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15 Cards in this Set
- Front
- Back
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What is the definition of economics?
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the study of how individuals and society choose among alternative uses of scarce resources
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What are the objectives of government?
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1. Full Employment
2. Price Stability (<= 2% inflation) 3. Economic growth (GDP) 4. Optimal external balance (X>I) |
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What are the assumptions about consumers?
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1. Rational (prefer good)
2. Efficient (most for least cost) 3. Risk-adverse (no uncertain) 4. Forward-looking |
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Basic question of economics (3)?
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What, how, and for whom?
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What is RTS? What do increasing, decreasing, and constant Returns to Scale signify?
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The increase in output generated by a certain amount of increase in inputs.
Increasing RTS: Output increases at greater rate than input; costs decreasing Decreasing RTS: Output increases at lesser rate than input; costs increasing |
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What are the factors of production?
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Land, labor, capital, entrepreneurship
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How does industry structure evolve?
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From the nature of the production process, which is reflected in the production function. If ^RTS, firms produce cheaper as they get bigger, so they produce more. Big firms that produce a lot = a concentrated industry- monopoly, oligopoly. If dRTS, more production means increasing costs, so they limit output. This enables more firms to enter industry- monopolistic, perfect comp.
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Increasing RTS is related to what, and caused by what?
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Increasing RTS is tied to technology and manufacturing. Caused by learning by doing, specialization.
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What is the difference between the production function and the total product curve?
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PF maps output when ALL inputs can change while the TP maps output when 1 input only changes and all the others are fixed.
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What is the PPF?
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The graphical representation of all feasible combinations of goods and services that a society can produce if all resources are fully and efficiently employed.
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Anything that changes the production function will change the production possibilities frontier, including:
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1. Technology
2. Change in government law 3. Change in efficiency - labor 4. Change in efficiency - capital |
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Law of Diminishing Returns
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At some point the additions to output start to decline as you add additional variable inputs.
Some input must be fixed --> Differs from RTS. |
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Deriving the supply and demand curves
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Supply: Marginal Cost above the break even point (AVC) for perfect comp
Demand: From the production function; the slope of it is marginal product; multiplied times the wage (price) is marginal revenue product curve; point at which wage intersects MRP on downward sloping part. Demand curve is MRP to the right of that point. |
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Decision to hire labor depends on:
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1. Wage
2. Revenue worker generates see MP/MRP graph |
