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92 Cards in this Set
- Front
- Back
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Define Price-taking consumers and producers.
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Producers and Consumers whose individual actions do not effect the market price.
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Define a characteristic of a perfectly competitive market.
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All market participants (both consumers and producers) are price takers.
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Define a characteristic of a perfectly competitive industry.
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Industry in which producers are price takers.
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Define a market share.
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The Fraction of the market that represents an individual's producer output.
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Define a standardized product. What is another name for it?
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When consumers regard the products of different producers as the same. Another name for it is commodity.
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What is free entry and exit?
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When new producers can easily enter into or leave that industry.
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Define Marginal Revenue.
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Change in Total revenue/Change in output.
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Define the optimal output rule.
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Profit is maximized by producing the quantity a which, at the last unit, MR = MC. (Marginal Revenue is equal to Marginal Cost.)
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Define a price-taking firms optimal output rule.
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When the Market Price is equal to the Marginal Cost.
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What does the Marginal revenue curve display?
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How Marginal Revenue varies as output varies.
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What is the equation for profit?
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(P-ATC) x Q
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What is the relationship between Profit and Average total Cost?
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P > ATC (profitable)
P = ATC (breaks even) P < ATC (loss) |
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What is the break-even price?
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Market price at which the firm earns no profit (in a price-taking firm).
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What is the shut-down price equal to?
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The minimum Average Variable Cost.
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When will a firm shut down in the short run?
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If its profits fall below the Average Variable Cost.
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What does the short run supply curve display?
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A producer's profit-maximizing quantity output quantity is dependent on the market price, taking fixed price as a given.
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What does the industry supply curve display?
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The relationship between the price of a good and the total output of the industry.
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What does the short-run industry supply curve show?
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It shows that the quantity supplied by an industry depends on the market price. (Given a fixed number of producers).
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What is the short-run market equilibrium?
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Quantity supplied = Quantity Demanded (taking # of producers as given).
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What is the long-run market equilibrium?
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When the quantity supplied = the quantity Demanded. (entry and exit must be possible)
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What does the long - run industry supply curve show?
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How the quantity supplied responds to the price once producers have had time to enter and exit the industry.
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Which Curve is more elastic the short - run or the long - run?
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The long run industry supply curve.
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Define the concept of scarcity.
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Resources are scarce. Individuals are limited in there choices by money and time and economies are limited in there choices by by supplies of human and natural resources.
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What is the study of Marginal decisions called?
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Marginal Analysis.
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Define a model.
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thought experiements or simplified versions of reality.
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In making models what is the "other things equal assumption"?
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Allows analysis of the effect of a change in one factor while holding other factors relatively unchanged.
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What does a production possibility frontier (PPF) display?
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It compares the production of two goods (showing opportunity cost, efficiency, and expansion).
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Define Comparative advantage.
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When a producer has a lower opportunity cost in producing something than somebody else.
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Define Absolute advantage.
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The ability to produce a particular good better than anybody else.
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Define Bartering.
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Trade a good/service for another good/service, rather than use money.
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What is the circular - flow diagram a model of?
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The transactions between households and firms.
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What are the three markets considered in a circular flow diagrams and give an example of a good/service in each.
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Markets for Goods/Services = a toy; Factor Markets = wood, metal; and Market for factors of production = labor.
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What Type of economic model describes how the economy works?
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Positive Economics.
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What Type of economic model prescribes how the economy should work?
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Normative Economics.
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What type of economics involves making forecasts?
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Positive economics.
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Consider this question: Should the toll be raised, bearing in mind a toll increase will reduce traffic and air pollution by the road but impose a financial hardship on frequent commuters? What type of economics should you consider to answer this question and why.
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Normative economics, because this question is describing how the world should work, and there is no definite answer.
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What are the two things that economists disagree on?
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1. simplifications to make in models
2. values |
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Define a competitive market.
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One with many buyers and sellers.
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What is the law of demand?
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It states that a demand curve slopes downward.
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What do demand and supply schedules portray?
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How a competitive market works.
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What are the four main reasons for a shift in the demand curve?
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1. change in price of related goods (substitutes and compliments)
2. Change in income (normal vs. inferior good) 3. change in tastes 4. Change in expectations |
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What do you call the table that shows the quantity vs demand or supply?
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a schedule.
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Which way do supply curves usually slope?
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upward.
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Which way would the demand curve shift with an increase in demand?
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Right.
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Which way would the demand curve shift with an decrease in demand?
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Left.
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Which way would the supply curve shift with an increase in supply?
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Right.
