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Microeconomics Flashcards

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1
Q

What is economics

A

It is the study of how we allocate scarce resources to satisfy unlimited wants

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2
Q

What is an inverse relationship with demand curve

A

As price goes up - the quantity of a product or service that a group of consumer will want will go down - negatively sloping

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3
Q

What does a demand curve show

A

it shows the inverse relationship between price and quantity

It is the quantity demanded

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4
Q

What is the difference between demand and quantity demanded

A

demand refers to the demand curve that can be plotted on a graph

quantity demanded is on the x axis -

at higher prices - quantity demanded is lower

at higher prices quantity demanded is lower

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5
Q

What is a demand curve shift

A

A demand curve shifts when there are changes to relevant factors other than price

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6
Q

What is it called when quantity demanded become larger for each price

A

Demand shift upwards

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7
Q

What is it called when quantity demanded become smaller for each and every price

A

Demand shift downward

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8
Q

What are factors that have a direct relationship on a a demand curve ( demand curve shifts upwards)

A
  • price of a substitute good
    (Increase in hamburger prices will increase the demand for hotdogs)
  • Expectations of price changes (you will buy now because you think the price will go up later - stock up today)
  • Income (this is for normal goods - when your income goes up -wealth increases- demand increases for normal goods)

Extent of the market - New customers may increase demand increasing the size of the market (remove trade barriers, or a baby boom will increase demand for babyfood)

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9
Q

What are factors that have a inverse relationship with the demand curve - Demand curve shifts downwards

A
  • Price of complement good ( This is when the increase in price of one good will have a decrease in demand of another) example - increase in price of chips will decrease the demand for salsa
  • Income ( For inferior goods) As your wealth increases - demand for inferior goods ( like a used car) will decrease and demand for new cars will increase
  • Consumer boycott - an organized boycott will decrease demand - union strike
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10
Q

Changes in consumer tastes

A

these have a indeterminate relationship

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11
Q

What is the theory of derived demand

A

The demand for the resources used to produce product A is derived from the demand for product A

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12
Q

What is elasticity

A

It is the sensitivity of something like quantity demanded to changes in something else ( price)

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13
Q

What is the difference between something that is elastic, inelastic, and unity elastic

A

Elastic - Ed greater than 1 - total revenue will decline f price is increased

Inelastic - ED less than 1 - total revenue will increase if price is increased

Unit elastic - total revenue is not sensitive to price change

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14
Q

What does Inelasticity of Demand measure

A

the effect of changes in consumer income on changes in the quantity demanded of a product

% chg in quantity demanded / % chg in income

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15
Q

What does a positive income elasticity indicate

A

normal good - as your income increases demand for the normal good also increases (I make more money so I buy more luxury goods)

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16
Q

What does a negative income elasticity indicate

A

inferior good - as income increases demand for the inferior good will decrease (income increases so demand for used cars decreases)

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17
Q

What is cross-elasticity of demand

A

This measures the change in the quantity demanded of a good to the change in the price of another good

Substitutes - margarine for butter - direct relationship(if price of butter goes up demand for margarine ( a substitute) will go up as well

Complements - these are inverse - if the price of chips goes up the demand for salsa will go down.

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18
Q

What is a supply curve

A

This shows the direct relationship between the prices of a product or service and the quantity that a group of suppliers are willing to supply

As the price a product increases the quantity supplied increases

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19
Q

What is the difference between supply and quantity supplied

A

Supply is the x axis - it has quantity supplied on the x-axis and price of y axis

Quantity supplied is amount that is supplied -

At higher prices, quantity supplied is higher.

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20
Q

What happens when quantity supplied becomes larger for each and every price

A

The supply curve shifts outward

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21
Q

What happens when quantity supplied becomes smaller of reach and every price

A

The supply curve shifts inwards

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22
Q

What factors have a direct relationship with supply curve

A

Number of producers - more people are making the supply so therefore more supply

Government subsidies - they give money so supplies can produce more supplies

Price Expectations - If producers expect higher prices - they will make more supplies

Technological Advances - this reduces production costs and in crease quantity supplied

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23
Q

What factors have an inverse relationship

A

Increase in production cost - is costs increase, producers will decrease the quantity they will make

Prices of other products - If make product A and B and product A becomes more profitable - then they will decrease their supply of product B

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24
Q

What is price elasticity of supply

A

This is how sensitive quantity supplied of a good or service is to a change in price or cost

ES = % chg in quantity supplied / % chg in Price

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25
What are economic rents and surpluses and opportunity costs
The opportunity cost is when the benefit given up from not using the resource for anoretic purpose Example - you accept a job for $60K instead of a job for $50K the economic rent is 10K from accepting the higher paying job and the opportunity cot is the 50K from the job given up.
26
What is an economic profit
this is the excess of the profit the are receiving over the normal profit rate
27
What is market equilibrium
they is when quantity demanded = quantity supplied
28
What is a price ceiling
when the government sets a max that you can charge ( rent control
29
What is a price floor
This is when the government sets a minimum that an item can be charged ( minimum wage
30
What is equilibrium price
This is the point where the supply meets the demand. the point where the two curve meet - naturally without the government stepping in All the goods being offered for sale will be sold
31
What is utility
This is consumer satisfaction - consumer seek to maximize their satisfaction
32
What is marginal utility
a consumer chooses to spend their money on one thing (versus other choices) based on the fact that that item has marginal utility - greater than those of the other choices
33
Laws of diminishing marginal utility
The more you consume roof one thing - the less satisfying the next one will be first choice chip cookies is awesome - the 25th is not as much
34
How do you maximize total satisfaction
This is when the last dollar spent on a product generate the same amount of marginal utility
35
Pure Monopoly
- One firm sells a product - No close substitutes - May have a patent - blocked entry - demand curve vertical
36
Monopolistic Competition
- Multiple suppliers - mom and pop restaurants, groceries, hair dressers - Large number of sellers - heterogeneous products (different products) - Lots of non-price competition - advertising - easy entry, easy exit - demand curve is very flat - marginal revenue is close to marginal cost - not a lot of economic profit - Prices are generally higher than perfectly competitive, but lower than a monopoly - quantities are higher than a pure monopoly
37
Oligopolistic
Few producers can be both: - heterogeneous - airline manufacturers - homogeneuos - oil industry - pay attention to others in their - engage in a lot of non-price competition - ( product differentiaion or providing high levels of service) - kinked demand curve - lots of barriers to enter - its very costly, or complex to set up the infrastructure (automobiles are aerospace) - government licensing can effectively create government oligologies (cell phones companies) government try to regulate oligopolies - forbidding cartls and price fixing - prices tend to be higher than under monopolistic competition but are lower than under a pure monopoly
38
Pure/perfect competition
- Rarely exists - commodities markets - large number of buyers and sellers - same product - no non price competition - no price controls - demand curve elastic - downward sloping - selling corn or wheat - The quantity demanded will increase if suppliers come in and drop the price. - At the same time the demand will decrease if the exit by suppliers increases prices -
39
What is deflation
This is GENERAL decline in price level It is also a negative inflation rate
40
What is the difference between GDP and GNP
GNP - Gross National Product - total dollar value of goods and services produced by a country's RESIDENTS - this is regardless of whether they are produced in the United States GDP - Gross domestic product - or nominal GDP - This is the total dollar value at current or nominal market prices of all final goods and services produced WITHIN one Country's borders. Doesn't matter the citizenship of the people or where the headquarters of the company are
41
What is the Income Approach to calculating GDP
- sums all income earned in the production of final goods and services wages, interest, rents, business profits - plus adjustments for indirect taxes and economic depreciation ( when you need to replace equipment that wears out)
42
What is the Expenditure Approach to calculating GDP
Sums all of the expenditures to purchase final goods and services by households, business, government, and foreign sector (exports) minus imports
43
What is real GDP
- This is the total dollar value of all final goods and services produced expressly using a price level that is constant over time
44
What is potential GDP
This is used to help estimate the degree to which the economy is underutilizing resources or overheating Example if actual real GDP falls short of potential real GDP = resources being underused. the result is that unemployment rates will be higher If Actual Real GDP is exceeding potential GDP = the economy is overheating - the economy has unsustainably low unemployment , boom conditions, and price inflation is inevitable
45
What is non-accelerating inflation rate of unemployment (NAIRU
This is the natural rate of unemployment If the actual unemployment rate falls below NAIRU - results in boom conditions higher inflation
46
CPI
Consumer price index compare the price of a fixed basket of goods to an earlier base period dollar value LIFO
47
PPI
this is at the whole sale cost
48
GDP deflator
most comprehensive this is used to convert nominal GDP to real GDP
49
Interest Rate Effect
