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Micro Econ > Final Memorization > Flashcards

Final Memorization Flashcards

1
Q

Scarcity

A

Inability to satisfy all our wants

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2
Q

incentive

A

reward that encourages an action or a penalty that discourages an action

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3
Q

Economics

A

The social science that studies the choices individuals, businesses, governments, and societies make as they cope with scarcity and the incentives that influence and reconcile those choices

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4
Q

Microeconomics

A

the study of the choices that individuals and businesses make and how those choices interact with markets and influence governments

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5
Q

Macroeconomics

A

the study of the performance of the national and global economies

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6
Q

Two big economic questions

A

How do choices end up determining what, how, and for whom goods and services get produced?
When do choices made in the pursuit of self interest also promote the social interest

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7
Q

Factors of production

A

Land, Labour, Capital, Entrepreneurship

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8
Q

Human Capital

A

The quality of labour. Knowledge and skills that people obtain from education on job training and experience

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9
Q

What each factor earns

A

Land earns rent
Labour earns wages
Capital earns interst
Entrepreneurship earns profit

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10
Q

Dimensions of social interest

A

Efficiency
Equity

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11
Q

Efficiency

A

resource use is efficient ifs it is impossible to make someone better off without making someone worse off

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12
Q

Equity

A

equity is fairness but economists have differing views about what is fair

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13
Q

Topics that generate discussion and illustrate tension between self interest and social interest

A

Globalization
Information Age monopolies
Global warming
Economic instability

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14
Q

Six key ideas that define the economic way of thinking

A

A choice is a tradeoff
people make rational choices by comparing benefits and costs
benefit is what you gain
cost is what you must give up
most choices are how much choices made at the margin
choices respond to incentives

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15
Q

Opportunity Cost

A

the highest valued alternative that must be given up to get something

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16
Q

Positive Vs Normative Statements

A

Positive is facts and can be tested and proven, normative is opinion and can not be proven either way

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17
Q

Economic Model

A

description of some aspect of the economic world that includes only those features needed for the purpose at hand

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18
Q

alternatives to testing models

A

natural experiments
statistical investigations
economic experiments

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19
Q

skills needed for economic jobs

A

critical thinking
analytical skills
math
writing
oral communication

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20
Q

Production Possibilities Frontier(PPF)

A

the boundary between those combinations of goods and services that can be produced and those that cannot

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21
Q

Production Efficiency

A

cannot produce more of one good without producing less of some other good

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22
Q

Marginal Benefit

A

The benefit received from consuming one more unit of a good measured as the maximum a person is willing to pay for an additional unit

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23
Q

Marginal Cost

A

Opportunity cost of producing one more unit of a good measured as the minimum a producer is willing to accept to sell the good

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24
Q

Allocative efficiency

A

Cannot produce more of any one good without giving up some other good that we value higher. The point at which MB equals MC

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25
Q

Comparative advantage

A

when one person can perform an activity at a lower opportunity cost than someone else

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26
Q

Absolute advantage

A

when one person is more productive than others

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27
Q

Economic Growth

A

the expansion of production possibilities(an increase in the standard of living). Comes from technological change or capital accumulation

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28
Q

Social institutions for economic coordination

A

Firms
Markets
Property rights
Money

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29
Q

Firm

A

an economic unit that hires and organizes factors of production to produce and or sell goods and services

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30
Q

Market

A

any arrangement that enables buyers and sellers to get information and do business with eachother

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31
Q

Property rights

A

social arrangements taht govern ownership, use, and disposal of resources, goods, or services

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32
Q

Money

A

any commodity or token that is generally acceptable as a means of payment

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33
Q

Competitive market

A

a market that has many buyers and many sellers so no one single buyer or seller can influence the price

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34
Q

Money price vs relative price

A

money price is how much money to buy a good
relative price is the ratio of a goods money price to the money price of the best alternative good(its opportunity cost, slope of the budget line)

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35
Q

Demand

A

someone wants it, can afford it, has made plans to buy it

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36
Q

Law of demand

A

when the price of a good rises the quantity demanded decreases

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37
Q

Substitution effect

A

when the relative price of a good rises people seek substitutes for it so the quantity demanded decreases

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38
Q

Income effect

A

when the price of a good or service rises relative to income people can not afford everything they used to buy so the quantity demanded for a good decreases

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39
Q

Factors that change demand

A

prices of related goods
expected future prices
income
expected future income and credit
population
preferences

