Microeconomics By Roger A. Arnold (9Th Edition)

Front 1

Price Elasticity of Demand

Back 1

A measure of the reponsiveness of quantity demanded to changes in price.

Example:
Percentage change in quantity demanded / percentage change in price.

Front 2

Elastic Demand

Back 2

The demand when the percentage change in quantity demanded is greater thean the percentage change in price. Quantity demanded changes proportionately more than price changes.

Example:
Ed > 1

Front 3

Inelastic Demand

Back 3

The demand when the percentage change in quantity demanded is less than the percentage change in price. Quantity demanded changes proportionately less than price changes.

Example:
Ed < 1

Front 4

Unit Elastic Demand

Back 4

The demand when the percentage change in quantity demanded is equal to the percentage change in price. Quantity demanded changes proportionately to price changes.

Example:
Ed = 1

Front 5

Perfectly Elastic Demand

Back 5

The demand when a small percentage change in price causes an extremely large percentage change in quantity demanded (from buying all to buying nothing).

Example:
Ed = infinity

Front 6

Perfectly Inelastic Demand

Back 6

The demand when the quantity demanded does not change as price changes.

Example:
Ed = 0

Front 7

Total Revenue (TR)

Back 7

Pice times quantity sold.

Front 8

Elastic demand & total revenue

Back 8

When price goes up, total revenue goes down. When price goes down, total revenue goes up.

Front 9

Inelastic demand & total revenue

Back 9

When Price goes up, total revenue goes up. When price goes down, total revenue goes down.

Front 10

Unit elastic demand & total revenue

Back 10

Total revenue does not change.

Front 11

The 4 factors that are relevant to the determination of price elasticity of demand are:

Back 11

1) Number of substitutes,
2) Necessities versus luxuries,
3) Percentage of one's budget spent on the good, and
4) Time

Front 12

Number of substitues

Back 12

The more substitues there are for a good, the higher the price elasticity of demand will be; the fewer substitutes for a good, the lower the price elasticity of demand.

Front 13

Necessities versus luxuries

Back 13

Generally, the more that a good is considered a luxury (a good that we can do without) rather than a necessity (a good that we can't do without), the higher the price eleasticity of demand will be.

Front 14

Percentage of one's budget spent on the good

Back 14

The greater the percentage of one's budget that goes to purchase a good, the higher the price elasticity of demand will be; the smaller the percentage of one's budget that goes to purchase a good, the lower the price elasticity of demand.

Front 15

Time

Back 15

The more time that passes (since the price change), the higher the price elasticity of demand for the good will be; the less time that passes, the lower the price elasticity of demand for the good.

Front 16

Cross Elasticity of Demand

Back 16

A measure of the responsiveness in quantity demanded of one good to changes in the price of another good.

Example:
Percentage change in quantity demanded of one good / percentage change in price of another good

Ec > 0 - Goods are substitutes
Ec < 0 - Goods are complements

Front 17

Income Elasticity of Demand

Back 17

A measure of the responsiveness of quantity demanded to changes in income.

Example:
Percentage change in quantity demanded / percentagbe change in income

Ey > 0 - Normal good
Ey < 0 - Inferior good

Front 18

Income Elastic

Back 18

The condition when the percentage change in quantity demanded of a good is greater than the percentage change in income.

Front 19

Income Inelastic

Back 19

The condition when the percentage change in quantity demanded of a good is less than the percentage change in income.

Front 20

Income Unit Elastic

Back 20

The condition when the percentage change in quantity demanded of a good is equal to the percentage change in income.

Front 21

Price Elasticity of Supply

Back 21

A measure of the responsiveness of quantity supplied to changes in price.

Example:
Percentage change in quantity supplied / percentage change in price.

Front 22

Diamond-Water Paradox

Back 22

The observation that things with the greatest value in use sometimes have little value in exchange and things with little value is use sometimes have the greatest value in exchange.

Front 23

Utility

Back 23

A measure of the satisfaction, happiness, or benefit that results from the consumption of a good.

Front 24

Util

Back 24

An artificial construct used to measure utility.

