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IMC Part 2 > Chapter 16: Microeconomics > Flashcards

Chapter 16: Microeconomics Flashcards

1
Q

Opportunity Cost

A
  • the cost of foregoing the next best alternative
  • considers not only monetary advantage but also the comparative circumstances, risk, rime and effort for one option against another
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2
Q

Accounting Profit

A
  • excess revenue income over and above explicit costs
  • explicit costs = wages, lease of property etc.
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3
Q

Sub-Normal profit

A
  • aka economic loss = the accounting profit does not cover its opportunity loss
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4
Q

Normal profits

A
  • accounting profit just covers its opportunity cost –> no incentive to switch
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5
Q

Super normal profit

A
  • accounting profits are in excess of opportunity costs = the producer has made correct choice in its production decisions
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6
Q

What does a demand curve show

A
  • the quantity of a good at different price levels
  • displays the impact of price on effective demand
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7
Q

What is effective demand?

A
  • consumers are not only willing but also able to place on a particular good or service
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8
Q

What is a shift in demand schedule
* What does a shift to the right represent?

A
  • when the demand for a good changes because of a factor other than the price of the good
  • shift to the right = overall increase in demand
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9
Q

What does it mean if the market is in equilibrium?

A
  • where the demand and supply curve crosses
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10
Q

What does the elasticity of demand measure?
Calculation?

A
  • how sensitive demand is to changes in various factors: price, income and cross elasticity of demand

Price elasticity of demand = Percent change in quantity / Percent change in price

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11
Q

What does PED = 1 mean for revenue

A
  • revenue is at is maximum
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12
Q

PED > 1 mean for revenue

A
  • it will increase
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13
Q

Income elasticity of demand measures & calculation?

A
  • the sensitivity of demand to consumers’ disposable income
  • Income elasticity of demand = Percentage change in quantity / Percentage change in price
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14
Q

What are goods called where demand falls as income rises

A
  • inferior goods
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15
Q

What is a giffen?

A
  • an inferior good where demand increases as the price increases ex. bread - if price increases, less wealthy people are even less able to afford more expensive food items, and will have to buy more bread
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16
Q

Cross elasticity of demand

A
  • measures the change in quantity demand against the change in price of either a substitute or a complementary good
  • = percent change in quantity / percent change in price of substitute / complementary good
17
Q

Difference in elasticity of substitute vs. complimentary goods

A
  • substitute = positive cross elasticity of demand
    Ex. If the price of cars go up, the demand for tube travel will increase
  • complimentary = negative cross elasticity of demand
    Ex. if the price of petrol increases, the demand for cars decrease.
18
Q

Price elasticity of supply

A
  • the extent to which the change in price will impact the change in the quantity producers are willing to supply
19
Q

What factors influence elasticity of supply?

A
  • levels of unemployment (producers find it difficult to increase supply as prices fall)
    *Durability of goods (durable goods tend to have higher levels of supply elasticity)
  • manufactured goods (can more easily meet an increase in demand than for example growing the goods)
20
Q

4 factors of production

A
  • Land, Labor, Capital & Entrepreneurship
21
Q

Marginal product of labor

A
  • the idea that for every worker above x, with x being the minimum number to run operations, each additional worker will contribute less value
22
Q

Law of diminishing return

A
  • beyond some level of variable input, further increases will lead to a steadily decreasing marginal product
23
Q

Total costs

A
  • include all explicit costs and opportunity costs of the firm
  • made up of total fixed cost and total variable cost
24
Q

Marginal cost

A
  • the cost of producing an additional unit of production
  • as long as the marginal cost is below average cost, the average cost will reduce as production increases
25
Q

What is the long run?

A
  • the period of time where no factor of production is fixed
26
Q

Economies of scale

A
  • as output increases the long run average cost decreases
  • produced by increased efficiency, purchasing power, reputation etc.
27
Q

Minimum Efficient Scale

A
  • the lowest point on the long run average total cost curve
  • the level of output of a business in the long run where the internal economies of scale have been fully exploited
  • in industries with large minimum efficiency scales - only a few major players tend to dominate the space due to the high ratio of fixed cost to variable cost
28
Q

Diseconomies of Scale

A
  • the idea that increasing output may lead to average costs rising in the long run
  • tend to arise from management problems
29
Q

Perfect competition

A
  • large number of firms supplying a large number of customers
  • each firm’s output has no overall effect on price
  • there are no barriers to entry
  • there is no different in the produce of different firms
30
Q

What type of demand curve do firms in perfect competition face?

A
  • Flat demand curve, it’s level of output does not influence the price it receives
31
Q

Monopoly

A
  • there is only one firm in the industry
  • firm is a price maker
  • there are barriers to entry
32
Q

A monopolist will produce at a level where

A
  • marginal revenue equals marginal cost
33
Q

What is monopolistic competition features

A
  • many producers and consumers with no business having total control of market price
  • few barriers to entry and exit
  • consumers feel there are differences other than price in relation to each competitor´s products
  • Few barriers to entry and exit
  • Producers have a degree of control of the price
34
Q

Oligopoly

A
  • most common form of market
  • industry must be dominated by relatively few firms
  • must be independent of each other
  • typically significant barriers to entry
35
Q

Porter´s five competitive forces

A
  • bargaining power of suppliers
  • bargaining power of customers
  • threat of new entrants
  • threat of substitutes
  • rivalry between competitors
36
Q

SWOT analysis

A
  • to analyze a firm’s position
  • strengths
  • weaknesses
    *opportunities
  • threats

IMC Part 2 (13 decks)

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