Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Microeconomics > Chapters 8-14 > Flashcards

Chapters 8-14 Flashcards

(85 cards)

Start Studying
0
Q

Total Utility

A

the total benefit a person gets from the consumption of goods. More consumption gives more utility

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

Marginal Utility

A

the change in total utility that results from a unit-increase in the quantity of the good consumed. As the quantity of a good increases, the marginal utility from it decreases. This decrease in marginal utility as the quantity of the good consumed increases is the principle of diminishing marginal utility.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Consumer equilibrium

A

the situation in which a person has allocated all of their available income in the way that maximizes total utility.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Marginal utility per dollar

A

the marginal utility from a good that results from spending one more dollar on it. It equals the marginal utility from a good divided by its price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Utility-maximizing rule

A

a consumer’s total utility is maximized by following the rule of spending all available income and equalize the marginal utility per dollar for all goods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Demand curve slopes downward when…

A

the price of a good falls, the quantity demanded of that good increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Behavioral economics

A

studies the ways in which limits on the human brain’s ability to compute and implement rational decisions, influence economic behavior

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Bounded rationally

A

is rationality that is bounded by the computing power of the human brain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Bounded will-power

A

is the less than perfect willpower that prevents us from making a decision that we know, at the time of implementing the decision, we will later regret

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Bound self-interest

A

is the limited self-interest that sometimes results in suppressing our own interests to help others

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Endowment effect

A

is the tendency for people to value something more highly simply because they own it

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Neuroeconomics

A

is the study of the activity of the human brain when a person makes an economic decision

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Budget line

A

describes the limits to the household’s consumption choices. It is a constraint on consumption choices. A person can afford any point that is on or inside the budget line, but cannot afford any point that is outside the budget line.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Budget equation

A

expenditure = income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Real income

A

the income expressed as a quantity of goods the household can afford to buy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Relative price

A

is the price of one good divided by the price of another good. It is the magnitude of the slope of the budget line. It shows how many of a certain object must be foregone to see an additional unit of another object.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Change in the price of a good on the x-axis changes…

A

the slope of the budget line

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Change in money income brings a…

A

parallel shift of the budget line. The slope of the budget line doesn’t change because the relative price doesn’t change.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Indifference curve

A

is a line that shows combinations of goods among which a consumer is indifferent. At specific points a person can choose 2 movies for example and drink 6 cases of soda a month.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Marginal rate of substitution (MRS)

A

measures the rate at which a person is willing to give up good y to get an additional unit of good x, while at the same time remaining indifferent (remaining on the same indifferent curve)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Magnitude of the slope of the indifference curve

A

measures the marginal rate of substitution

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

If the indifference curve is relatively steep…

A

the MRS is high (the person is willing to give up a large quantity of y to get a bit more of x)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

If the indifference curve is relatively flat…

A

the MRS is low (the person is willing to give up a small a quantity of y to get more of x)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

