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62 Cards in this Set
- Front
- Back
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utility
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the satisfaction a consumer obtains from consuming a good/ service
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total utility
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the amount of satisfaction obtained from consuming the entire good/ service
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marginal utility
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the change in total utility obtained by consumer an additional unit of a good or service
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law of diminishing marginal utility
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as more of a good is consumed, the amount of satisfaction gained declines
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price elasticity of demand
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the percent change in quantity demanded divided by the percent change in price
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elastic price
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demand curve is horizontal E>1
usually means it's a luxury good Any increase in price and QD will be zero Inverse relationship bw price and spending |
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inelastic price
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demand curve is vertical E<1
usually means it's a necessity consumers are willing to pay any price to get it positive relationship bw spending and price |
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Unitary Elastic Price
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demand curve is downward sloping
normal goods regular relationship bw price and spending |
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determinants of the price elasticity of demand (list)
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availability of substitutes
importance of household budgets time necessities vs. luxuries |
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availability of substitutes (determinants of the price elasticity of demand)
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lots of subs: elastic
no subs: inelastic |
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importance of household budget (determinants of the price elasticity of demand)
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high income: more elastic
low income: more inelastic |
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time (determinants of the price elasticity of demand)
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more time, more elastic and time to make best decision ex. travel
less time, more inelastic and things become necessary ex. businessmen |
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total revenue
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price of a product multiplied by the quantity sold
TR= P x Q |
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Price HIkes
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1) increase TR only if demand is inelastic
2) reduce TR only if demand elastic 3) does not change total revenue if demand s unitary elastic |
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Price elasticity changes along a demand curve, so does.....
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total revenue
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income elasticity of demand
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% change is QD divided by % change in income
measures the response of the demand curve shifting due to income changes |
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Normal good
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good in which demand increases as income increases.... ex. steak, main brand name products
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inferior good
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good in which demand decreases as income increases....ex. hamburger, generic brand stuff
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optimal consumption
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the mix of consumer purchases that maximized the utility attainable from available income
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indifference curve
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a curve depicting alternate combinations of good that yield the same total utility (satisfaction)
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budget constraint
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all combos of goods affordable with a given income
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we want the highest indifference curve that is within our budget for .....
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optimal consumption
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we order our bills by
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price elasticity
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production function
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the maximum amount of output attainable from alternative combos of factor inputs ex. Factors of production
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productivity
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output per unit of input. just a number
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efficiency
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maximum output of a good from the resources used in production
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golden rule of output
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no waste
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just bc productivity is up, doesn't mean it is .....
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efficient
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marginal physical product (MPP)
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the change is total output associated with one additional input (labor and capital)
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increasing marginal returns
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to a factor of production occur when marginal product of the factor is rising as more of it is used
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negative marginal returns
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occur when additional units of a variable factor of production reduce total output (annoying people/ screwing off)
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the law of diminishing marginal returns
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the marginal physical product of a a variable input declines as more of it is employed
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fixed costs
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costs of productions that do not change when the rate of output is altered ex. rent, lease, mortgage
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variable costs
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costs of production that dont change when the rate of output is altered
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total costs
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fixed cost + variable cost
FC+VC= TR |
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avg fixed costs (AFC)
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fixed costs / output
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avg variable cost (AVC)
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variable cost / output
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avg total cost (ATC)
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total cost / output (makes a "U" shape on the P vs QD graph)
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Marginal cost (MC)
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the increase in total costs when an additional unit of output is produced (change in total cost / change in output)
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Costs will be the lowest to produce when what two curves intersect?
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avg total cost and marginal cost
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economic cost
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value of all resources used to produce a good or service and opportunity cost (explicit and implicit costs)
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accounting cost
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implicit costs, dollar amount included.
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profit
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the difference bw firms TR and total accounting costs
TR-TC=total profit |
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short run
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planning period during which some factors of prod are fixed in quantity and cannot be changed
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long run
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planning period during which all factors of prod. are variable
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capital intensive
vs labor intensive |
longer short
vs. quicker short run |
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return to scale
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how costs will be affected by the size of the plant and equipment
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increased return to scale
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increase plant size, decrease cost per unit
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constant return to scale
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increases in plant size do not affect minimum cost per unit
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diseconomies (decreasing) returns to scale
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increase in plantn size, increase cost per unit
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economic profits=TR-total eco costs
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accounting profit + implicit costs
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normal profit =
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zero economic profit (covers salaries, dividends, market profit)
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types of market structures
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the number and size of firms in an industry
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perfect competition
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large number of firms and buyer
market which no buyer or seller has market power compete with price |
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monopolistic competition
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a market that has many firms producing similar products but each has some independent control of its price
compete for image |
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oligopoly
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a market where a few firms produce all or most of the market supply of a particular good or service, influences rivals choices
compete for market share |
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duopoly
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a market that consists of two firms
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monopoly
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a firm that produces the entire supply of a particular good or service
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market supply decisions
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price of inputs
technology expectations taxes # of firms |
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Perfect competition market characteristics
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a large number of buyers and sellers
perfect information identical products MC = Profit esae of entry and ext - low barriers to entry zero economic profit in long run |
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perfect competition frim characteristics
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demand curve is horizontal, share in the market so small it changes output doesn't disturb market equilibrium
a firm can only sell its output at market price (only decision is how much to produce) TR= p x q TR curve is upward linear goal to maximize profit, not revenue |
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firm profit maximizing -short run
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profit is the difference bw TR and TC
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