Micro Econ Exam 2

Front 1

Utility 3 main points.

Back 1

1. Subjective can change over time. You might get lots of utility today but 10 years from now you may not like it at all. This is specific to you you cannot compare across people.
2. utility does not equal usefulness. Getting your oil chaged is useful but probably doesn't give you much utility. Diamond ring has lots of utility but not much use.
3. Cannot be measured. However, it can be ranked. You can't say I get 2 points of utiltiy from that but you can say I like hot dogs better than hamburgers and ice cream better than hot dogs.

Front 2

Total utiltiy (TU)

Back 2

The total amount of satisfaction received for all units consumed. (TU)

Front 3

Marginal Utility (MU)

Back 3

The change in total utitlity from consuming one more unit of the good. (MU).

Front 4

Marginal utiltiy equation

Back 4

MU= change in TU/Q

Front 5

Total utility is maximized when?

Back 5

MU = 0

Front 6

What do economists believe about utility?

Back 6

They assume consumers maximize their utility. Utility (benefit) not needs, but rather wants.

Front 7

The law of diminishing marginal utility

Back 7

As more units are consumed, the less utility an additional unit produces. Or at some point MU begins to fall. This directly relates to the law of demand. Because we don't benefit as much we have to drop the price.

Front 8

The law of demand relates to the law of diminishing marginal utiltiy why>

Back 8

Because we don't benefit as much we have to drop the price to get consumers to purchase additional units. The law of demand: Have to lower the price because MU has decreased.

Front 9

Consumer equilibrium assumptions

Back 9

1. Consumers are rational: want to maximize utiltiy.
2. People have preferences-we can rank their utility.
3. Constraints
a. Prices
b. Income

Front 10

Consumer Equilibrium

Back 10

A consumer will be in equilirbium when total utility is maximized and income is spent.

Front 11

When is total utility maximized?

Back 11

When the MU per $ spent is = for all goods purchased.

Front 12

Equation for maximization of total utility

Back 12

MU1 / P=MU2 / P

Front 13

Paradox of value--What is total utility in this context?
Marginal utility? What does marginal utility do in this senario?

Back 13

Necessity for survival items have high total utility. Total utility-The value of use. Doesn't tell us the price.
Marginal utility-Sets the price in exchange. determines the price.
Air is fre because air is abundant on earth. If you find an extra diamond ring, the value is high because diamonds are scarce.

Front 14

Why is voter turnout in the US relatively low?

Back 14

Because the value of their time is better spent elsewhere. The person thinks that 1 out of 1000000000 votes doesn't make much different. Even if the TU of your candiddate winning is very high, the MU of your vote making the difference is very low. IF however, you live in an undeveloped country you don't give up 100$ an hour to go vote so they mostly have 100% turnout.

Front 15

Is the law of diminishing MU a sufficient justification for taking $ from the rich and giving it to the poor?

Back 15

People say that the rich have so much that the MU of a dollar to them is much lower than the MU of a poor person so that justifies it. Is this true? NO becuase we cannot compare across people.

Front 16

Costs (generally speaking production)

Back 16

Goal: To maximize economic profit. Profit=TR-TC

Front 17

Total costs for economists

Back 17

1. Explicit costs- Make a payment somewhere and you write a check or give money directly to someone. Wages, taxes, inputs, utilities.
2. Implicit costs- Opportunity costs.

Front 18

Explicit costs

Back 18

Make a payment Somewhere money changes hands, you write a check or give money directly to someone. Such as wages, taxes, inputs or utilities.

Front 19

Implicit costs

Back 19

Opportunity costs. Resources supplied by enterepreneur(salary or interest given up).

Front 20

3 implicit costs

Back 20

1. Implicit rent-What you could get if your rented out your capital to somebody else. The cost of starting my own business is giving up the revenue you could earn from your capital instead of using it yourself.
2. Implicit salary-Your next best alternative. If you start your own business, you give up the salary you could have by working at JCP.
3. Depreciation-The difference beetween what you paid for the capital and what you could sell it for (market value_

Front 21

Implicit rent

Back 21

What you could get if you rented out your capital to somebody else. The cost of starting your own business is the money you could earn by renting out your capital instead of using them yourself.

Front 22

Implicit salary

Back 22

Your next best alternative to the option given. If you open your own business, your implicit salary is what you could make if you were working somewhere else like JCP.

Front 23

Depreciation

Back 23

The difference between what you paid for the capital and what you could sell it for (market value). Example if you buy a computer for 2000 and at the end of the year it's worth 500 then the depreciation was 1500.

Front 24

Accounting profit

Back 24

TR-TC (explicit only)

Front 25

Economic profit=

Back 25

TR-TX (implicit and explicit)

Front 26

If TR < TC then?

Back 26

Resources will be put somewhere lese.

Front 27

Normal profits

Back 27

Break even TR=TC Resources don't move. Equillibrium. No resources leave or enter. Everyone just stays the same.

Front 28

If TR > TC

Back 28

Then resources will be put into the field.

Front 29

Production in the short run

Back 29

In the short run at least one input is fixed. In the long run we can put in more chairs. In the short run we can increase a little because we can put in more labor to our capital. However if we are working 24 hours a day 7 days a week we cannot increase unless we increase capitla.

Front 30

Long run

Back 30

The demand for your product is high. A time period in which the quantity of all inputs is variable (planning phase)

Front 31

Production assumptions (short run)

Back 31

1. Labor (variable input)
2. CApital is fiexed
3. Technology is fixed/

Front 32

3 measurements related to varaible input (labor)

Back 32

Total
Average
Marginal

Front 33

Total Product (Total Quantity) TP or TQ

Back 33

Total output produced w/ fixed capital and varying amounts of labor.

Front 34

Average product equation

Back 34

Total product / workers

Front 35

What happens if we have too many employees?

Back 35

WE have too many people they cannot share chairs to cut hair there's too many people they get in each other's way there's too much chaos. The fixed caputal causes this. If you could adjust shop size this wouldn't happen.

Front 36

Marginal Product (MP)

Back 36

The increase in output associated with a unit increase in labor employed. MP= change in TP/change in Labor

Front 37

Law of diminishing returns to labor

Back 37

When at least one input is fixed, increases in the variable input (labor) beyond some point leads to increasingly smaller additions to output. In other words, (MP) falls eventually. It's like if you have abball court and you play 5 on 5 good and lots of points scored. If you play 50 on 50 some points and if you play 100 on 100 the ppl cannot move and there are no points scored.

Front 38

If average is up what happens to marginal?

Back 38

Marginal > average

Front 39

If average is down then what happens to marginal?

Back 39

Marginal < average

Front 40

When average is at it's max what happens?

Back 40

AP = MP