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40
Q

substitute

A

a good that can be used in place of another good

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41
Q

compliment

A

a good that is used in conjunction with another good

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42
Q

normal good

A

when income increases demand increases

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43
Q

inferior good

A

when income increases demand decreases

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44
Q

Supply

A

a firm has the resource and the tech to produce it, can profit from producing it, has made a plan to produce and sell it

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45
Q

Law of supply

A

as price increases for a good quantity supplied of the good increases

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46
Q

Factors that change supply

A

the prices of factors of production
the prices of related goods produced
expected future prices
the number of suppliers
tech
state of nature

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47
Q

Price elasticity of demand

A

units free measure of the responsiveness of the quantity demanded of a good to a change in its price

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48
Q

factors that change elasticity of demand

A

closeness of substitutes
proportion of income spent on the good
time elapsed since a price change

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49
Q

total revenue test

A

method of estimating the price elasticity of demand by observing the change in total revenue that comes form a price change

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50
Q

income elasticity of demand

A

measures how the quantity demanded of a good responds to a change in income

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51
Q

cross elasticity of demand

A

measure of responsiveness of demand for a good to a change in the price of a substitute or a complement

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52
Q

elasticity of supply

A

measures the responsiveness of the quantity supplied to a change in the price of a good

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53
Q

factors that influence elasticity of supply

A

resource substitution possibilities
time frame for supply decision

54
Q

resource allocation methods

A

market price
command
majority rule
contest
first come fist served
lottery
personal characteristics
force

55
Q

consumer surplus

A

the excess of the benefit received from a good over the amount paid for it

56
Q

producer surplus

A

the excess of the amount received form the sale of a good over the cost of producing it

57
Q

deadweight loss

A

the decrease in total surplus due to over or under production

58
Q

sources of market failure

A

price and quantity regulations
taxes and subsidies
externalities
public goods and common resources
monopoly
high transaction costs

59
Q

Fairness

A

comes from fair results and fair rules

60
Q

utilitarianism

A

the principal that we should strive to achieve the threats happiness for the greatest number

61
Q

the big tradeoff

A

due to the cost of making income transfers the pursuit of fairness takes away from the pursuit of efficiency

62
Q

symmetry principle

A

the requirement that people in similar situations be treated similarly

63
Q

Robert Nozick rules to fairness

A

the state must create and enforce laws that establish and protect private property
private property may be transferred only by voluntary exchange

64
Q

price ceiling

A

a regulation that makes it illegal to charge a price higher than a certain level

65
Q

result of effective rent ceiling

A

housing shortage
increased search activity
an ilicit market

66
Q

search activity

A

time spent looking for someone with whom to do business

67
Q

illicit market

A

an illegal market that operates alongside a legal market in which a restriction has been imposed

68
Q

price floorq

A

a regulation that makes it illegal to trade at a price lower than a specified level

69
Q

tax incidence

A

the division of the burden of tax between buyers and sellers

70
Q

the benefits principle

A

people that benefit the most from government services should pay the most tax

71
Q

the ability to pay principle

A

people who are able to pay th most taxes should pay the most taxes

72
Q

production quota

A

an upper limit to the quantity of a good that may be produced during a specified period

73
Q

subsidy

A

a payment made by the government to a producer

74
Q

budget line

A

the limits to households consumption choices

75
Q

real income

A

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

76
Q

indifference curve

A

a line that shows combinations of goods which a consumer is indifferent

77
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 remain indifferent(magnitude of the slope of indifference curve)

78
Q

Diminishing marginal rate of sub

A

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 remaining indifferent as the quantity of good x increases

79
Q

consumers best affordable choice

A

on the budget line
on the highest attainable indifference curve
mas a MRS equal to the relative price

80
Q

price effect

A

the effect of a change in price of a good on the quantity consumed of the good

81
Q

economic profit

A

total revenue minus total costs with total cost measured as the opportunity cost of production

82
Q

opportunity cost of production

A

sum of the cost of using resource bought in the market, owned by the firm, supplied by the firm owner

83
Q

implicit rental rate of capital

A

opportunity cost of using capital the firm owns
made of economic depreciation and interest forgone

84
Q

economic depreciation

A

change in the market value of capital over a given period

85
Q

interest forgone

A

the return on the funds used to acquire the capital

86
Q

normal profit

A

the profit an entrepreneur can expect to receive on average

87
Q

income forgone

A

the wage income the owner gives up by not taking the best alternative job

88
Q

short run

A

time frame where the quantity of one or more resources used in production is fixed(typically plant is fixed in the short run)