As interest rates go up - people can't afford to borrow money so there is a ripple effect - houses don't sell, building goes down, more unemployment higher inflation rates increase nominal interest rates
50
wealth effect
Higher inflation rates reduce the value of most income
51
What is the difference between capitalism, communism, and mixed economies
Capitalism - free enterprise - this is when private parties own most of the means of production an make most economic decisions Communism- or socialism - this is when the government makes most of the means of production and economic decisions Mixed economies - in between systems - both private and governments own substantial fractions the means of production. US is an example of this - Gov may impose taxes on trade that favor or disfavor certain activities or in how they spend their revenues and regulatory policies that can encourage or discourage various activities
52
When does price discrimination work best
When consumer are split into distinct segments - coupons for early bird sales ( first 100 through the door) - selling the same shampoo to people versus horses
53
What is a natural monopoly
This is when economies of scale permit large firms to underprice and eliminate all others
54
What is predatory pricing
This is when you charge a competitively lower price to drive out competitors and then later increase them once they have effectively achieved a monopoly
55
What laws have been passed to reduce anticompetitive market practices
Sherman Act - not price fixing among suppliers Clayton Act - Prohibit stock mergers that reduce competition, and price discrimination Robinson Paton Act - prohibit discounts to large purchasers Celler-Kefauer Act - prohibit acquisition of the assets of a competitor if it would reduce competition
56
What is personal disposable income, marginal propensity to Consume (MPC), and marginal propensity to save (MPS)
Personal disposable income - this is the availability of income of a consumer after subtracting mandatory payment of taxes With your personal Disposable Income you have two choices: - Spend it: MPC - marginal propensity to Consumer - the percentage of the next dollar you will spend 40% - Save it MPS - the percentage of the next dollar you will save 60% must equal - 1
57
``` Fixed Costs (FC) Variable Costs (VC) Total Costs (TC) Marginal Costs (MC) Marginal Revenue (MR) Marginal Revenue product ```
Fixed Costs - Rent per month - these wont change if there is a change in the level of production Variable Costs - payments to hourly workers, materials used in manufacturing These are costs that will rise as production rises Total Costs - This is the sum of fixed and variable costs TC = FC + VC Marginal costs - This is the cost of producing one extra unit Marginal Revenue - The change in total revenue from the sale of 1 more unit of output Marginal Revenue Product - The increase of total revenue by the addition of additional unit of input or resource
58
How does a manager maximize revenue (level of production)
They choose a level of production where their marginal revenue (The change in total revenue from the sale of 1 more unit of output) equals marginal costs (This is the cost of producing one extra unit)
59
``` What is a returns scale Increase Returns of Scales Decreasing Returns to Scales Economies of Scale Decreasing Returns of Scale ```
This is the increases in units produced (output) that result from increases in production costs (inputs) At lower levels of production and the use of inputs - firms can have a return of scales greater than 1 (Increasing Returns of Scale) Returns of scale that are less than 1 (Decreasing Returns of Scale) Alternatively they can have greater efficiencies when they produce more units of a product - Economies of Scale This is when you can spread your fixed costs over a larger number of units Diseconomies of scale - this sis increase inefficiencies. Example is that when you produce a lot but not you have costs of storing inventory, increased number of workers, or lower skilled workers that can cost you money
60
What these product differentiation strategies: - Physical Differences - Perceived differences - customer support differences
Physical Differences - individual features, quality or appearance Perceived Difference - image, brand name advertising Customer Support Difference - return policies, technical support
61
Cost Leadership Strategies: - Process Reengineering - - Lean Manufacturing - Supply Chain Management
Process Reegineering - in-depth redesign of firm's existing processes to improve performance Lean Manufacturing - Identify and remove the misuse of resources in the firms existing production processes Supply Chain Management - sharing relevant information in the chain of sales that ranges from the final consumer to the various levels of suppliers
62
What are the two approaches to calculate GDP: | Income and expenditure
Income earned - sum all income earned in the production of final goods and services Expenditure approach - sum all expenditures to purchase final goods and services by households
63
What id the difference between Real GDP and GDP -Nominal
Real GDP is the total value of all final goods and services using a price level that is CONSTANT over time Nominal GDP - Is the total dollar value of of all final goods at CURRENT or nominal prices You adjust nominal GDP to get real GDP by removing the effects of increases in rices - inflation

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