Econ 100-Exam #3

Front 1

Define: private good

Back 1

-Principle of rival consumption
-Only 1 person can consume at once

Front 2

Define: public good

Back 2

Many people can benefit at the same time

Front 3

What are the two requirements for public goods?

Back 3

1. Non-rival=one person's consumption doesn't detract from anthers (interstates, radio)
2. Non-excludable=can't keep people from accessing good (radio--can't prevent you from listening)

Front 4

Define: club goods

Back 4

Can keep you out if you don't have membership (ex. cable, TV, gym)

Front 5

Define: common resources

Back 5

Not excludable, but rival (ex. fishing)

Front 6

What are the two types of good in between public and private?

Back 6

Common resources and club goods

Front 7

How do we find market (society's) demand for public goods?

Back 7

Since multiple users benefit at the same time, society's demand curve is found by vertically adding individual demand curves

Front 8

What is an example that involves market demand for public goods?

Back 8

-Public good of police protection
-Community's demand for police car? Add up individual values

Front 9

What are the problems with the provision of public goods?

Back 9

1.Consumers know they can benefit from the good whether or not they pay for it (free riders)
2.Little incentive for private firms to provide public goods, hard to profit if you can't keep out non-paying customers

Front 10

What is the solution to the problem of public goods?

Back 10

Government provides public goods, power to tax generates revenue

Front 11

Define: free riders

Back 11

Use service w/o paying for good

Front 12

What is the equation for profit?

Back 12

Total revenue (PxQ)-total cost

Front 13

What are two types of costs?

Back 13

1.Explicit=imput cost that requires outlay $ from firm
2.Implicit=does not require outlay of $ (pop. cost using building for pizza rather than bagels)

Front 14

Define: accounting profit

Back 14

Total revenue-explicit costs

Front 15

Define: economic profit

Back 15

Total revenue-(explicit+implicit costs)

Front 16

Define: production function

Back 16

Relationship between inputs and maximum output

Front 17

Define: marginal product (MP)

Back 17

Increase in output when 1 additional input is used

Front 18

What is the MP equation?

Back 18

ChangeQ/change input

Front 19

Define: diminishing MP

Back 19

MP declines as quality of input increases

Front 20

What are the types of cost?

Back 20

1.Total fixed cost (TFC)=costs that does not vary w/ production (ex. equipment)
2.Total variable cost (TVC)=costs that vary w/production level (ex. flour, labor)
3.Total costs (TC)=TFC + TVC
4.Marginal cost (MC)=amount TC changes when output changes (changeTC/changeQ)
5.Average fixed cost (AFC)= TFC/Q
6.Average variable cost (AVC)= TVC/Q
7.Average total cost (ATC)= TC/Q

Front 21

What does MC look like?

Back 21

U-shape, initially decreasing, later rises (MP is increasing and then decreasing)

Front 22

What is TFC?

Back 22

-Total fixed cost
-Cost that does not vary w/ ovulation
-Ex. equipment

Front 23

What is TVC?

Back 23

-Total variable cost
-Costs that vary w/ production level
-Ex.flour, labor, utility bills

Front 24

What is TC?

Back 24

-Total cost
-TFC+TVC

Front 25

What is MC?

Back 25

-Marginal cost
-Amount TC changes when output changes
-ChangeTC/changeQ
-U-shape

Front 26

What is AFC?

Back 26

-Average fixed cost
-TFC/Q
-Continuously decreasing

Front 27

What is AVC?

Back 27

-Average variable cost
-TVC/Q
-U-shape

Front 28

What is ATC?

Back 28

-Average total cost
-U-shape

Front 29

Define: short run (SR)

Back 29

At least one input is fixed (cannot change)

Front 30

Define: long run (LR)

Back 30

All inputs can be changed

Front 31

How do firms determine what size their business should be?

Back 31

-Depends on anticipated rate of production
-Look at short run because in long run there is an infinite # of choices for shop size

Front 32

Define: LRATC

Back 32

Represents the minimum unit cost of producing any given rate of output

Front 33

Define: (perfectly) competitive market

Back 33

Market structure where the decisions of the individual buyers and sellers do not impact the market price

Front 34

What is necessary for a competitive market?

Back 34

-Large # of buyers and sellers
-Homogeneous product (same product)
-No barriers to entry or exit
-All relevant information is freely accessible

Front 35

Define: price-takers

Back 35

Firms in perfectly competitive market

Front 36

What do price takers do?

Back 36

Takes market price and sells any desired quantity at that price

Front 37

What are types as revenue?

Back 37

1.Total revenue (TR)= price per unit X # of units sold (PxQ)
2.Marginal revenue (MR)= amount TR changes when Q changes (MR=changeTR/changeQ)
3.Average revenue (AR)= TR/Q

Front 38

Where is it most rational to produce?

Back 38

Where profit is the largest

Front 39

When MR>MC...

Back 39

-This unit brings in more revenue than it's cost of production
-Adds to profit

Front 40

When MR<MC...

Back 40

-This hit brings in less revenue than it's cost of production
-Causes us to lose $, negative profit

Front 41

What is the limit for rational production?

