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49 Cards in this Set
- Front
- Back
- 3rd side (hint)
Utility |
The benefit our satisfaction that a person gets from the consumptionof goods and services |
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TOtal utility |
The total benefit that a person gets from the consumption of goods and services |
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Marginal utility |
Change In total utility that results from an one-unit increase in the quantity of a good consumed |
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Diminishing marginal utility |
Decrease in marginal utility as the quantity of a good consumed increases |
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Consumer equilibrium |
A situation in which the consumer has allocated all his/her available income on a way that, given the prices of goods and services, maximizes his/her total utility |
Mu/p |
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How do you get the maximum attainable utility? |
Have more of the higer mu/r good and les of the other |
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What happens when the price falls? |
Good 1 moves down(along) the demand curve and good 2 shifts to the left |
Good 1 is cheaper so you would buy more of it and less of its substitutes(good 2) |
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What happens when good 2's price increases? |
The demand curve of good 1 shifts to the right and good 2 with move up along the curve |
Good 2 becomes more costly so you will Buy less of it and more of its substitutes |
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What happens when there is a rise in income? |
People will buy more of the normal good and less of the inferior good. |
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Marginal benefit |
The maximum price a consumer is willing to pay for an extra unit of a good or service when utility is maximized |
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Firm |
An institution that hires factpra of production and organizes those factors to produce and sell good and services |
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Opportunity cost |
Highest value alternative forgone |
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Explicit costs |
Paid in money |
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Implicit costs |
Loss of opportunity In the use of the company's own resources |
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Normal profit |
The return an entrepreneur can expect to receive on average |
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Economic profit |
Total revenue minus total costs(explicit+implicit) |
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SHORT RUN |
Time frame in which the quantity of at least one factor of production is fixed |
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Long run |
Time frame in which the quantotoes of all factors of production can be varied |
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Sunk cost |
The past expenditure on a factory that has no resale value |
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Short-run technology constraint |
To increase output, increase quantity of labour |
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Total product |
The maximum output that a given quantity of labour can produce |
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Marginal product |
The increase in total product that results from an one-unit increase in the quantity of labour employed with all other inputs remaining the same |
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Average product of labour |
The total product/ quantity of labour employed |
Average product- how productive workers are on the average |
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Tpc attainable region below the curve |
are inefficient coz they use more labour than necessary to produce a given output |
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How is marginal product measured on the tpc? |
By the slope/gradient |
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Increasing marginal returns |
The marginal product of an additional worker exceeds the marginal product of the previous worker |
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Diminishing marginal returns |
Marginal product of an additional worker is less than the marginal product of the previous worker |
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Law of diminishing returns |
As the firm uses more of a variable factor of production, with a given quantity of the fixed factor of production, the marginal product of the variable factor eventually diminishes |
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When is the average product the largest |
When the average product and marginal product are equal |
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Total costs |
The costs of all the factors of production it uses |
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Total fixed costs |
The costs of the firm's fixed factors |
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Total variable cost |
The cost of the firms variable factors |
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Margina cost |
Increase in total cost that results from a one-unit Increase in output |
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Average fixed cost |
Total fixed cost per unit of output |
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Average variable cost |
Total variable cost per unit of output |
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Average total cost |
Total cost per unit of output |
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2 things to remember |
Because of the two opposing forces: 1. Spreading total fixed cost over a larger output 2. Eventual diminishing returns |
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Explain the relationship between technology and costs |
As labour increase initially,mp and av. Product rise and mc and av.variable cost fall. At the point of maximum mp, mc is min. As labour increase further, marginal product diminishes and marginal cost increases, av. Product continues to rise and av.variable continues to fall. Then, at point of maximum av product, av variable cost increase |
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Technology... |
Increases labour(tvc) and decreases equipment(tfc) Productivity increases, tfc, mpc, apc shifts upwards Codts decrease, a/tc, a/vc, a/fc shifts upwards |
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Prices of factors of production |
Fc increases,tfc, afc, tc shifts upwards Vc increases, tvc, avc and mc shorts upwards |
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Diminishing returns |
Occur at all four quantities of capital as the quantity of labour increase s |
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Marginal product of capital |
Change in total product divided by the change when the quantity of labour is constant |
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Why is the sort run average total cost curve u shaped? |
As the quantity of labour increases, it's marginal product at first increases and then diminishes |
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The economically efficient factory size for producing a given output is the one that has the... |
Lowest average total cost |
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Long-run average cost curve |
The relationship between the lowest attainable average total cost and output when both the factory size and labour are varied |
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Economies of scale |
Are features of a firms technology that lead to falling long-run average cost as output increases |
Percentage increase in output exceeds tge percentage increaee in all factors off production |
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Diseconomies of scale |
Are features off a firms technology that lead to rising long-run average costs as output increases |
The percentage increase in output is less than the percentage increase in all factors of production |
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Constant returns to scale |
Are features in a firms technology that lead to constant long-run average cost as output increases |
Percentage increase in output equals the percentage increase in all factors of production |
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Minimum efficient scale |
The smallest quantity of output at which long-run average cost reachex its lowest level |
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