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Which way would the supply curve shift with an decrease in supply?
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Left.
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What are the three main factors that shift a supply curve?
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1. Change in input prices
2. Change in technology 3. Change in expectations |
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What is another name for Market-clearing price?
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The Equilibrium Price.
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Define a surplus.
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When the Market Price is above the market clearing price.
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Define a shortage.
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When the Market Price is below the market clearing price.
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What is the term that means to limit the of a good sold?
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A Quota.
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What do you call the quota amount of a good/service that can be bought/sold.
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Quota Limit.
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What are the two types of intervention that the government can use to better control the supply and demand of a good/service.
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price and quantity controls.
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Define a price ceiling and its effects.
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A price ceiling is a maximum price for a good/service below the equilibrium price. Its effects are inefficiency and a shortage.
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Define a price floor and its effects.
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A minimum market price above the equilibrium. Its effects are inefficiency and a surplus.
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Name 3 inefficiencies of a price ceiling.
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1. Inefficient allocation to consumers
2. wasted resources 3. inefficiently low quality |
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Name 3 inefficiencies of a price floor.
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1. Inefficient allocation of sales among sellers
2. wasted resources 3. inefficiently high quality |
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Licenses are used to permit producers to sell a good/service. What is the term for one's earnings while using this license?
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Quota Rent = to the difference between the demand and supply price.
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What is a Quota Wedge?
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The wedge that arises between the demand and supply price that is equal to the quota rent.
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Define the Price elasticity of Demand.
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% change in Quantity Demanded / % change in the price
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Define Perfectly inelastic demand.
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When the Quantity Demanded is unaffected by the price. (Vertical)
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Define Perfectly Elastic demand.
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When the Quantity Demanded is affected by the price. (Horizantal)
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When is a price elastic?
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When the Price elasticity of Demand is greater than one.
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When is a price inelastic?
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When the Price elasticity of Demand is less than one.
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When is price unit-elastic?
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When Price elasticity of Demand is equal to one.
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What happens to total revenue ( in an elastic situation) when the price increases?
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TR will also decrease.
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What does the price - elasticity of demand depend on?
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1. whether the good in a necessity or luxury
2. The time that has elapsed since price change |
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What is the cross-price elasticity of demand?
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It measures the effect of a change in price of one good on the demand of another.
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What does it mean if the cross-price elasticity of two goods is positive?
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That the two goods are substitutes.
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What does it mean if the cross-price elasticity of two goods is negative?
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The two good are compliments.
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What is the income elasticity of demand?
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% change in Q of a good / % change in income
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If the income elasticity of demand is positive is the good normal or inferior?
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a Normal good.
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Define the price - elasticity of supply.
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% change in Q of a good / % change in the price
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What two factors is the price - elasticity of supply dependent on?
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1. Time
2. Availability of resources |
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If an excise tax is imposed where the elasticity of demand is greater than the elasticity of supply, who mainly pays the price producers or consumers?
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Producers.
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Name the markets for factors of production.
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Land, Labor, Physical capital, and Human capital.
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Define Physical Capital.
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Manufactured resources (buildings, machines)
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Define Human capital.
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Improvement in labor created by knowledge and education.
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Define Value of Marginal Product (VMP) or Marginal revenue Product (MRP).
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(marginal product of the factor) x (Price of the good)
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What does the Value of Marginal Product curve show?
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It is the individual producers' demand curve for that factor.
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What are the three main causes of shifts in the VMPL curve?
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Changes in output price, Changes in the supply of other factors, and Changes in technology.
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The equilibrium value of the marginal product (VMP) is equal to what in a perfect market?
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The market wage
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Define rental rate.
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implicit and explicit costs of land or capital.
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Define Unions.
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A group of workers for the same market collectively works together to raise wages.
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Define efficiency-wage model.
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Employers that pay their employees above the equilibrium as an incentive to work more efficiently.
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Define time allocation.
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Each worker has to make the decision between leisure and work.
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Define Leisure.
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Anytime spent not making money.
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When considering Individual labor supply curve, define the income effect.
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An increase in the hourly wage, that makes workers spend more time on leisure. (Curve will slope down)
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When considering Individual labor supply curve, define the substitution effect.
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An increase in the hourly wage, that makes workers spend more time on work. (Curve will slope up)
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What are the four main reasons for shifts in the labor supply curve?
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Changes in preference/tastes, Changes in opportunities, Changes in population, and changes in wealth.
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Define Compensating differentials.
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Wage differences across jobs that reflect that some jobs are more pleasant than others.
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