q / p
(q+q1)/2 (p+p1)/2

Front 3

Inelastic Demand

Back 3

A change in price has relatively little effect on quantity demanded; the percentage change in quantity demanded is less than the percentage change in price; the resulting price elasticity has an absolute value of less than 1.0

Front 4

Unit-Elastic Demand

Back 4

The percentage change in quantity demanded equals the percentage change in price; the resulting price elasticity has an absolute value of 1.0

Front 5

Elastic Demand

Back 5

A change in price has a relatively large effect on quantity demanded; the percentage change in quantity demanded exceeds the percentage change in price; the resulting price elasticity has an absolute value exceeding 1.0

Front 6

Total Revenue

Back 6

Price multiplied by the quantity demanded at that price

Front 7

Linear Demand Curve

Back 7

A straight-line curve; such as a demand curve has a constant slope but usually has a varying price elasticity.’

Front 8

Perfectly Elastic Demand Curve

Back 8

A horizontal line reflecting a situation in which any price increase reduces quantity demanded to zero; the elasticity has an absolute value of infinity.

Front 9

Perfectly Inelastic Demand Curve

Back 9

A vertical line reflecting a situation in which any price change has no effect on the quantity demanded; the elasticity value equals zero.

Front 10

Unit- Elastic Demand Curve

Back 10

Everywhere along the demand curve, the percentage change in price causes an equal but offsetting percentage change in quantity demanded, so total revenue remains the same; the elasticity has an absolute value of 1.0

Front 11

Constant- Elasticity Demand Curve

Back 11

The type of demand that exists when price elasticity is the same everywhere along the curve; the elasticity value is constant

Front 12

Price-Elasticity of Supply

Back 12

A measure of the responsiveness of quantity supplied to a price change; the percentage change in quantity supplied divided by the percentage change in price.

Es= q / p
(q + q1)/2 (p+p1)/2

Front 13

Inelastic Supply

Back 13

A change in price has relatively little effect on quantity supplied; the percentage change in quantity supplied is less than the percentage change in price; the price elasticity of supply has a value less than 1.0

Front 14

Unit-Elastic Supply

Back 14

The percentage change in quantity supplied equals the percentage change in price; the resulting price elasticity of supply equals 1.0

Front 15

Elastic Supply

Back 15

A change in price has a relatively large effect on quantity supplied; the percentage change in quantity supplied exceeds the percentage change in price; the resulting price elasticity of supply exceeds 1.0

Front 16

Perfectly Elastic Supply Curve

Back 16

A horizontal line reflecting a situation in which any price decrease drops the quantity supplied to zero; the elasticity value is infinity.

Front 17

Perfectly Inelastic Supply Curve

Back 17

A vertical line reflecting a situation in which a price change has no effect on the quantity supplied; the elasticity value is zero.

Front 18

Unit-Elastic Supply Curve

Back 18

A percentage change in price causes an identical percentage change in quantity supplied; depicted by a supply curve that is a straight line from the origin; the elastic value equals 1.0

Front 19

Income Elasticity of Demand

Back 19

The percentage change in demand divided by the percentage change in consumer income; the value is positive for normal goods and negative for inferior goods.

Front 20

Cross-Price Elasticity of Demand

Back 20

The percentage of change in the demand of one good divided by the percentage of change in the price of another good.

Front 21

Total Utility

Back 21

The total satisfaction a consumer derives from consumption; it could refer to either the total utility of consuming a particular good or the total utility from all consumption.

Front 22

Marginal Utility

Back 22

The change in total utility derived from a one-unit change in consumption of a good.

Front 23

Law of Diminishing Marginal Utility

Back 23

The more of a good a person consumes per period, the smaller the increase in total utility from consuming one more unit, (o.t.c.)

Front 24

Consumer Equilibrium

Back 24

The condition in which an individual consumer’s budget is spent and the last dollar spent on each good yields the same marginal utility; therefore, utility is maximized.

Front 25

Marginal Valuation

Back 25

The dollar value of the marginal utility derived from consuming each additional unit of a good.

Front 26

Consumer Surplus

Back 26

The difference between the maximum amount that a consumer is willing to pay for a given quantity of a good and what the consumer actually pays.

Front 27

Indifference Curve

Back 27

Shows all combinations of goods that provide the consumer with the same satisfaction, or the same utility (the consumer finds all combinations on a curve equally preferred).

Front 28

Marginal Rate of Substitution

Back 28

The number of “A” you are willing to give up to get more of “B”. neither gaining nor losing utility in the process.

Front 29

The Law of Diminishing Rate of Substitution

Back 29

……States that as your consumption of “A” increases, the amount of “B” you are willing to give up to get another “A” declines.

Front 30

Indifference Map

Back 30

A graphical representation of a consumers tastes. Each curve reflects a different level of utility.

