Föreläsning 2-3 Flashcards
(20 cards)
What are the characteristics of the short run (SR) in economics?
In the short run, wages are often fixed and cannot be adjusted quickly to changes in economic conditions. Rigid nominal wages, do not have time to adjust.
What occurs in the long run (LR) regarding wages and prices?
Wages and prices have adjusted so that production and employment are at their equilibrium values.
In the long run, markets have enough time to adjust to changes in the economy.
What is considered in the very long term regarding capital stock?
Even the capital stock adjusts.
Why is it important to study the economy in the long term?
The income level in the LR affects the population’s standard of living much more than SR fluctuations.
SR decisions about consmuotion and investment are influenced by expactations of what will happen in the LR.
We cannot analyze what stabilization policy should do - or not do - without knowing what the LR equilibrium level looks like.
Long-term economic growth is crucial for improving living standards.
What is the production function in general form?
Y = F(K, N)
What does the marginal product represent?
The increase in production when adding one more unit of capital (or labor).
Marginal products help measure the additionel output from added inputs.
What are the assumptions about the characteristics of the production function?
- Marginal products are positive
- Marginal products are diminishing
- Constant return to scale
These assumptions form the basis for understanding production dynamics.
What is the relationship between marginal product of capital (MPK) and capital stock (K)?
For a given N, the MPK is a decreasing function of K.
This indicates diminishing returns to capital.
What is the relationship between marginal product of labor (MPL) and labor (N)?
For a given K, the MPL is a decreasing function of N.
This indicates diminishing returns to labor.
What are constant returns to scale?
If F(10, 100) = 700, then F(20, 200) = 1400.
This means that doubling inputs leads to a doubling of output.
What does technological development affect in the production function?
It is represented as Y = F(K, EN), where E measures workforce efficiency.
An increase in E has the same effect on production as an increase in the number of workers
What is the pricing strategy in monopolistic competition?
Firms set the price with a markup over marginal cost (MC).
Higher price leads to lower demand.
Firms have some pricing power due to product differentiation.
What happens to demand for a firm’s goods if the price is raised?
The effect depends on the similarity of goods. More similar goods lead to a significant decrese in quantity demanded.
What is the formula for marginal revenue?
Marginal revenue = Change in revenue from selling one more unit.
What is the profit-maximizing condition for a firm in monopolistic competition?
Marginal revenue (MR) equals marginal cost (MC).
What determines the natural level of production in equilibrium?
- Amount of capital (K) (+)
- Size of the labor force (L) (+)
- Equilibrium unemployment rate (un) (-)
- Technology, E (+)
These factors collectively influence the long-term production capacity of an economy.
What is the definition of real wage?
Real wage = nominal wage / price level = W/P.
Real wage reflects purchasing power and is adjusted for inflation.
What factors can increase real wage in the Cobb-Douglas case?
- Improvement in technology (E)
- Increase in capital per worker (K/Nn)
- Increase in competition reducing markup
In a closed economy, what does income equal?
Income = production.
What are the types of income in the economic model?
- Wage income
- Return on capital (interest)
- Pure profit to firm owners
