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Econ Micro > Unit 6 > Flashcards

Unit 6 Flashcards

1
Q

Where is power in firms

A

Power with owners and managers

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2
Q

Where is power in markets

A

Power decentralised so decisions are voluntary

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3
Q

Contract

A

Legal document Specifies actions that parties in contract must undertake

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4
Q

Contracts for goods

A

Permanent transfer of ownership

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5
Q

Contracts for labour

A

Temporary transfer of authority of persons activities from employee to manage r

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6
Q

Firm specific asset =

A

Skills and networks created at firm

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7
Q

Incomplete contracts

A

No enforceable way or does not specify every aspect of exchange of intrest with parties in contract

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8
Q

Example of incomplete contract

A

Firms and employees = aspects of jobs difficult to measure
Future tasks unknown

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9
Q

Piece rate pay

A

Employment where workers are paid per unit of output = incentive to work harder

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10
Q

Negatives of price rate pay

A

Hard to measure output
People often work in teams

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11
Q

Employment rent

A

Cost of job loss = income loss, relocation costs, loss of non wage benefits and social costs

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12
Q

Employment rent =

A

(Wage- disutiltiy of effort) - (reservation wage - disutilty of being unemployed)

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13
Q

What happens when employment rent is high enough

A

Higher incentive to put more effort in

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14
Q

How to increase ER

A

Increase wage

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15
Q

Best response curve

A

Optimal amount of effort workers will exert at each wage level

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16
Q

What is firms best response

A

Minimum cost per unit of effort -

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17
Q

Steeper isocost line =

A

Decreasing cost per unit of effort

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18
Q

Profit maxing firm

A

Steep isocost line

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19
Q

Involuntary unemployment

A

Being out of work but proffering to have job at conditions that other identical workers have

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20
Q

If no involuntary unemployment then…

A

No employment rent
No effort incentive

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21
Q

Why does workers best response curve change

A

High unemployment = decreased reservation wage

High unemployment benefit = increased reservation wage

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22
Q

Economies of scale

A

Output increases more than proportionally to inputs

23
Q

Constant returns to scale

A

Output increases proportionally to inputs

24
Q

Diseconomies of scale

A

Output increases less than proportionally to inputs

25
Q

Advantages of economies of scale a

A

Demand advantages
Purchase inputs cheaper

26
Q

Average cost

A

Average cost per unit produced = slope of ray form origin to point on cost function

27
Q

Marginal cost

A

Change in cost for 1 additional unit produced = slope of function

28
Q

Where does mc intersect

A

Intersects AC at lowest point

29
Q

Slope of AC

A

Modulus (AC- MC )/ Q

30
Q

Demand curve

A

Quantity consumers will buy at each price

31
Q

Profit of iso profit curve

A

(P-AC) * Q

32
Q

Slope of isoprofit

A

(P-MC)/Q

33
Q

When does isoprofit slope down wards

A

When P>MC

34
Q

when does isoprofit slope upwards

A

when P<MC

35
Q

profit max

A

Slope of indifference curve = slope of FF
MRS= MRT

36
Q

Marginal revenue

A

Change in revenue when you sell 1 extra unit

37
Q

Max profits

A

MR= MC

38
Q

When should they increase production to increase profit

A

When MR>MC

39
Q

When should they decrease production to increase profit

A

When MR<MC

40
Q

Consumer surplus

A

Total difference between WTP and purchase price

41
Q

Producer surplus

A

Total difference between sales price and MC

42
Q

Deadweight Loss

A

Loss of total surplus relative to a Pareto efficient allocation

43
Q

Price elasticity

A

Degree of responsiveness to price change
Percentage change in quantity demanded when price changes by 1 percent

44
Q

Price elasticity =

A
  • % change in demand / %change in price = -dq/dp * P/Q
45
Q

When elasticity >1

A

MR>0

46
Q

When elasticity <1

A

MR<0

47
Q

Flat demand curve =

A

Elastic = small price change = large quantity change

48
Q

Which demand curve has larger profit margin

A

Inelastic

49
Q

Inelastic demand

A

Steep = few close substitutes products

50
Q

Ow do firms increase market power

A

Advertising
Innovation

51
Q

Market power =

A

Little competition so P>MC

52
Q

MR curve

A

Twice as steep as demand curve

53
Q

Profit max

A

When MR= MC

54
Q

Natural monopoly

A

When 1 firm can produce art lower level AC than other firms

Econ Micro (8 decks)

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