Front 31

Rules of Indifference Curves

Back 31

COULD BE ON TEST
-Each indifference curve reflects a constant level of utility: the consumer is indifferent among all consumption combinations along a given curve.

-Increases in the consumption of one good must be offset by a decrease in the consumption of the other good: indifference curves slope DOWNWARD.

-Higher indifference curves represent higher levels of utility

-Law of diminishing marginal rate of substitution: indifference curves are bowed in toward the orgin

-They do not intersect

-Graphical representation of consumer preferences

Front 32

Explicit Cost

Back 32

Opportunity cost of resources employed by a firm that takes the form of cash payments.

Front 33

Implicit Cost

Back 33

A firms opportunity cost of using its own resources or those provided by its owners without a corresponding cash payment

Front 34

Accounting Profit

Back 34

A firms total revenue minus its explicit costs.

Front 35

Economic Profit

Back 35

A firms total revenue minus its explicit AND implicit costs.

Front 36

Normal Profit

Back 36

The accounting profit earned when all resources earn their opportunity cost.

Front 37

Variable Resources

Back 37

Any resource that CAN be varied in the short run to increase or decrease production.

Front 38

Fixed Resource

Back 38

Any resource that CANNOT varied in the short run.

Front 39

Short Run

Back 39

A period during which at least of one a firm’s resources is fixed.

Front 40

Long Run

Back 40

A period during which all resources under the firm’s control are variable.

Front 41

Total Product

Back 41

The total output produced by a firm.

Front 42

Production Function

Back 42

The relationship between the amount of resources employed and a firms total product

Front 43

Marginal Product

Back 43

The change in total product that occurs when the use of a particular resource increases by one unit, all other resources constant.

Front 44

Increasing Marginal Returns

Back 44

The marginal product of a variable resource increases as each additional unit of that resource is employed.

Front 45

Law of Diminishing Marginal Returns

Back 45

As more of a variable resource is added to a given amount of a fixed resource, marginal product eventually declines and could become negative.

Front 46

Long-Run Average Cost Curve

Back 46

A curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the planning curve.

Front 47

Economies Of Scale

Back 47

Forces that reduce a firms average cost as the scale of operation increases in the long run.

Front 48

Diseconomies Of Scale

Back 48

Forces that may eventually increase a firm’s average cost as the scale of operation increases in the long run.

Front 49

Constant Long-Run Average Cost

Back 49

At cost that occurs when, over some range of output, long run average cost neither increases nor decreases with changes in firm size.

Front 50

Production Function

Back 50

Identifies the maximum quantities of a particular good or service that can be produced per time period with various combinations of resources, for a given level of technology.
[ This can be presented as an equation, a graph, or a table]

Front 51

Fixed Cost

Back 51

Any production cost that is independent of the firm’s rate of output.

Front 52

Variable Cost

Back 52

Any production cost that changes as the rate of output changes.

Front 53

Total Cost

Back 53

The sum of fixed cost and variable cost, or TC= FC+ VC

Front 54

Average Variable Cost

Back 54

Variable cost divided by output, or AVC= VC/q

Front 55

Average Total Cost

Back 55

Total cost divided by output, or ATC=TC/q; the sum of average fixed cost and average variable cost, or ATC=AFC+AVC

Front 56

Isoquant Curve

Back 56

a curve that shows all the technologically efficient combinations of two resources such as labor and capital that produce a certain rate of output.

Front 57

Properties of Isoquants

Back 57

1.) isoquants farther from the origin represent greater output rates
2.) isoquants have negative slopes because along a given isoquant the qunaitity of labor employed inversely relates to the quantity of capital employed
3.) isoquants do not intersect because each isoquant refers to a specific rate of output.
4.) isoquants are usually convex to the origin.

Front 58

Marginal Rate of Technical substitution

Back 58

the rate at which labor substitutes for capital without affecting output

Front 59

Isocost line

Back 59

identifies all combinations of capital and labor the firm can hire for a given total cost

Front 60

Expansion Path

Back 60

the line formed by connecting tangency points

Front 61

Market Structure

Back 61

important features of a market such as the number of firms product infirmity across firms firms’ ease of entry and exit, and forms of competition.

Front 62

Perfect Competition

Back 62

A market structure with many fully informed buyers and sellers of a standardized product and no obstacles to entry or exit of firms in the long run

Front 63

Commodity

Back 63

a standardized product, a product that does not differ across producers, such as bushels of wheat or an ounce of gold

Front 64

Price Taker

Back 64

a firm that faces a given market price and whose quantity supplied ahs no effect on that price; a perfectly competitive firm

Front 65

Marginal Revenue

Back 65

the change in total revenue from selling an additional unit; in perfect competition this is also the market price.