A diminishing marginal rate of substitution

A

is the key assumption of consumer theory. It is a general tendency for a person to be willing to give up less of good y to get one more unit of good x, while at the same time remaining indifferent as the quantity of good x increases.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
The shape of the indifference curves reveals the...
degree of substitutability between two goods
25
The consumer's best affordable choice is...
on the budget line, on the highest attainable indifference curve, has a marginal rate of substitution between the two goods equal to the relative price of the two goods
26
The price effect
is the effect of a change in the price of a good on the quantity of the good consumed
27
The income effect
is the effect of a change in income on the quantity of a good consumed
28
For a normal good, a fall in price always increases...
the quantity consumed
29
The substitution effect
is the effect of a change in price on the quantity bought when the consumer remains on the same indifference curve. It is the first reason why the demand curve skiers downward
30
For a normal good, the income effect...
reinforces the substitution effect and is the second reason why the demand curve slopes downward
31
For an inferior good, when income increases...
the quality bought decreases. The income effect is negative and works against the substitution effect. As long as the substitution effect dominates, the demand curve still sloped downward.
32
To isolate the income effect
we reverse the hypothetical pay cut and restore the consumer's income to its original level
33
To isolate the substitution effect
we give the consumer a hypothetical pay cut
34
If the negative income effect is stronger than the substitution effect
a lower price for inferior goods brings a decrease in the quantity demanded and the demand curve slopes upward. This case does not appear to occur in the real world.
35
The best affordable choices determine...
spending patterns. Changes in prices and incomes change the best affordable point and change consumption patterns.
36
A firm
an institution that hires factors of production and organizes them to produce and sell goods and services. A firm's goal is to maximize profit. If a firm fails to maximize profit, the firm is either eliminated or taken over by another firm that seeks to maximize profit
37
Profit...
equal total revenue minus total cost
38
Economic profit is equal...
to total revenue minus total cost, with total cost measured as the opportunity cost of production
39
A firm's main objective...
profit maximation
40
Short run
is a time frame in which the quantity of one or more resources used in production is fixed. For most firms, the capital, called the firm's plant, is fixed in the short run. Other resources like labor, raw materials, and energy can be changed in the short run. Short-run decisions are easily reversed.
41
Long run
is a time frame in which the quantities of all resources, including the plant size, can be varied. Long run decisions are not easily reversed.
42
Sunk cost
is a cost incurred by the firm and cannot be changed. If a firm's plant has no resale value, the amount paid for it is a sunk cost. Sunk costs are irrelevant to a firm's current decisions.
43
To increase output in the short run....
a firm must increase the amount of labor employed. Three concepts describe the relationship between output and the quantity of labor employed: total product, marginal product, average product.
44
Total product
is the total output produced in a given period
45
Marginal product
of labor is the change in total product that results from a one-unit increase in the quantity of labor employed, with all other inputs remaining the same
46
Average product of labor
is equal to total product divided by the quantity of labor employed
47
As the quantity of labor employed increases...
total product increases, marginal product increases initially, but eventually decreases, average product decreases
48
Total product curve
separates attainable output level from unattainable output levels in the short run
49
Diminishing marginal returns
arises because each additional worker has less access to capital and less in which to work. They are so pervasive that they are elevated to the status of a "law"
50
Law of diminishing returns
states that as a firm uses more of a variable input with a given quantity of fixed inputs, the marginal product of the variable input eventually diminishes
51
When marginal product is below average product...
average product decreases
52
When marginal product equals average product...
average product is at is maximum
53
To produce more output in the short run...
the firm must employ more labor, meaning it must increase its costs
54
Total cost
is the cost of all resources used
55
Total fixed cost
is the cost of the firm's fixed inputs. Fixed costs do not change with output
56
Total variable cost
is the cost of the firm's variable inputs. Variable costs do change with output
57
Total cost equals
total fixed cost plus total variable cost
58
Marginal cost
is the increase in total cost that results from a one-unit increase in total product
59
With increasing marginal returns...
marginal cost falls as output increases
60
With diminishing marginal returns...
marginal cost rises as output increases
61
Average fixed cost
is total fixed cost per unit of output
62
Average variable cost
is total variable cost per unit of output
63
Average total cost
is total cost per unit of output
64
The AVC curve is U shaped because
MP exceeds AP, which brings rising AP and falling AVC. EVentually, MP falls below AP, which brings falling AP and rising AVC
65
The ATC curve is U shaped because
ATC falls at low output levels because AFC is falling quickly
66
The ATC curve is the vertical sum of...
the AFC curve and the AVC curve. AFC curve slopes downward as output increases
67
MC is at its maximum at the same output level at which MP is at its
maximum
68
When MP is rising
MC is falling
69
AVC is at its minimum at the same output level at which AP is at its
maximum
70
When AP is rising
AVC is falling
71
An increase in productivity shifts the product curves
upward and the cost curves downward
72
If a technological advance results in the firm using more capital and less labor
fixed costs increase and variable costs decrease. Average total cost increases at low output levels and decreases at high output levels
73
An increase in the price of a factor of production
increases costs and shifts the cost curves
74
An increase in fixed cost shifts the total cost and average total cost curves
upward but does not shift the marginal cost curve
75
An increase in a variable cost shifts the total cost, average total cost, and marginal cost curves
upward
76
The firm's production function
is the relationship between the maximum output attainable and the quantities of both capital and labor
77
The marginal product of capital
is the increase in output resulting from a one-unit increase in the amount of capital employed, holding constant the amount of labor employed
78
The long run average cost curve is made up from the
lowest ATC for each output level
79
The long run average cost curve
is the relationship between the lowest attainable average total cost and output when both the plant and labor are varied.
80
Economies of scale
are features of a firm's technology that lead to falling long run average cost as output increases
81
Diseconomies of scale
are features of a firm's technology that lead to rising long-run average cost as output increases
82
Constant returns of scale
are features of a firm's technology that lead to constant long run average cost as output increases
83
Minimum efficient scale
is the smallest quantity of output at which the long run average cost reaches its lowest level
84
If the long run average cost curve is U shaped
the minimum point identifies the minimum efficient scale output level

Microeconomics (1 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions