Microeconomics Test 2

Front 1

price taker

Back 1

existing in a competitive market, a price taker cannot affect market price.

Front 2

risk

Back 2

type of uncertainty in which the costs or benefits of an event or choice are uncertain but calculated

Front 3

diseconomies of scale

Back 3

it occurs when increasing the scale of production to obtain higher output raises the minimum of the average total cost

Front 4

collusion

Back 4

when businesses work together to control the price and quantity of the goods that they sell

Front 5

market power

Back 5

when one side of an economic transaction has the ability to affect price

Front 6

information asymmetry

Back 6

it occurs when one side of an economic transaction knows more than the other side

Front 7

marginal product

Back 7

it is any increase in output generated by an additional unit of input

Front 8

variable costs

Back 8

costs that increase with the level of production including such inputs as labor and raw materials

Front 9

nash equilibrium

Back 9

when players chose a strategy that works best for them no matter what the opposing side choses to do

Front 10

moral hazzard

Back 10

the tendency for people to behave in a riskier way or to renege on contracts when they do not face the full consequences of their actions after an agreement has been made

Front 11

total revenue

Back 11

quantity multiplied by price per unit

Front 12

how are interest ratea used to assist people in making investment choices?

Back 12

when considering money today versus future money, individuals consider the opportunity cost of waiting until the future to receive the money.

the interest rate tells how today's money worth in the future

Front 13

list and describe 3 common features of a game

Back 13

rules: define the actions that are allowed in a game. government establish rules for how businesses can operate

strategies : are the plans of action that players follow to achieve their goals

payoffs : are the rewards that come from particular actions

Front 14

what are fixed costs? how do fixed vosts affect a business even it has decided to stop producing

Back 14

fixed costs are the costs that do not depend on the quantity of output produced example rent

even if a firm produces nothing, it still incurs a fixed cost

Front 15

list 4 characteristics of a competitive market

Back 15

full information exists

buyers and sellers are price takers

the good or service is standardized

firms freely enter and exit the market

Front 16

how can a commitment strategy (like collusion) allow players to achieve greater benefits?

Back 16

to maximize the benefits the olayers agree to submit to some penalty in the future if they defect from the commitment strategy:

this is the strategy employed by businesses who conspire to keep prices artificially high

Front 17

why are insurance companies better ablr to handle the same risk

Back 17

insurance is an agreement in which

an individual pays a regular fee

an insurance company covers costs associated with a specific event occurring.

insurance companies pool individuals together called risk pooling . they use diversification in which risks are shared cost across many different assets or people

Front 18

Back 18

Front 19

Back 19

Front 20

Back 20

Front 21

economies of scale

Back 21

if increasing the scale of production to obtain higher output lowers the minimum of the average total cost then economied of scale occur

Front 22

why compounding can be an incentive to invest

Back 22

Front 23

if a firm experiences diminishing marginal product does that mean that total output decreases?

Back 23

Front 24

Back 24

Front 25

explicit costs

Back 25

they are composed of the fixed and varible cost

these are explicit costs that requires a firm to spend money