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62 Cards in this Set

  • Front
  • Back
utility
the satisfaction a consumer obtains from consuming a good/ service
total utility
the amount of satisfaction obtained from consuming the entire good/ service
marginal utility
the change in total utility obtained by consumer an additional unit of a good or service
law of diminishing marginal utility
as more of a good is consumed, the amount of satisfaction gained declines
price elasticity of demand
the percent change in quantity demanded divided by the percent change in price
elastic price
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
inelastic price
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
Unitary Elastic Price
demand curve is downward sloping
normal goods
regular relationship bw price and spending
determinants of the price elasticity of demand (list)
availability of substitutes
importance of household budgets
time
necessities vs. luxuries
availability of substitutes (determinants of the price elasticity of demand)
lots of subs: elastic
no subs: inelastic
importance of household budget (determinants of the price elasticity of demand)
high income: more elastic
low income: more inelastic
time (determinants of the price elasticity of demand)
more time, more elastic and time to make best decision ex. travel

less time, more inelastic and things become necessary ex. businessmen
total revenue
price of a product multiplied by the quantity sold

TR= P x Q
Price HIkes
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
Price elasticity changes along a demand curve, so does.....
total revenue
income elasticity of demand
% change is QD divided by % change in income
measures the response of the demand curve shifting due to income changes
Normal good
good in which demand increases as income increases.... ex. steak, main brand name products
inferior good
good in which demand decreases as income increases....ex. hamburger, generic brand stuff
optimal consumption
the mix of consumer purchases that maximized the utility attainable from available income
indifference curve
a curve depicting alternate combinations of good that yield the same total utility (satisfaction)
budget constraint
all combos of goods affordable with a given income
we want the highest indifference curve that is within our budget for .....
optimal consumption
we order our bills by
price elasticity
production function
the maximum amount of output attainable from alternative combos of factor inputs ex. Factors of production
productivity
output per unit of input. just a number
efficiency
maximum output of a good from the resources used in production
golden rule of output
no waste
just bc productivity is up, doesn't mean it is .....
efficient
marginal physical product (MPP)
the change is total output associated with one additional input (labor and capital)
increasing marginal returns
to a factor of production occur when marginal product of the factor is rising as more of it is used
negative marginal returns
occur when additional units of a variable factor of production reduce total output (annoying people/ screwing off)
the law of diminishing marginal returns
the marginal physical product of a a variable input declines as more of it is employed
fixed costs
costs of productions that do not change when the rate of output is altered ex. rent, lease, mortgage
variable costs
costs of production that dont change when the rate of output is altered
total costs
fixed cost + variable cost

FC+VC= TR
avg fixed costs (AFC)
fixed costs / output
avg variable cost (AVC)
variable cost / output
avg total cost (ATC)
total cost / output (makes a "U" shape on the P vs QD graph)
Marginal cost (MC)
the increase in total costs when an additional unit of output is produced (change in total cost / change in output)
Costs will be the lowest to produce when what two curves intersect?
avg total cost and marginal cost
economic cost
value of all resources used to produce a good or service and opportunity cost (explicit and implicit costs)
accounting cost
implicit costs, dollar amount included.
profit
the difference bw firms TR and total accounting costs

TR-TC=total profit
short run
planning period during which some factors of prod are fixed in quantity and cannot be changed
long run
planning period during which all factors of prod. are variable
capital intensive
vs
labor intensive
longer short
vs.
quicker short run
return to scale
how costs will be affected by the size of the plant and equipment
increased return to scale
increase plant size, decrease cost per unit
constant return to scale
increases in plant size do not affect minimum cost per unit
diseconomies (decreasing) returns to scale
increase in plantn size, increase cost per unit
economic profits=TR-total eco costs
accounting profit + implicit costs
normal profit =
zero economic profit (covers salaries, dividends, market profit)
types of market structures
the number and size of firms in an industry
perfect competition
large number of firms and buyer
market which no buyer or seller has market power
compete with price
monopolistic competition
a market that has many firms producing similar products but each has some independent control of its price
compete for image
oligopoly
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
duopoly
a market that consists of two firms
monopoly
a firm that produces the entire supply of a particular good or service
market supply decisions
price of inputs
technology
expectations
taxes
# of firms
Perfect competition market characteristics
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
perfect competition frim characteristics
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
firm profit maximizing -short run
profit is the difference bw TR and TC