89
Q

Long run

A

time frame where the quantities of all resources including plant can be varied

90
Q

sunk cost

A

a cost incurred by the firm that can not be changed
does not effect the firms current decisions

91
Q

total product

A

total output in a given period

92
Q

marginal product

A

the change in total product that results in a one unit increase in a variable cost

93
Q

average product

A

total product divided by the quantity of a variable cost or factor of production employed

94
Q

law of diminishing returns

A

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

95
Q

total cost

A

cost of all resources used(TFC + TVC)

96
Q

total fixed cost

A

cost of the firms fixed inputs

97
Q

total variable cost

A

cost of variable inputs and changes with oputput

98
Q

Marginal cost

A

the increase in total cost that results from a one unit increase in total product

99
Q

average fixed cost

A

total fixed cost per unit output

100
Q

average variable cost

A

total variable cost per unit of output

101
Q

average total cost

A

total cost per unit of output

102
Q

firms production function

A

the relationship between the maximum output attainable and the quantities of both capital and labour

103
Q

Long run average cost curve

A

relationship between the lowest attainable average total cost and output when both the plant and labour are varied

104
Q

economies of scale

A

features of a firms technology that lead to a falling long run average cost as output increases

105
Q

diseconomies of scale

A

features of a firms technology that lead to rising long run average costs and output increases

106
Q

constant returns to scale

A

features of a firms technology that lead to constant long run average cost as output increases

107
Q

Minimum efficient scale

A

the smallest quantity of output at which the long run average cost curve reaches its lowest level

108
Q

Perfect competition

A

a market where many firms sell identical products to many buyers, there are no restrictions to entry, established firms have no advantages over new ones, sellers and buyers are well informed about prices

109
Q

Price taker

A

a firm that cannot influence the price of a good or service

110
Q

Marginal revenue

A

the change in total revenue that results from a one unit increase in the quantity sold

111
Q

firms decisions in perfect competition

A

how to produce at minimum cost
what quantity to produce
whether to enter or exit a market

112
Q

Monopoly

A

a market that produce a good or service which no close substitutes exist, and there is one supplier that is protected from competition by a barrier to entry

113
Q

types of barriers to entry

A

natural
ownership
legal

114
Q

Natural barrier to entry

A

economies of scale enable one firm to supply the entire market at the lowest possible cost

115
Q

Ownership barriers to entry

A

a market with competition an entry restricted by a concentration of ownership

116
Q

Legal barriers to entry

A

a restriction to entry from public franchises, government licenses, patents or copyrights

117
Q

economic rent

A

consumer and producer surplus or economic profit

118
Q

rent seeking

A

the pursuit of wealth by capturing economic rent

119
Q

Monopolistic competition

A

a market where a large number of firms compete, each firm produces a differentiated product, firms compete on product quality, price, and marketing, firms are free to enter and exit

120
Q

Four firm concentration ratio

A

percentage of total revenue accounted for by the four largest firms in an industry
Less than 60% for competitive markets
over 60% for concentrated market
100% for a monopoly

121
Q

Herfindahl-Hirschman Index(HHI)

A

square of percentage market share of each firm summed over the largest 50 firms
Between 1500 and 2500 is competitive
Over 2500 is concentrated and uncompetitive

122
Q

limitations of concentration measures

A

geographical scope of market
barriers to entry and firm turnover
correspondence between a market and an industry

123
Q

Excess capacity

A

when a firm produces a quantity less than the quantity where ATC is a minimum

124
Q

Markup

A

the amount that price exceeds marginal cost

125
Q

Oligopoly

A

a market where natural or legal barriers prevent entry of new firms and a small number of firms compete

126
Q

cartel

A

a group of firms acting together to limit output, raise price, and increase profit

127
Q

game theory

A

a tool for studying strategic behaviour which is behaviour that takes into account the expected behaviour of others and the mutual recognition of interdependence

128
Q

features of games

A

rules
strategies
payoffs
outcome

129
Q

Nash equilibrium

A

the outcome where both players are rational and choose the action that is best given any action taken by the other player

130
Q

value of marginal product

A

the value to a firm of hiring one more unit of a factor
price of one unit of output times the marginal product of the factor

131
Q

factors effecting demand for labour

A

price of firms output
price of other factors of production
technology

Micro Econ (3 decks)

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