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47 Cards in this Set

  • Front
  • Back
Reasons for Instituting Barriers to trade
1) protection of infant industires
2) anti-dumping (if proven)
3) defense
4) protection of domestic jobs
the satisfaction derived from consuption of a good measured in units called utils
variable substituted in; here it is price, ie the maxiumum willingness to pay
Marginal utility formula
change in total utility/change in quantity
Reasons for a Monopoly
1) by law
2) by patent if you've created some technology
3) control of a scarce resource
4) a natural monopoly-- it alone can provide a good more efficiently
5) technical superiority
6) very large sunk costs
optimal decision
most efficient decision, best decision under the cirucmstances
factors of production
1) land
2) capital-- K
3) Labor (L)
Returns of each factor of production
Land-- Rent
Labor-- W + S
Capital-- Interest
Entrepreneurship-- Profit
Draw a spectrum of market organization
goes from centrally planned to market driven economy
productive efficiency
are you proare you producing at the lowest possible cost?
allocative efficiency
when reouces are being put towards different goods and services, do they represent consujmer prefernces
Three realistic assumptions of economists
1) people are rational
2) people respond to incentives
3) the optimal decision is made at the margin
the cost or the benefit from consuming or producing one extra unit of the item
ceteris paribus
holding all else constant
Types of demand shifters
1) tastes and fashions
2) related goods
3) income
4) demographic changes
5) expectations
Income as a demand shifter
+ shifts ?
- shifts ?
+ shifts demand curve right because people's purchasing power increases with normal goods. With inferior goods, it shifts left.
The law of supply
As price goes up, quantity goes up. As price goes down, quanity goes down.
Supply Shifters
1) Input costs (costs of production)
2) Technology
3) Number of sellers
For a price ceiling to be effective, it must be
below the equilibrium
For a price floor to be effective, it must be
above the equilibrium
Identify consumer and producer surplus on a graph.
Consumer surplus is the area above equilibrium under the demand curve. Producer surplus is the area below equilibrium over the surplus curve.
As a tax increases, dead weight loss
increases continuously.
responsiveness of one variable to the change in the other
Price elasticity of demand
measures how much quantity demanded responds when you change price; elasticity of demand with respect to price
not much responsive to a price change
Total production
change in total production over change in input
Law of diminishing marginal returns
given that the facility stays the same size, the more you put in there, the less output over time you will end up receiving
Marginal revenue product; for each additional worker, how much revenue are they giving you?
MRP=MPP*Price at quantity
Cross Price Elasticity of Demand
when you change the price of one good, how does it change the quantity demanded of another good?
cross price elasticity of demand is ___ for complements and _____ for substitutes
- for Complements (raise the price of X, and the price of Y falls)
+ for Substitutes (raise the price of X, and the price of Y rises)
Summary of elasticity with respect to price
o |ED,P | < 1 Relatively inelastic
o |ED,P | = 1 Unit Elastic
o |ED,P | > 1 Relatively elastic
Summary of elasticity with respect to income
o ED,Y > 0 Good is normal
o ED,Y < 0 Good is inferior
Summary of elasticity with respect to another good
o EDx, Py >0 Substitutes
o EDx, Py <0 Complements
If demand is more inelastic than supply, the _______ eats the tax.
If demand is more elastic than supply, the _______ eats the tax.
Comparative advantage
one country is more efficient at producing a good or service
Optimal rule when consuming one good
1) MU=P; NMU-P=0
2) NTU is maximized
3) Where the price line intersects the demand curve (that is MU)
NMU means
the consumer surplus for that one unit; the summation of the NMU is the total consumer surplus.
indifference curve
takes all the bundles where an individual is equally satisfied by and then plots them on a graph; in terms of utility, ever bundle on the curve is equal
Properties of Indifference Curves
1) Downward Sloping
2) Bowed inward
3) Higher ICs better than Lower ICs
4) ICs cannot cross; they are parallel to each other
Budget Constraint
every possible bundle she can afford; the points form a straight line
Rule for maximizing budget constraints
the indifference curve must be tangent to the budget constraint
Two equations for optimizing conditions of an indifference curve and BC
Px*X + Py*Y=I
Advantages of International Trade
Consumers-- wider variety of goods and lower prices
Producers-- cheaper inputs or factors of production; can get more customers because they have access to a wider market; can concentrate on producing one good more efficiently
welfare means
consumer or producer surplus
The key assumption is that after trade, prices