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Econ 201 > Chapters 6 - 10 > Flashcards

Chapters 6 - 10 Flashcards

(62 cards)

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1
Q

Utility

A

the satisfaction that a customer gets from consuming a good or service

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2
Q

Total Utility and Marginal Utility

A

Total: the total amount of satisfaction
that the consumer gets
Marginal: the additional utility a consumer gets from consuming one additional unit

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2
Q

Total Utility and Marginal Utility

A

Total: the total amount of satisfaction
that the consumer gets
Marginal: the additional utility a consumer gets from consuming one additional unit

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3
Q

Diminishing Marginal Utility

A

Marginal utility decreases as total consumption increases

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4
Q

How does a utility maximising consumer allocate expenditures?

A

so the marginal utility gained from the last dollar spent on each product is equal

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5
Q

How does utility maximization relate to the demand curve?

A

as the price of a product goes up, the utility maximizing consumer decreases quantity demanded of the product

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6
Q

The substitution effect

A

the change in quantity demanded of a product whose relative price has changed (holding real income constant)
- increases quantity demanded (movement along the demand curve)

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7
Q

The income effect

A

change in quantity demanded of a product resulting from a change in real income
- increases quantity bought (shift in the demand curve)

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8
Q

Giffen goods

A

products with positive demand curves

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9
Q

giffen goods characteristics

A

inferior good, takes a large proportion of household income

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10
Q

Consumer surplus

A

the difference between the market price and the maximum price that the consumer is willing to pay

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11
Q

six ways to organize a firm

A
  1. A single proprietorship
  2. An ordinary partnership
  3. The limited partnership (general and limited)
  4. A corporation (private and public)
  5. A state-owned enterprise (Crown corporations)
  6. Non-profit organizations
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12
Q

Basic types of financial capital

A

equity and debt

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13
Q

Socially responsible to maximize profits?

A

Goal of maximizing profits benefits customers and
their employees, and it leads to innovation, which
improves living standards

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14
Q

The production function

A

shows the maximum amount of output that can be produced give a set of inputs

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15
Q

Accounting profit

A

Revenue - explicit costs

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16
Q

Economic profit

A

Revenue - (explicit costs + implicit costs)

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17
Q

The short run

A

production has fixed factors

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18
Q

The Long Run

A

Production has all variable factors except for technology

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19
Q

The very long run

A

all factors are variable

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20
Q

Total and average product

A 
TP = the total amount of product produced over a length of time
AP = TP/number of units of variable factor used to produce it
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21
Q

Marginal product

A

change in total output that results from using one more unit of variable factor

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22
Q

Marginal cost

A

increase in total cost resulting from increasing output by one unit

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23
Q

Technical efficiency

A

when a given number of inputs are combined in a way to maximize the level of output

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24
How does a firm maximize profit?
by choosing the lowest cost combination of labour and capital
25
Cost minimization
the firm chooses the lowest cost production method
26
What is the LRAC curve
the curve that shows the lowest possible cost of producing each level of output when all inputs can be varied
27
Economies of scale
when long run average cost is falling as output increases
28
Minimum efficient scale
the smallest output at which the LRAC is at its minimum
29
Constant returns
when a firm is experiencing output larger in proportion to its input
30
decreasing returns
when a firm is experiencing output at a level smaller relative to its inputs
30
decreasing returns
when a firm is experiencing output at a level smaller relative to its inputs
31
SRATC curve
shows the lowest cost of producing when one or more factors are fixed
32
Market Power
when a firm can influence the price of their product
33
Competitive market
when the firms in the market have little or no market power | Perfectly competitive market is when the firms have 0 market power
34
what are the assumptions of a competitive market
all firms sell a homogenous product customers know the nature of the product being sold and the prices sold by other firms minimum efficient output of each firm is small relative to the industry's total output the industry has freedom of entry and exit
35
Average revenue
revenue per unit sold
36
Economic loss
when a firm's total cost > total revenue
37
When is it worthwhile for a firm to produce?
when its revenue exceeds its variable costs
38
when should a firm cease production
when its revenue cannot cover variable costs, it is losing more by producing than if it was not producing
39
Shut down price
the price that is equal to a firm's minimum average variable cost
40
how does a firm decide how much to produce?
if production adds more to revenue than it does to cost, the firm should increase production
41
Profit maximization for a competitive firm
the profit maximizing level for a competitive firm is where price (marginal revenue) equals marginal cost
42
short run supply curves
given by the marginal cost curve above the AVC curve
43
short run equilibrium
when the quantity demanded and supply are met in an industry
44
long run industry equilibrium
the firms in the industry are making zero profit, the price in the industry is the break even price
45
conditions for long run equilibrium
the firms are neither making profits or losses | existing firms are operating at the minimum efficient scale
46
Monopolist
A firm that has majority or all power in a market
47
Demand curve for a monopolist
negatively sloped
48
demand curve for a firm in perfect competition
horizontal (quantity has no effect on price for each individual firm)
49
Marginal revenue for a Monopolist
Is not equal to price, because a monopolist must reduce the price off all its units to sell one extra unit Monopolists marginal revenue is the price minus this lost revenue
50
Profit maximizing output for a monopolist
where MC = MR
51
Monopolist supply curve
the monopolist does not have a supply curve because it is a price taker
52
Perfect comp vs monopoly price setting
For a perfectly competitive market, p = MC | For a monopoly, p > MC
53
Why is the monopoly economically inefficient?
it produces at a lower quantity to maximise profits and therefore causes deadweight loss for society
54
Entry barriers
for a monopoly to survive it must prevent other firms from entering the market
55
Creative destruction
in the very long run, technological advancements circumvent the entry barriers set by monopoly's creative destruction is the coined term to define when one monopolist replaces another through innovation
56
Cartels
when firms band together and agree to restrict output in order to maximize profits
57
Price discrimination
selling different units for different prices for reasons other than differences in cost
58
When is price discrimination possible
Market power different valuations of the product Able to prevent arbitrage
59
Hurdle pricing
when firms create an obstacle that firms must get over to get a lower price
60
Price discrimination and economic efficiency
If price discrimination leads to increase in output than economic surplus is increased and therefore so is economic efficiency

Econ 201 (3 decks)

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