Micro Year One Sem1 Flashcards
(108 cards)
1
Q
Short run production function
A
how much total output changes with labour and capital
2
Q
Short run
A
one factor of production is variable
3
Q
Long run
A
all FOPs are variable
4
Q
Average physical product of labour
A
average output produced by the units of labour for a given capital
5
Q
Marginal physical product of labour
A
extra output produced by an additional unit of labour for a given capital
6
Q
Law of diminishing returns
A
when some factors are fixed in the short run employing another unit of a factor variable eventually results in smaller increases in output
7
Q
Marginal cost=
A
w/MPP MC is the reciprocal of MPP X constant wage rate
8
Q
A
9
Q
How to derive AVC from production curves
A
W/APP
10
Q
Minimum efficient scale
A
bottom of the average total cost curves when the least amount of labour is hired that maximises APP
11
Q
Demand curve of a price taking firm
A
Horizontal since it doesn’t matter how many units the firm sells price is unaffected
12
Q
Short run shutdown rule
A
: P<AVC since if TR covers TVC then it’s able to pay off some TFC
13
Q
Long run shutdown rule
A
P<LRAC
14
Q
What is profit max output and why
A
MR=MC since if MR>MC than producing an extra unit increases TR>TC
15
Q
Demand
A
How much buyers can and want to purchase of a good/service
16
Q
Supply
A
how much sellers can and want to produce of a good/service
17
Q
Individuals aim
A
Maximise utility
gain utility by consuming goods and services
18
Q
Income effect
A
people feel poorer they can’t buy as much with their fixed income
19
Q
Substitution effect
A
people change their consumption they buy similar but rival products, or they spend money on other products
20
Q
Equilibrium
A
A point where there is no incentive to change behaviour-the market is in equilibrium when it clears
21
Q
Why when during excess supply why is there incentive to cut prices
A
Sellers are frustrated as they cannot sell as much as they would like
22
Q
Why when during excess demand is there incentive to raise prices
A
buyers are frustrated as they cannot buy as much as they would like
23
Q
Consumer surplus
A
the difference between the price paid by consumers and the price they are willing to pay
24
Q
Producer surplus
A
the difference between the price sold by suppliers and the price they are willing to pay
25
show consumer and producer surplus on a diagram
See microL4
26
PED determinants
Availability of close subs
Necessities vs luxury goods
Definition of market- narrowly defined markets have more elastic demand curves e.g. phone vs smartphone vs android phones
Time period- demand is more elastic in the long run
27
Giffen good
price increases leads to demand increase
28
Prerequisite for Giffen goods
Expense is large majority of consumer income
Almost no subs
29
PED for a good to be elastic and inelastic
Inelastic (PED<1) QD changes proportionally less than price
Elastic (PED>1) QD changes proportionally more than price
30
Why use the midpoint method for elasticity
when price is lower so is elasticity since it represents a low proportion of expenditure using a normal method
31
IED interpretation
negative IED= inferior
Positive= normal
0-1=necessity
1+=luxury
32
XED substitutes
Positive
33
XED Compliments
negative
34
Price ceiling case study and why it failed
Berlins rent controls 2020 1.5m flats rents were frozen to 2019 levels this meant ads for rentals fell by more than halftenants had no choice but to stay in flats landlords to stay in their own flats or just to keep empty hoping for a change
35
Expectations of a rational consumer
| BUNDLES
All bundles can be compared
All bundles can be ranked consistently
36
Expectations that hold for MOST people MOST of the time:
| BUNDLES
Similar bundles should have similar rankings
More is better
Averages preferred to extremes
37
Axiom 1
completeness (all bundles can be compared)
≥ indicates weak preference while > indicates strict preference
38
Axiom 2
Transitivity (all bundles can be ranked consistently)
39
Axiom 3
Continuity (similar bundles have similar rankings) display in diagram and check L7
40
Axiom 4
Monotonicity (more is preferred to less) show in diagram then check L7
41
Axiom 5
Convexity (averages preferred to extremes) check L7 to draw diagram
42
Indifference curve
joins bundles from which someone derives the same overall utility
42
What does a downwards vs an upwards sloping indifference curve indicate
upwards suggest indifference when someone's got more of both goods
downwards suggests a tradeoff
43
Why cant indifference curves cross?
