BUSS1040 Flashcards
Key points to address in an economy (x3)
- what to produce
- how to produce it
- who should get what is made
opportunity costs are
explicit cost (involve direct payment to pursue choice) + implicit cost (missed opportunity)
Opportunity costs do not include
Sunk costs, i.e. costs that have already been incurred
Marginal Benefit
benefit of an extra unity consumed by an individual
Marginal Cost
Additional cost of buying another unit
Ceteris Paribus
is used to isolate the impact of one factor by examining the impact of one change at a time
Production Possibility Frontier Graphs
Graphs the output that an individual can produce with a set of resources
What can shift a PPF Graph
A technology shock will boost production of a good and shift it along an axis (see notes for graphs)
What is the slope of a PPF Graph
the Opportunity cost of producing an additional unit of a good in terms of the other
Depends on countries productive resources and current state of tech
Pareto Improving
Both parties can consume outside of their PPF
Absolute Advantage
Party A produces more output than Party B
Comparative Advantage
Party A produces a good at a lower opportunity cost than Party B
Accounting Profits
Revenues minus all explicit costs
Economic profits
Revenues minus total opportunity costs
What is the short run
the period of time during which at least one of the factors of production is fixed
What is the long run
when all factors of production are variable
What does a production function show?
the relationship between quantity of inputs used and maximum quantity of output produced
Marginal Product
Is the change in output when one more input is used, it is the slope of production function.
Diminishing Marginal Product
when marginal product becomes progressively smaller, common in the short run as there is fixed input of some kind which creates a capacity constraint.
Returns to Scale
refers to output quantity changes when there is a proportional change in quantity of all inputs
Constant returns to Scale
When an increase in inputs (capital and labour) cause the same proportional increase in output.
Increasing returns to Scale
When an increase in inputs leads to bigger proportional increase in output.
Decreasing returns to Scale
This occurs when an increase in all inputs (labour/capital) leads to a less than proportional increase in output.
What is a cost function
an equation that links the quantity of output with associated production cost
Marginal Cost
the increase in total cost from an extra unit of output
Economies of Scale
when long-run ave. costs decrease with output
Diseconomies of Scale
when long-run ave. costs increase with output
When can there be no comparative advantage
when both have the same opportunity cost
