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BEC I and II > 3. Microeconomics > Flashcards

3. Microeconomics Flashcards

1
Q

What is the definition of economics?

A

The study of the allocation of scarce economic resources among alternative uses.

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2
Q

What are 3 things economic is concerned from business perspectives? What is the purpose?

A

Studying the production, distribution, and consumption of goods and service.
Maximize the outcome.

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3
Q

What are 3 major subsections of economics?

A
  1. Microeconomics: Economic activity at the level of individual decision-making unit
  2. Macroeconomics: At the national level
  3. International economics: across national boundaries
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4
Q

Graph: What does the vertical line represent? Horizontal?

A

V: Y-axis: independent variable
H: X-axis: dependent variable

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5
Q

Graph: What is the place where vertical and horizontal line meets called?

A

Origin

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6
Q

Graph: What is the place where vertical line and graph line meets called?

A

Intercept.

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7
Q

What does a graph show regarding economics?

A

Used to show relationship between 2 variables.

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8
Q

Graph: what are 3 characteristics of the potted line due to the slope? And what do they indicate?

A
  • Positive: Indicating the 2 variables move in the same direction.
  • Negative: Indicating the 2 variables move in opposite directions
  • Neutral: Indicating that one variable does not change with changes in the other variable
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9
Q

What is the graph that shows the change in a variable over time (the x-axis) called? Which axis measure the time?

A

Time series graph.

The horizontal axis.

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10
Q

What is command economic system?

A

A system in which the government largely determines the production, distribution, and consumption of goods and services

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11
Q

What is market (free-enterprise) economic system?

A

A system in which individuals, businesses, and other distinct entities determine production, distribution, and consumption in an open (free) market.

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12
Q

What are the 2 elements that determine the price?

A

Supply and demand.

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13
Q

What is demand?

A

the desire, willingness, and ability to acquire a commodity.

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14
Q

What does demand schedule show?

A

the quantity of a commodity that will be demanded at various prices during a specified time

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15
Q

Demand: what is the relationship between qty demanded and price?

A

Inverse.

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16
Q

What is ceteris paribus?

A

holding variables other than price constant

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17
Q

What are 2 factors that cause negative demand slope?

A
  1. Income effect - can purchase more at a lower price

2. Substitution effect - lower priced items will be purchased as substitute for higher priced items

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18
Q

What is the sum of individual demand curve equal to?

A

market demand curve (when only price changes and other things held constant)

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19
Q

What is change in demand equal to? What does it look like on a graph?

A

Shift in demand curve (factors other than price change such as size of market, wealth of buyers, price of other goods, buyer preferences etc).
*Negative slope shift parallel.

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20
Q

What are 2 factors of note that influence change in demand?

A
  1. Change in price of substitute commodity:
    * substitute commodity satisfies the same basic purpose as the commodity of concern.
    * Price of substitute commodity and demand for commodity of concern move in same direction
  2. Change in price of complementary commodity:
    * Complementary commodity is used jointly with commodity of concern
    * Price of complementary commodity and demand for commodity of concern move in opposite directions
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21
Q

What is change in qty demanded? What is(are) the factor changed?

A

Movement along a given demand curve as a result of a change in price only (all other factors are assumed unchanged).

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22
Q

What is change in demand? What is(are) the factor changed? Which direction curve shift to?

A

A shift in the demand curve.
Factors other than price.
Demand decrease=curve shifts left and down.
Demand increase=curve shifts right and down.

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23
Q

What is derived demand?

A

The demand for a good or service that results from the demand for another related good or service.

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24
Q

What is the definition of supply?

A

The quantity of a commodity provided either by an individual producer or by all producers of a good or service (market supply) at alternative prices during a specified time.

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25
Q

When output is increased, what happens to price per unit and sales price?

A

Higher per unit cost.

More goods will be provided only at higher sales price

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26
Q

What is the slope for supply curve?

A

Positive.

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27
Q

What is the sum of individual supply curve equal to?

A

Market supply curve.

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28
Q

What is change in supply equal to?

A

Shift in the supply curve. (due to factor change other than price such as number of providers, costs of inputs, technology etc).

29
Q

Which way does the supply curve shift to when supply decrease? Increase?

A

D: To left.
I: To right.

30
Q

What is change in quantity supplied? What factor changed?

A

Movement along a given supply curve as a result of change in price only?

31
Q

What is change in supply? What factor changed?

A

A shift in supply curve. Factors other than price.

32
Q

What is market equilibrium?

A

The equilibrium price for a commodity is the price at which the quantity of the commodity supplied in the market is equal to the quantity of the commodity demanded in the market.
No shortage or surplus.

33
Q

What does market equilibrium look like on the graph?

A

Market demand intersects market supply.

34
Q

What is market shortage?

A

Actual price charged is less than equilibrium price.

Lower actual price means demand will exceed supply.

35
Q

Wha is market surplus?

A

Actual price charged is more than equilibrium price.

Higher actual price means supply will exceed demand.

36
Q

When demand only changes, what happens to equilibrium qty and price?

A

Equilibrium qty and price will change in the same direction as demand.

37
Q

When supply only changes, what happens to equilibrium qty and price?

A

Qty will change in the same direction as supply, but price will change in opposite direction.

38
Q

When both demand and supply change, what happens to equilibrium qty and price?

A

New qty and price will depend on direction and magnitude of each change.