Back 41

We will not produce beyond where MR=MC (P=MC)

Front 42

Define: monopoly

Back 42

One seller of a unique product (no close substitutions)

Front 43

What are three types of monopolies?

Back 43

1.Local= fairly common, ex. only one movie theatre in a small town
2. Regional= utilities, schools
3. National and International= less common, absolute monopolies are rare but firms have a very large market share (patents, Microsoft)

Front 44

What are reasons for monopolies?

Back 44

1.Resources are owned by one firm
2.Gov. regulation creates monopolies by giving 1 firm exclusive right to produce good (patent)
3.Production process in high cost and one firm produces at lower cost when serving the entire market instead of several firms that share the market

Front 45

Define: natural monopolies

Back 45

Utilities= good example b/c large infrastructure cost

Front 46

Define: monopolist demand curve

Back 46

-The entire market demand curve
-Price searcher to find $ that maximizes profit

Front 47

If monopolist charges a single price what will the firm do?

Back 47

The firm must lower the price to increase the quantity it sells

Front 48

What is different about the relationship between MR and price for the monopolist?

Back 48

MR does not equal Price, MR>price

Front 49

What's a general rule for monopolies?

Back 49

If D is linear (we always use linear), MR curve is also linear with the same vertical intercept but 2x slope of the Demand curve

Front 50

When Demand: P=100-50Q, what is MR?

Back 50

MR=100-100Q

Front 51

How does the monopolist determine what quantity to sell and what price to charge?

Back 51

-Price-searcher
-MR=MC (or as close as possible w/p MC>MR)

Front 52

How do you find demand of monopolies?

Back 52

1.Find MR
2.Set MR=MC and solve for Qm
3.Plug in Q to find P

Front 53

Do consumers like monopolies?

Back 53

No (compare surplus)

Front 54

What is the difference of surplus in competitive vs. monopolies?

Back 54

Less surplus in monopolies because DWL

Front 55

Why would we have monopolies if they are disliked by consumers?

Back 55

They are incentive for innovation--patents. This benefit is greater than the DWL

Front 56

Define: macroeconomics

Back 56

Economy as a whole, bigger unit (ex. USA, TN, South)

Front 57

Define: Gross Domestic Product (GDP)

Back 57

Market value of all final goods and services produced in a country w/in a year

Front 58

What are 4 countries with the highest GDP, and what is the amount of the highest?

Back 58

1.USA ($15 trillion)
2. China
3. Japan
4. Germany

Front 59

How is the definition of GDP broken down?

Back 59

1.Market value= PxQ
2.Final= finished good in the hands of the final user (not an intermediate good) (bread)
3.Goods and services= ex. medical care, services big part today
4.Produced=GDP measures PRODUCTIONS, sales from used goods not included
5.W/in a country=production w/in domestic boarders
6.Year= rate of production w/in a given time period

Front 60

What are the problems with GDP?

Back 60

1. Nonmarket production
2. Underground economy=ex. drugs, no pay jobs

Front 61

How is the GDP growth rate calculated?

Back 61

(GDP2012-GDP2011)/GDP2011 x 100

Front 62

Define: nominal variables

Back 62

In current year prices, no adjusted for changes in prices

Front 63

Define: real variables

Back 63

Not in current year prices, in constant prices (are adjusted)

Front 64

How do you calculate nominal GDP?

Back 64

Current P x current Q

Front 65

How do you calculate real GDP?

Back 65

Base year P x current year Q

Front 66

Define: GDP deflator

Back 66

Measure of the price level (measures inflation rate)

Front 67

How is the GDP deflator calculated?

Back 67

NGDP/RGDP x 100

Front 68

Define: inflation

Back 68

An increase in general price level

Front 69

Define: deflation

Back 69

A decrease in general price level

Front 70

What is the inflation rate for the base year always?

Back 70

100

Front 71

How is the inflation rate calculated?

Back 71

(GDPdeflator year 2-GDPdeflator year one)/GDPdeflator year one

Front 72

Why are we concerned with inflation?

Back 72

Because we experience a decrease in purchasing power

Front 73

Define: purchasing power

Back 73

Value of money for buying goods/services

Front 74

Define: Consumer Price Index (CPI)

Back 74

Measure of overall cost of goods and services bought by a typical consumer, "basket of goods"

Front 75

What are the top 3 things a typical consumer spends money one? (in order)

Back 75

1.Housing
2.Transportation
3.Food

Front 76

How is CPI calculated?

Back 76

(Cost of basket today/cost of basket in base year) x 100

Front 77

What are problems with CPI?

Back 77

1.Substitution bias=content of basket is fixed, if price doubles people would substitute away (Q would change), so CPI overstates inflation
2.Introduction of new products
3.Unmeasured quality changes

Front 78

What is the difference between GDP and CPI?

Back 78

-GDP=all goods/services, goods/services currently produced, only domestic production
-CPI=basket of goods/services, basket is fixed, domestic consumption (includes imports)

Front 79

How is CPI used to convert dollars from one year to another?

Back 79

Amount in 1966 x (CPI today/CPI 1966)