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Microeconomics > Terms to know > Flashcards

Terms to know Flashcards

1
Q

Microeconomics

A

Economics studies how people and firms make choices

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2
Q

opportunity cost

A

Something that is given up in order to get what you want (What you forgo by not choosing the next best alternative)

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3
Q

Equilibrium

A

When supply = demand

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4
Q

comparative advantage

A

The cost of producing something is comparatively lower than for someone else

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5
Q

Absolute advantage

A

The cost of producing something is lower than for someone else

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6
Q

Demand curve

A

Shows the relationship between quantity demanded and price

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7
Q

Law of demand

A

All other things equal a higher price leads to a lower quantity demanded

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8
Q

Normal goods

A

If income increases the demand for a normal good increases

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9
Q

Inferior goods

A

If income increases the demand for an inferior good decreases (products for which a higher quality alternative exists)

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10
Q

Substitutes

A

If the price of good Y increases the demand for good X increases

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11
Q

Complements

A

If the price for good Y increases the demand for good X decreases

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12
Q

Supply curve

A

Shows the relationship between quantity supplied and price

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13
Q

Consumer surplus

A

If you buy it for less than your maximal willingness to pay the difference between WTP and price is the consumer surplus

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14
Q

Producer surplus

A

The difference between the price and cost

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15
Q

Total surplus

A

The sum of cunsumer and producer surplus

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16
Q

Price ceiling

A

Maximum selling price of a good

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17
Q

Price floors

A

Minimuum selling price of a good

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18
Q

Price elasticity of demand

A

How price sensitive is demand?
%change in quantity demanded / %change in price

Allows you to see how profitable someting will be in the future

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19
Q

Elastic demand

A

If the price goes up by 1 percent, quantity demanded falls with more than 1 percent

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20
Q

Inelastic demand

A

If the price goes up by 1 percent, quantity demanded falls with less than 1 percent

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21
Q

Unit-elastic demand

A

If the price goes up by 1 percent, quantity demanded falls with exactly 1 percent

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22
Q

Perfectly elastic demand

A

If the price goes up by 1 percent, quantity demanded fallst to 0

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23
Q

Perfectly inelastic demand

A

If the price goes up by 1 percent, quantity demanded does not change

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24
Q

Marginal cost

A

The cost of producing/consuming a little bit more (e.g. 1 extra unit)

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25
Q

Marginal benefit

A

The benefit of producing/consuming a little bit more (e.g. an extra unit)

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26
Q

Sunk cost

A

A cost that has already been incurred and is non recoverable

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27
Q

Production function

A

Relationship between quantity of input and quantity of ouptut

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28
Q

Marginal product

A

Change in output generated by adding one unit of input, given an amount of the other input

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29
Q

Fixed cost

A

Cost is fixed input (e.g. rent)

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30
Q

Variable cost

A

E.g. salary of workers, electricity, cost of intermediary goods etc.

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31
Q

Average total cost

A

Total cost / quantity of output produced

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32
Q

Conditions of a perfect competetive market

A
  1. many producers
  2. Many consumers
  3. Product is homogeneous
  4. No barriers to market entry
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33
Q

Explicit cost

A

Is a cost that requires an outlay of money

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34
Q

Implicit cost

A

Does not require an outlay of money and is measured by the value in dollar terms, or benefits that are forgone

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35
Q

Accounting profit

A

Revenue - explicit costs

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36
Q

Capital

A

Is the total value of assets owned by an individual

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37
Q

Implicit cost of capital

A

Is the opportunity cost of the use of ones own capital — the income earned if the capital had been employed in its next best alternative use

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38
Q

Marginal cost curve

A

Shows how the cost of producing one more unit depends on the quantity that has already been produced

39
Q

Marginal benefit

A

is the additional benefit derived from producing one more unit ofthat good or service

40
Q

Optimal quantity

A

Quantity that generates the highest possible total profit

41
Q

Bounded rationality

A

makes a choice that is close to but not exactly the one that leads to the best possible economic outcome

42
Q

Monopoly

A

Only one supplier of a good without any close substitues

43
Q

Market power

A

Ability to increase price above competitive equilibrium by reducing output

44
Q

Oligopoly

A

Only a few producers

(strategic behavior, how one firm behaves affects how the other firms act

45
Q

Utility

A

Is a measure of the satisfaction the customer derives from consumption of goods and services

46
Q

Util

A

Unit of utility

47
Q

Marginal utility

A

Is the change in total utility generated by consuming one additional unit of that good or service

48
Q

Budget constraint

A

requires that the cost of a consumers consumption bundle be no more than the consumers income

