Shared Flashcard Set

Details

Final Flash Cards
Flash card for Gresik's principles of micro
76
Economics
Undergraduate 1
05/02/2008

Additional Economics Flashcards

 


 

Cards

Term
Production Function
Definition

It determines how much output a firm can get from any combination of inputs

F(K,L)=Q
Term
Isoquant Curves
Definition

help organize production information by identifying all input combinations that generate the same output

 

Term
Marginal Product
Definition
measure the rate of change in production with respect to a change in a single factor
Term
Marginal Rate of Technical Substitution
Definition
measures the rate of change at which a firm would be willing to give up one input for another input so that total output does not change
Term
Isocost Curves
Definition
  • describe the cost trade-offs associated with each possible budget level
  • it is all the budget allocations that cost the same
Term
Technological Efficiency
Definition
producing without waste
Term
Economic Efficiency
Definition
using the lowsest cost technologically efficient combination
Term
Marginal Value Equation
Definition

describes input combinations for which the last dollar spent on each good increases utility by the same amount

MU1/P1=MU2/P2 

Term
Substitution Effect
Definition
a change in relative factor prices creates an incentive for firms to substitute away from the factor that has become relatively more expensive
Term
Economic Cost
Definition

are forward looking costs

Economic cost=accounting cost+ opportunity cost-sunk cost 

Term
Budget Line
Definition

the set of all affordable bundles whose cost equals income

I= p1q1+p2q2 

Term
Relative Price
Definition
ratio of one product's price to another to measure how expensive that good is relative to the other good
Term
Utility Fuction
Definition

a way of measuring benefit of any combination of goods

  •  a systm of quantifying the benefits one gets from a bundle of choices
  • it is a system to ran alternative bundles
U(q1,q2)=
Term
indifference curves
Definition

organizes information about different combinations of goods that give the same benefit

 

  • are the curves that compare benefit
  • each point on the curve the benefit is the same (hence the name "indfference curves") 
Term
Marginal Utility
Definition
measure the rate of change in utility with respect to a change in how much we have of just one good
Term
Marginal Rate of Substitution
Definition
measures the rate at which a consumer would trade one good for another to keep utlity constant
Term
Marginal Value Equation
Definition
describes the combination of goods in whuch the last dollar spent on each good increases utlity by the same amount
Term
Income Effect
Definition
is the consumer's response to a change in real income
Term
Substitution Effect
Definition
is the consumer response to change in relative prices
Term
Economic Profit
Definition

is what a firm gets after everyone else is satisfied

Economic Profit= Revenue-Economic Cost 

Term
Perfect Competition
Definition
  1. many buyers and sellers without market influence or power
  2. all products are identical (homogeneous products)
  3. free entry and exit of firms
  4. perfect information
Term

Average Total Cost

 

Definition
The total cost of producing a certain amount of goods over the amount of goods produced
Term
Average Variable Cost
Definition
is the variable cost of producing an amount of goods divided by the amount of goods produced
Term
Marginal Cost
Definition
the rate of change of a cost function with respect to a change in a single factor of production
Term
Aevrage Product
Definition
average ouptput over units of input
Term
Sunk Cost
Definition
are costs already incurred that cannot be recovered
Term
Fixed Costs
Definition
are costs that you will incur but are independent of the use of an output
Term
Variable Costs
Definition
are costs that vary with the use of an input
Term
Buyer Reservation Value
Definition
is the highest price that a buyer is willing to spend to buy an extra unit of a good or service
Term
Quantity Demanded
Definition
is the amount of a good or service that buyer are willing to buy at a given price
Term
Substitute Goods
Definition

When the price of one good goes up the demand for its substitute increases.

 

Exp. hondas and toyotas 

Term
Market Equilibrium
Definition
is the price at which the quantity supplied equals the quantity demanded
Term
Producer Surplus
Definition
is the gains from trade that accrue to sellers
Term
Consumer Surplus
Definition
is the gains from trade that accrue to buyers
Term
Deadweight Loss
Definition
is the net loast gains from trade caused by market inefficency
Term
Excise Tax
Definition
is a tax that is the legal responsibility of sellers to pay
Term
Sales Tax
Definition
is a tax that is the legal responsibility of buyers to pay
Term
Pareto Efficiency
Definition
An allocation is pareto efficient if there is no other allocation that makes some better off without making others worse off
Term
Externality
Definition
  • is a cost or benefit arising from a private activity that falls on others
Term
Rival Goods
Definition
a good is rival if one person's consumption of the good restricts anyone else's consumption of the same good
Term
Nonrival Goods
Definition
a good is nonrival if one person's consumption of the good does restrict anyone else's consumption of the same good
Term
Excludable Goods
Definition
a good is excludable if you can control who benefits from consuming the good
Term
Nonexcludable Goods
Definition

a good is nonexcludable if no one can be excluded from benefitin from the good once it is produced

 

exp. public radio 

Term
Public Goods
Definition

Are goods that are nonexcludable to some degree

 

Examples: 

  • defense
  • public school
  • parks
  • neighborhood pool
  • public television 
Term
Commons
Definition

Commons are public rival goods.