Front 66

Average Revenue

Back 66

total revenue divided by output. In all market structures, average revenue equals the market price.

Front 67

Short-Run firm supply curve

Back 67

- a curve that shows the quantity a firm supplies at each price in the short run; in perfect competition that portion of a firms marginal cost curve that intersects and rises above the low point on its average variable cost curve.

Front 68

Short-Run industry supply curve

Back 68

a curve that indicates the quantity supplied by the industry at each price in the short run; in perfect competition the horizontal sum of each firms short run supply curve.

Front 69

Long-run industry supply curve

Back 69

a curve that shows the relationship between price and quantity supplied by the industry once firms adjust fully to any change in market demand.

Front 70

Constant-Cost Industry

Back 70

An industry that can expand or contract without affecting the long run per-unit cost of productions; the long-run industry supply curve is horizontal.

Front 71

Increasing-Cost Indrusty

Back 71

An industry that faces higher per-unit production costs as industry output expands in the long run; the long run industry supply curve slopes upward.

Front 72

Producer Efficiency

Back 72

The condition that exists when market output is produced using the least-cost combination of inputs; minimum average cost in the long run.

Front 73

Allocative Efficiency

Back 73

The condition that exists when firms produce the output most preferred by consumers; marginal benefit equals marginal cost.

Front 74

Producer Surplus

Back 74

A bonus for producers in the short run; the amount by which total revenue from productions exceeds variable costs

Front 75

Social Welfare

Back 75

The overall well-being of people in the economy, maximized when the marginal cost of productions equals the marginal benefit to consumers.

Front 76

Barrier to Entry

Back 76

Any impediment that prevents new firms from entering an industry and competing on an equal basis with existing firms.

Front 77

Patent

Back 77

A legal barrier to entry that grants its holder the exclusive right to sell a product for 20 years from the date the patent application is filed. [Pharmaceuticals]-Back in the 1990s we had a lot of generic drug makers and they cut the patent law to 10 years for drugs? So drugs companies doubled their prices.

Front 78

Innovations

Back 78

The process of turning an invention into a marketable product.

Front 79

Economies of Scale

Back 79

Already Defined
Sometimes a monopoly occurs when a firm experiences economies of scale, as reflected by a downward sloping, long run average cost curve.
[Exhibit 1]
Electricity

Front 80

Price Maker

Back 80

A firm that must find the profit maximizing price when the demand curve for its output slopes downward. [Graph: Monopoly]

Front 81

Deadweight Loss of Monopoly

Back 81

Net loss to society when a firm uses its market power to restrict output and increase price.

Front 82

Rent Seeking

Back 82

Activities undertaken by individuals or firms to influence public policy in a way that will increase their incomes.

Front 83

Price Discrimination

Back 83

Increasing profit by charging different groups of consumers different prices when the price differences are not justified by differences in costs.

Front 84

Perfectly Discriminating Monopolist

Back 84

A monopolist who charges a different price for each unit sold; also called the monopolists dream.

Front 85

Excludability

Back 85

The property of a good whereby a person can be prevented from using it.

Front 86

Rivalry in Consumption

Back 86

The property of a good whereby one persons use diminishes other people’s use.

Front 87

Private Goods

Back 87

Goods that are both excludable and rival in consumption.

Front 88

Public Goods

Back 88

Goods that are neither excludable nor rival in consumption

Front 89

Common Resources

Back 89

Goods that are rival in consumption but not excludable.

Front 90

Free Rider

Back 90

A person who receives the benefit of a good but avoids paying for it. (Fireworks… they are not excludable).

Front 91

National Defense

Back 91

(is neither excludable nor rival in consumption).

Front 92

Basic Research

Back 92

Created through research.

Front 93

Scientific Research

Back 93

Can be patented.

Front 94

General Knowledge is a public good.

Back 94

The government tries to provide the public good of general knowledge to a variety of ways.

National Institutes of Health

The National Science Foundation

…subsidize basic research in medication, math, physics, chemistry, biology, and economies.

Congress…funding… the “black box” syndrome.

Front 95

Temporary Assistance for Needy Families (Welfare System)

Back 95

Provides a small income for some poor families.

Food Stamp program subsides the purchase of food.

Government housing programs make shelter more affordable.

What is the governments roles in all this- a big debate!

Front 96

Cost- Benefit Analysis

Back 96

The study that compares the costs and benefits to society of providing a public good.

Front 97

Tragedy of the Commons

Back 97

A parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole.

Front 98

Clean Air and Water

Back 98

Environmental degradation is a modern Tragedy of the Commons.

Front 99

Congested Roads

Back 99

(Public good or common Resources)

Front 100

Tolls

Back 100

Rush hours, charge higher tolls. Transponders

Front 101

Ocean

Back 101

One of the least regulated common resources.