49
Q

Budget line

A

Shows the consumption bundles available to a custoer who spends all of his or her income

50
Q

Income effect

A

the change in demand for a good or service caused by a change in a consumer’s purchasing power resulting from a change in real income

51
Q

Giffen good

A

a hypothetical inferior good for which the income effect outweights the subtitution effect and the demand curve slopes upwards

52
Q

Substitution effect

A

of a change in the price of a good is the change in the quantity of that good consumed as the consumer substitutes other goods that are now relatively cheaper in place of the good that has become relatively more expensive

53
Q

expected variable

A

Is the weighted average of all possible values, where the weight on each possible value correspond to the probability of that value occuring

54
Q

Premium

A

Is a payment to an insurance company in return for the insurance companys promise to pay a claim in certain states of the world

55
Q

Risk averse

A

Individuals will choose to reduce the risk they face when that reduction leaves the expected value of their income or wealth unchanged

56
Q

Diversification

A

By investing in several different things, so that the possible losses are independent variables

57
Q

Pooling

A

A strong form of diversification in which an investor takes a small share of the risk in many independent events. This produces a payoff with very little total overall risk

58
Q

Adverse selection

A

occurs when an individual knows more about the way things are than other people do. Private information leads buyers to expect hidden problems in items offered for sale, leading to low prices and the best items being kept off the market.

59
Q

Screening

A

Using observable information about people to make inferences about their private information

60
Q

Signaling

A

Adverse selection is diminished by people signaling their private information through actions that credibly reveal what they know

61
Q

Moral hazard

A

lack of incentive to guard against risk where one is protected from its consequences, e.g. by insurance.

62
Q

Deductible

A

in an insurance policy is a sum that the insured individual must pay before being compensated for a claim

63
Q

Long run

A

Is the timer period in which all inputs can be varied

64
Q

Short run

A

Is the time period in which at least one input is fixed

65
Q

Marginal revenue (calculate9

A

MR = Change in total revenue / change in quantity of output

66
Q

Industry supply curve

A

Shows the relationship between the price of a good and the total ouptut of the industry as a whole

67
Q

Patent

A

Gives an inventor a temporary monopoly in the use or sale of an invention

68
Q

Copyright

A

Gives the creator of a literary or artistic work sole rights to profit off that work

69
Q

Public ownership

A

Of a monopoly, the good is supplied by the gov. or a firm owner by the government

70
Q

Price regulation

A

Limits the price that a monopolist is allowed to charge

71
Q

Monopsony:

A

Exists when there is only one buyer of a good

72
Q

Single price monopolist

A

Offers its product to all consumers at the same time

73
Q

Price discrimination

A

When they charge different prices to different consumers for the same good

74
Q

Perfect price discrimination

A

Takes place when a monopolist charges each consumer his or her willingness to pay – the maximum that the consumer is willing to pay

75
Q

Duopology

A

A oligopoly consisting of only two firms

76
Q

Collusion

A

When sellers cooperate to raise their joint profits

77
Q

Dominant strategy

A

When it is a players best action regardless of the action taken by the other player

78
Q

Nash equilibrium

A

results when each player in a game chooses the action that maximizes his or her payoff given the actions of other players, ignoring the effects of his or her action on the payoffs received by those other players

79
Q

Antitrust policy

A

Consists of efforts undertaken by the government to prevent oligopolistic industries from becoming or behaving like monopolies

80
Q

price war

A

Occurs when tacit conllusion breaks down and prices collapse

81
Q

tacit collusion

A

When firms limit production and raise prices in a way that raises one anothers profits even though they have not made any formal agreement

82
Q

Product differentiation

A

An attempt by a firm to convince buyers that its product is different from the products of other firms in the industry

83
Q

Price leadership

A

One firm sets its price first and other firms then follow

84
Q

optimal consumer bundle

A

Yields highest utility

85
Q

utility maximation principle of marginal analysis

A

the marginal utility per dollar spent must be the same for all goods and services in the optimal consumption bundle

86
Q

indifference curve

A

A line that shows all the consumption bundles that yield the same amount of total utility for an individual

87
Q

Indifference curve map

A

Represents the entire utility function of an individual: a collection of indifference curves in which each curve corresponds to a different total utility level

88
Q

Competetive equilibrium

A

Price = Marginal cost

89
Q

DWL (calculate)

A

0,5 x Price difference x quantity difference

90
Q

If Price < ATC

A

Firms should exit in the long run

91
Q

Elasticity in equilibrium (supply/demand)

A

dQs/dp x p/Qs

92
Q

long run equilibrium

A

p=mc=min ATC

93
Q

short run equilibrium

A

MR=p=MC

Microeconomics (1 decks)

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