 

(This means they are somewhat nonexcludable and rival) 

Term
Free Rider Problem
Definition

People who have incentive to pay less than their marginal value

(others pay for the public good, so you don't have to) 

Term
Tragedy of the Commons
Definition

refers to the overuse of a common good or resource

 

(The each use of a common public good reduces the amount that others can use and derive benefit from it) 

Term
Willingness to Pay
Definition
Term
Marginal Revenue
Definition

 

Term
Natural Monopoly
Definition
  • They have a decreasing average cost
  • there are efficency gains by using less resources, but they have less incentive to innovate
What should be done to these types of monopolies?
 
They should be regulated. The Demsetz Competition is usually used to regulate them.
Term
Production Possibility Frontier
Definition
describes the set of goods and services an economy can produce efficiently
Term
Opportunity Cost
Definition
the value of the best possible alternative when a decision or choice is made
Term
Marginal Cost
Definition
opportunity cost of increasing production of a good by one unit
Term
Comparative Advantage
Definition

A country has a comparative advantage of producing if it has the lowest marginal cost of production.

 

Countries tend to have the comparative advantage in producing good in which they have a large endowment of the intensive inputs of production.

Term
Absolute Advantage
Definition
in producing a good if it can produce a product using fewer resources than the other country
Term
Terms of Trade
Definition
refers to the amount an exported product a coutry pays for imported products. It is measured by the ratio of the amount of the exported product to the amount of the imported product.
Term
Demand

Definition
the relationship between the quantity of a good consumers are willing to buy and the price of the good
Term
Inverse Demand
Definition
the relationship between the price of a good and the quantity consumers are willing to buy
Term
Determinants of Demand
Definition
the determinants of demand are income (normal vs. inferior), relative price of other goods (substitutes and complements), and preferences
Term
Normal Goods
Definition
demand changes in the same direction as income
Term
 Inferior Goods
Definition
demand changes in the opposite direction as income
Term
Complements
Definition

when the price of one complement goes up  the demand for the complement goes down

 

exp. hamburger patties and buns 

Term
Supply
Definition
the relationship between the quantity of a good producers are willing to sell and its price
Term
Inverse Supply
Definition
the relationship betweem the price of a good and quantity producers are willing to sell
Term
Quantity Supplied
Definition
the amount of a good producers are willing to sell at a specific price
Term
Determinants of Supply
Definition
input prices, technology, and the number of firms in the market
Term
First Welfare Theorem
Definition
If,
  • all traders have minimal market power,
  • all goods and services can be traded in a market, and
  • no one is uncertain about his/her valuation of each good and service
Then, every market equilibrium allocation is pareto efficient. (all market equilibria maximize the sume of CS and PS)
Term
Second Welfare Theorem
Definition

Under the same conditions as the First Welfare Theorem

  • every pareto efficient allocation can be achieved through market equilibrium
  • given the proper redistribution of resources prior to trade
There is a legitimate role of government to increase social well-being, welfare, and wealth.

 

Term
Ceilings
Definition
an imposed limit on how high a price can go (a price cannot exceed a certain price)
Term
Floors
Definition
a minimum price a good can go to in a given market (a good/service cannot be lower than a certain level)
Term
Quotas
Definition

are restrictions on the amount of a good or service that is traded in a market

 

acts the same way that a floor does 

Term
Legal Incidence
Definition
is who has legal resposibilty for paying a tax
Term
Economic Incidence
Definition

is determined by price sensitivity of buyers and sellers in a market.

It is independent of the legal incidence.

It is how the tax burden is distributed amongst buyers and sellers.  

Term
Revenue Test
Definition

tells the relationship between change in firms' prices and change in revenue.

It depends on if you are at an elastic or inelastic point on the demand curve.  

Term
Price Elasticity of Demand
Definition
Term
Price Elasticity of Supply
Definition
Supporting users have an ad free experience!