Econ Exam 2

Front 1

Behavioral economics

Back 1

Study of situations where people make choices that don’t appear to be economically rational

Front 2

Budget constraint

Back 2

Limited amt of income available for consumers to spend on goods/services

Front 3

Endowment effect

Back 3

People place higher value on stuff they already own (need to be offered more than price paid)

Front 4

Income effect

Back 4

Change in qty demanded resulting from change in price on consumer purchasing power

Front 5

Law of diminishing marginal utility

Back 5

Consumers experience diminishing additional satisfaction from consuming more of a good/service

Front 6

Marginal utility

Back 6

Change in total utility from consuming one additional unit of good/service

Front 7

Network externality

Back 7

Usefulness of a product increases with number consumers that use it

Front 8

Opportunity cost

Back 8

Highest-valued alternative given up to engage in an activity

Front 9

Substitution effect

Back 9

Change in qty demanded resulting from change in price making good relatively more/less expensive

Front 10

Sunk cost

Back 10

Cost already paid and cant be recovered

Front 11

Utility

Back 11

Enjoyment/satisfaction people receive from consuming goods/services

Front 12

AFC

Back 12

Fixed cost divided by qty of output produced

Front 13

Long run

Back 13

Firm can vary all inputs/adopt new tech/increase or decrease size of plant

Front 14

APL

Back 14

Total output produced by firm divided by qty workers

Front 15

AVC

Back 15

Variable cost divided by qty output produced

Front 16

Constant returns to scale

Back 16

Firm’s long run ATC remain unchanged if output increases

Front 17

Diseconomies of scale

Back 17

Firm’s long run ATC rise as firm increases output

Front 18

Economics of scale

Back 18

Firm’s long run ATC falls as qty output produced increases

Front 19

Explicit cost

Back 19

Cost that involves spending money

Front 20

Fixed costs

Back 20

Costs that remain constant as output changes

Front 21

Implicity

Back 21

Nonmonetary opportunity cost

Front 22

Law of diminishing returns

Back 22

At some point adding more variable input to fixed input cause MP of variable to decrease

Front 23

Long-run average cost curve

Back 23

Shows lowest cost where firm can produce given qty output in long run with no fixed inputs

Front 24

Marginal cost

Back 24

Change in firm’s total cost from producing one more unit good/service

Front 25

MPL

Back 25

Additional output firm produces as a result of hiring one more worker

Front 26

Minimum efficient scale

Back 26

Level output where all economics of scale exhausted

Front 27

Production function

Back 27

Relationship b/w inputs employed by firm and max output can produce with inputs

Front 28

Short run

Back 28

At least one of firm’s inputs fixed

Front 29

Technological changes

Back 29

Change in ability of firm to produce given level of output with given qty inputs

Front 30

Technology

Back 30

Processes firm uses to turn inputs into outputs of goods/services

Front 31

Total cost

Back 31

Cost of all inputs firm uses in production

Front 32

Allocative efficiency

Back 32

Produce where MR (MB) = MC

Front 33

Average revenue

Back 33

Total revenue divided by qty product sold

Front 34

Economic loss

Back 34

Firm’s total revenue less than total cost

Front 35

Economic profit

Back 35

Firm’s revenues minus all costs (implicit and explicit)

Front 36

Long-run competitive equilibrium

Back 36

Entry and exit of firms resulted in typical firm breaking even

Front 37

Long-run supply curve

Back 37

Curve shows relationship in long run b/w market price and qty supplied

Front 38

Marginal revenue

Back 38

Change in total revenue from selling one more unit of a product

Front 39

Perfectly competitive market

Back 39

Many buyers/sellers, identical products, no barriers to exit/entry

Front 40

Price taker

Back 40

Buyer/seller unable to affect market price

Front 41

Productive efficiency

Back 41

Good/service produced at lowest possible ATC....demand = MC at min ATC?

Front 42

Profit

Back 42

Total revenue minus total cost

Front 43

Shutdown point

Back 43

Price below AVC

Front 44

Brand management

Back 44

Actions of firm intended to maintain differentiation of product

Front 45

Marketing

Back 45

All activities necessary for firm to sell product to consumer

Front 46

Monopolistic competition

Back 46

Barriers to entry low, many firms compete by selling similar products

Front 47

Antitrust laws

Back 47

Laws aimed at eliminating collusion and promoting competition among firms

Front 48

Collusion

Back 48

Agreement among firms to charge same price or otherwise not compete

Front 49

Copyright

Back 49

Gov’t-granted exclusive right to produce/sell creation

Front 50

Horizontal merger

Back 50

Merger between firms in same industry

Front 51

Market power

Back 51

Ability of firm to charge price greater than marginal cost

Front 52

Monopoly

Back 52

Firm that’s only seller of good/service without a close substitute

Front 53

Natural monopoly

Back 53

Economies of scale so large that one firm can supply entire market at lower ATC than two or more firms

Front 54

Patent

Back 54

Exclusive right to a product for 20 years from date patent application filed w/gov’t

Front 55

Public franchise

Back 55

Gov’t designation that firm is only legal provider of good/service

Front 56

Vertical merger

Back 56

Merger b/w firms at different stages of production of a good