39
Q

What is price fiat?

A

Artificial price ceiling or floor set by government.

40
Q

What is one way to measure the affect of change in price on qty demanded?

A

Measure the elasticity of demand.

41
Q

What does elasticity measure?

A

Measures the percentage change in a market factor (e.g., demand) seen as a result of a given percentage change in another market factor (e.g., price).

42
Q

What does elasticity of demand measure?

A

Elasticity of demand (ED) measures the percentage change in quantity of a commodity demanded as a result of a given percentage change in the price of the commodity.

43
Q

What is the formula for elasticity of demand (ED)?

A

% change in qty / % change in price

44
Q

Ex: Price: prechange: $1.50, post change: $2
Qty” Pre: 1,500 units, post: 1,200 units.
What is the elasticity of demand?

A

Percent change:
P: (2-1.50)/1.50=.333
Q: (1500-1200)/1500=.20
.20/.333=.60 (inelastic)

45
Q

What are 3 outcomes of elasticity of demand computation? How is it defined and what do they mean?

A
  • Elastic: Calculated outcome is >1. % change of qty demanded > % change in price.
  • Unitary: Calculated outcome is =1. % change of qty demanded = % change in price.
  • Inelastic: Calculated outcome is <1. % change of qty demanded < % change in price.
46
Q

Why is elasticity of demand important?

A

Because its outcome directly determines the impact of a change in price on total revenues (TR).

47
Q

What are the impact of a change in price on TR?

A

When:

  • Elasticity outcomes >1: Price increase - TR decrease. Price decrease - TR increase.
  • =1: Price increase - TR no change. Price decrease - TR no change.
  • <1: Price increase - TR increase. Price decrease - TR decrease.
48
Q

What does elasticity of supply measure?

A

the percentage change in the quantity of a commodity supplied as a result of a given percentage change in the price of the commodity;

49
Q

What is the formula for elasticity of supply (ES)?

A

% change in quantity supplied / % change in price

50
Q

What does cross elasticity of demand measure (XED)?

A

the percentage change in quantity of a commodity demanded as a result of a given percentage change in the price of another commodity.

51
Q

What is the formula for Cross elasticity of demand (XED)?

A

% change in quantity demanded of Y / % change in price of X.

52
Q

What is the interpretation of XED?

A

XED calculated coefficient:
> 0: Goods are substitute for each other (If A increase 5%, B will increase 5%+coefficient).
= 0: Goods are independent of each other.
< 0: Goods are complementary to each other.

53
Q

What is utility theory?

A

Measurement of satisfaction (or utility) derived from the acquisition of a good or service.

54
Q

How is utility measured?

A

By using hypothetical unit called “Util”

55
Q

What does total utility (TU) look like on a graph?

A

TU increases as qty acquired increases.

56
Q

What is marginal utility?

A

Utility acquired by the last acquired item.

57
Q

What does marginal utility look like on a graph? What is this phenomenon called?

A

Utility decreases as qty acquired increases.

Law of Diminishing Marginal Utility.

58
Q

When does “maximize total utility” occur?

A

When last dollar spent on every commodity acquired gives same marginal utility.

59
Q

What is indifferent curve and what does it look like on a graph?

A

Shows qty of 2 commodities give the same satisfaction.
Y-axis = good A, X-axis = good B
Downward curve to the right indicate one get the same satisfaction to receive good A and B in any qty.

60
Q

What are 2 periods of analysis?

A
  1. Short-run: Period during which at least one input to the production process can’t be varied (ex: size/capacity of a production line).
  2. Long-run analysis: Period during which all inputs to the production process can be varied.
61
Q

Short-run cost concept: what is total fixed cost (FC)? Examples? What does it look like on a graph?

A

Does not change with changes in the level of output.
Real property taxes, insurance, contracted rent.
Horizontal straight line.

62
Q

Short-run cost concept: what is total variable cost (VC)? Examples? What does it look like on a graph?

A

Varies directly with changes in the level of output.
Raw materials, direct labor, electricity.
Left side rounded curve rising toward the right.

63
Q

Short-run cost concept: what is the total cost (TC)?

A

FC + VC

64
Q

Short-run cost concept: what is average fixed cost (AFC)? What does it look like on a graph?

A

Per unit fixed cost: AFC = Total fixed cost / Units produced.
Downward curve toward the right.

65
Q

Short-run cost concept: what is average variable cost (AVC)? What does it look like on a graph? Why is it in the shape?

A

Per unit variable cost: AVC = Total variable cost / units produced.
U shape.
Because of Law of diminishing return (variable inputs eventually overwhelms fixed factors - average variable costs begin to increase)
**diminishing return to scale = long-term concept

66
Q

Short-run cost concept: what is average total cost (ATC)? What does it look like on a graph?

A

ATC = AFC + AVC.

Downward curve toward the right and the edge starts to curve up.

67
Q

Short-run cost concept: what is marginal cost (MC)? What does it look like on a graph?

A

Cost of last acquired unit of input.
Computed as Change in successive variable costs or change in successive total costs.
Half U shape.

68
Q

Long-run cost concept: what types of cost does it have?

A

All costs are variable, including size and number of plants.

69
Q

Long-run cost concept: what is long-run average cost curve? What is the shape and why?

A

Developed as minimum points on a series of short-run average cost curves for different size or number of plant facilities.
*U shape because of economy of scales.

BEC I and II (12 decks)

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