Front 25

Total Utility

Back 25

The total satisfaction a person receives from consuming a particular quantity of a good

Front 26

Marginal Utility

Back 26

The additional utility a person receiveas from consuming an additional unit of a good.

Example:
MU = Change in total utility / change in the quantity consumed of a good

Front 27

Law of Diminishing Marginal Utiility

Back 27

The marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases.

Front 28

Interpersonal Utility Comparison

Back 28

Comparing the utility one person receives from a good, service, or activity with the utility another person receives from the same good, service, or activity.

Front 29

Consumer Equilibrium

Back 29

Equilibrium that occurs when the consumer has spent all income and the marginal utilities per dollar spent on each good purchased are eqaul.

Front 30

Profit

Back 30

The difference between total revenue and total cost.

Example:
Profit = total revenue - total cost

Front 31

Explicit Cost

Back 31

A cost incurred when an actual (monetary) payment is made.

Front 32

Implicit Cost

Back 32

A cost that represents the value of resources used in production for which no actual (monetary) payment was made.

Front 33

Accounting Profit

Back 33

The difference between total revenue and explicit costs.

Front 34

Economic Profit

Back 34

The difference between total revenue and total cost, including both explicit and implicit costs.

Front 35

Normal Profit

Back 35

Zero economic profit. A firm that earns normal profit is earning revenue equal to its total costs (explicit plus implicit costs). This is the level of profit necessary to keep resources employed in the fim.

Front 36

Fixed Input

Back 36

An input whose quantity connot be changed as output changes.

Front 37

Variable Input

Back 37

An input whose quantity can be changes as output changes.

Front 38

Short Run

Back 38

A period of time in which some inputs in the production process are fixed.

Front 39

Long Run

Back 39

A period of time in which all inputs in the production process can be varied (no inputs are fixed).

Front 40

Marginal Physical Product (MPP)

Back 40

The change in output that results from changing the variable input by one unit, holding all other inputs fixed.

Front 41

Law of Diminishing Marginal Returns

Back 41

As ever larger amounts of a variable input are combined with fixed inputs, eventually the marginal physical product of the variable input will decline.

Front 42

Fixed Costs

Back 42

Costs that do not vary with output; the costs associated with variable inputs.

Front 43

Total Cost (TC)

Back 43

The sum of fixed costs and variable costs.

Front 44

Marginal Cost (MC)

Back 44

The change in total cost that results from a chang in output.

Example:
MC = The change in total cost / change in output

Front 45

Average Fixed Cost (AFC)

Back 45

Total fixed cost divided by quantity of output.

Example:
AFC = TFC / Q

Front 46

Average Variable Cost (AVC)

Back 46

Total variable cost divided by qwuantity of output.

Example:
AVC = TVC / Q

Front 47

Average Total Cost (ATC), or Unit Cost

Back 47

Total cost divided by quantity of output.

Example:
ATC = TC / Q

Front 48

Average-Marginal Rule

Back 48

When the marginal magnitude is above the average magnitude, the average magnitude rises; when the marginal magnitude is below the average magnitude, the average magnitude falls.

Front 49

Sunk Cost

Back 49

A cost incurred in the past that cannot be recovered.

Front 50

Long-Run Average Total Cost (LRATC) Curve

Back 50

A curve that shows the lowest (unit) cost at which the firm can produce any given level of output.

Front 51

Economies of Scale

Back 51

Economies that exist when inputs are increased by some percentage and output increases by a greater percentage, causing unit costs to fall.

Front 52

Constant Returns to Scale

Back 52

The condition when inputs are increased by some percentage and output increases by an equal percentage, causing unit costs to remain constant.

Front 53

Deseconomies of Scale

Back 53

The condition when inputs are increased by some percentage and output increases by a smaller percentage, causing unit cost to rise.

Front 54

Minimum Efficient Scale

Back 54

The lovest output level at which average total costs are minimized.

Front 55

Shifts in costs curves are caused by:

Back 55

1) Taxes
2) Input Prices
3) Technology