this contradicts with axiom 2 since this would mean bundles cannot be ranked consistently
44
What does an indifference curve of perfect substitutes look like
straight lines see L7
45
What does the indifference curve look like for perfect compliments
right angle see L7
46
Indifference curves for bads
curve sloping up see l7
47
bliss point indifference curves
see l7
48
Properties of indifference curves
made out of bundles
they join bundles which a person receives same total utility
Any two indifference curves cannot cross
Further from the origin higher utility
usually negatively sloped
49
what does the slope of a budget constraint show
The rate at which an individual can trade one good for another
50
MRS
Marginal rate of saving or px/py (relative price)
51
slope of budget constraint=
ΔY/ΔX=-(Px/py) relative price
52
What does relative price show
the rate at which an individual can trade one good for another or if you give up one unit of good x you can buy px/py unit of good Y
53
When is the corner solution the optimal outcome
when a consumer is unwilling to consume one good or is restricted in the quantity they can buy
54
Budget constraint shows
a feasible set of choices
55
Slope of indifference curve
rate of which an individual is willing to trade one good for another
56
Slope of budget constraint
rate of which an individual can trade one good for another
57
What does an increase in income do to a budget constraint
shifts to the right
58
income consumption curve
positively sloped
59
what does the income consumption curve show
how consumption varies with income
60
Engel curve
how demand for a good changes with income
61
what is the slope of the engel curve linked to
IED(YED)
62
What happens to an income consumption curve for an inferior good
Negatively sloped draw and check L9
63
What happens to an ICC for an increase in IED
It becomes flatter
64
What happens if you decrease the price of good x with the price consumption curve
the budget constraint pivots out from the origin
65
What does the price consumption curve show
how consumption varies with price
66
more elastic PED effect on price consumption curve
More flat
67
Income effect
People feel poorer meaning they can buy less with their fixed income
68
Substitution effect
How a change in relative price incentivises consumers to change patterns of consumption
68
Draw a budget constraint to display the substitution effect
see L9
69
What does B1a represent for the substitution effect diagram
change in relative price
70
Income effect diagram + what does the movement from A to B to C show
see L9 Bundles a-b changes in relative price b-c changes in relative income
71
Income and substitution effect diagram for inferior goods
See L9
72
Income and substitution effect for a Giffen good
See L9
73
What is income according to the consumption leisure model
Y=w(T-L) w is wage L is number of leisure hours
74
Diagram to show how much time would be dedicated to work and leisure for a rational consumer
See L10
74
Diagram to show the effect of increased wage on time spent on leisure
See L10
75
Backwards bending labour supply curve with the leisure consumption model
See L10
75
How we can derive the labour supply curve from the leisure-consumption model
See L10
76
Income and substitution effect for the backwards bending labour supply curve
See L10
77
Why does the substitution effect happen with the backwards bending supply curve for labour
Since the relative price of leisure increases as a result of higher wage rate
78
Impact of tax on the leisure consumption model
see L10
79
Short run production function
how much total output changes with labour and capital
80
Total physical product of labour
total output produced by the units of labour for a given capital
81
Average physical product of labour
average output produced by the units of labour for a given capital
82
Marginal physical product of labour
extra output produced by an additional unit of labour for a given capital
83
Assumptions of long run costs
1. Factor prices are given- increase in factor prices shifts SR and LR cost curves up
2. Technology and factor quality are given- increase in factor quality shifts LR and SR cost curves down tech can only change in the very LR
3. Firms are efficient- chose the least costly mix of factor to produce a given output
84
Increasing returns to scale
2x inputs raises output more than 2x
85
Constant returns to scale
2x inputs 2x outputs
86
Typical long run average cost curve
See L13
87
Economies of scale
increasing returns to scale means that we need to use smaller amounts of inputs per unit thus cost per unit falls when there are increasing returns to scale.
88
Plant economies
workers in a large firm able to specialise
89
Organisational economies
don’t need to duplicate administration
90
Financial economies
larger firms borrow cheaper/ can buy in bulk
91
Diseconomies of scale-
decreasing returns to scale mean we need to use larger amounts of inputs per unit thus costs per unit rises
92
why do diseconomies occur
Managerial tasks/ communications are more difficult
93
what do isoquants show
join all combinations of labour and capital that produce the same output
94
why are isoquants downwards sloping
because capital and labour are substitutes
95
why do isoquants bow towards origin
an average combination of labour and capital is more productive than extremes
96
isocost lines
connect all the combinations of labour and capital that cost the same
97
model of the least-cost input combination
L13
98
Long run shutdown point
P
99
Where is least cost input combination located isocost/isoquant graph
L13
100
Profit maximising in the LR diagram
L13
101
What does the movement from A to B mean substitution effect diagram
Given the new prices what would be the outcome if the consumer could keep utility constant
102
Impact of U/E benefits on the consumption leisure model
L10 actual lecture slides
+ what might the consumer chose to do given these benefits
103
How to prevent poverty trap
Remove benefits
Decrease benefits
104
interior solution
slope of budget constraint equals
slope of indifference curve
