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Managerial Economics > Chapter 1-5 > Flashcards

Chapter 1-5 Flashcards

1
Q

A person who directs resources to achieve a stated goal

A

Manager

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2
Q

True or false.

The firm’s goal of maximizing profits is necessarily bad for society.

A

False. This is a common misconception.

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3
Q

What is total revenue minus total cost?

A

Accounting profits

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4
Q

The science of making decisions in the presence of scarce resources

A

Economics

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5
Q

The cost of explicit and implicit resources that is forgone when a decision is made

A

Opportunity cost

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6
Q

This implies that by making a choice, you give up another

A

Scarcity

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8
Q

An increase in price of good A will decrease the demand of good B. What do you call these goods?

A

Complements

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9
Q

What is the first step in making sound decisions?

A

Have well-defined goals

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10
Q

The study of how to direct scarce resources in the way that most efficiently achieves a managerial goal

A

Managerial Economics

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11
Q

This curve describes how many goods the consumer is willing to buy at a certain price

A

Demand curve

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12
Q

It is the consumer’s desire or willingness to pay a prices for a good or service

A

Demand

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13
Q

What are the 4 factors that affect quantity demanded?

A

Price of the good
Price of other goods (substitute, complements)
Income
Preferences/tastes

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14
Q

The fundamental economic principle which states that price and quantity demanded are inversely related (ceteris paribus)

A

Law of Demand

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15
Q

These are used to produce a good or service

A

Resources

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16
Q

Why is it that buyers are willing to purchase less of a good at a higher price?

A

Because they attach a higher level of satisfaction when consuming a relatively scarce good

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18
Q

What is an indicator the resources are scarce?

A

Price

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19
Q

What is total revenue minus opportunity cost?

A

Economic profits

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20
Q

It is one of the scarcest resources of all

A

Time

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21
Q

What do you call the variables other than the price of a good that influence demand?

A

Demand Shifters

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22
Q

What is the supply function? (use Q, P, and x)

A

Q = x + P

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23
Q

These are an artifact of scarcity

A

Contraints

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23
Q

The explicit cost of resources needed to produce goods or services

A

Accounting cost

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24
Q

A movement along a supply/demand curve is called?

A

Change in quantity supplied/demanded

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25
Q

The quantity of a good all consumers will buy at different prices

A

Market demand

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26
Q

What is the slope of a perfectly inelastic demand curve? Is it a vertical or a horizontal line?

A

Slope = undefined

Vertical

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27
Q

This shows how many goods the producer is willing to supply at a certain price

A

Supply curve

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28
Q

True or false.

Accounting profits understate economic profits.

A

False. Accounting profits OVERSTATE economic profits

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30
Q

A rightward or leftward shift of a supply/demand curve is called?

A

Change in supply/demand

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31
Q

It refers to the total loss of producer and consumer surplus from underproduction and overproduction

A

Deadweight losses

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32
Q

This refers to the excess utility derived by an individual when he/she consumes a good or service

A

Consumer surplus

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34
Q

What do you call the good whose demand decreases when consumer’s income reduces?

A

Inferior good

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35
Q

What do you mean by implicit cost?

A

It is the value of what you are giving up

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36
Q

This discipline describes methods useful for directing everything from the resources of a household to maximize household welfare to the resources of a firm to maximize profits

A

Managerial Economics

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37
Q

There is overproduction when there are subsidies because?

A

The buyer pays less and the seller receives more

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38
Q

A good is said to be ____ if its QDemanded is very sensitive to change.

A

Elastic

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39
Q

The difference between the maximum price the consumer is willing to pay and the actual price he/she paid for the good/service (market price)

A

Consumer surplus

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40
Q

What is the demand function? (use Q, P, and x)

A

Q = x - P

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41
Q

An increase in price of good A will increase the demand of good B. What do you call these goods?

A

Substitutes

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42
Q

If |ℇ| < 1 then %△QD ___ %△P and it is ____. (elastic, inelastic, unitary elastic)

A

<

inelastic

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43
Q

Why is it that buyers are willing to purchase more of a good at a lower price?

A

Because they attach a lower level of satisfaction when consuming a relatively abundant good

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43
Q

The fundamental economic principle which states that price and quantity supplied are inversely related (ceteris paribus)

A

Law of Supply

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47
Q

It is the consumer’s willingness to pay decreases as quantity increases

A

Marginal utility

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48
Q

Limitation on price leads to ______. (overproduction or underproduction)

A

Underproduction

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49
Q

Why is it that quantity supplied increases when the price of the good is high?

A

Producers are encouraged to supply because they will earn more profit

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50
Q

This refers to a firm that is the sole provider of a good or service

A

Monopoly

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51
Q

This elasticity refers to the responsiveness of QDemanded to a change in price of another good; either positive or negative

A

Cross-price elasticity

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52
Q

What is the inverse demand function? (use Q, P, and x)

A

P = x - Q

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52
Q

It is a table of Qsupplied of a good at different price levels

A

Supply schedule

54
Q

What do you call the good whose demand increases when consumer’s income rises?

A

Normal good

55
Q

What are the 5 factors that affect quantity supplied?

A 
Price
Price of inputs
Technology
Number of firms in the market
World events
56
Q

If income and quantity demanded are inversely proportional to each other, then the product is a _____ good.

A

Inferior

57
Q

It is the agreement between buyers and sellers in the price and the amount of goods or services traded

A

Market equilibrium

57
Q

Point elasticity is defined as _____.

A

ℇ = [(Q2-Q1) / (P2-P1)] x (P1 / Q1) x 100

58
Q

It is the difference between the actual price the producer was paid in producing the good or service (current market price) and the full cost of production for the firm

A

Producer Surplus

60
Q

There is underproduction when taxes are imposed because?

A

The buyer pays more and the seller receives less

61
Q

Unitary total revenue is if demand is perfectly _____ and when managers increase price, consumers still purchase.

A

Inelastic

62
Q

If |ℇ| < 1, and price increases, what happens to total revenue?

A

Increases

63
Q

It refers to the sensitivity of consumers to a change in price of a good, price of other goods or income

A

Elasticity of Demand

64
Q

This elasticity refers to the responsiveness of QDemanded to a change in its own price

A

Own-price elasticity

65
Q

A monopoly sets ____ price and produces ____ quantity.

A

High; Low

underproduction

66
Q

Limitation on the amount a firm is allowed to produce leads to ______. (overproduction or underproduction)

A

Underproduction

67
Q

What will happen if Mux > Muy?

A

Consumers will give up more units of y to have more units of x because they are happier with x

68
Q

Arc elasticity is defined as _____.

A

ℇ = [(Q2-Q1) / (Q1+Q2)] x [(P1+P2) / (P2-P1)] x 100

69
Q

If |ℇ| = 1 then %△QD ___ %△P and it is ____. (elastic, inelastic, unitary elastic)

A

=

Unitary elastic

70
Q

This elasticity is nearly always negative because of the relationship between Qdemanded and P

A

Own-price elasticity

70
Q

The own-price elasticity of demand for good X, denoted ℇx is defined as _____.

A

ℇx = %△QD / %△P

71
Q

The opportunity cost of using a resource include what (2) costs?

A

Explicit or accounting cost and implicit cost

72
Q

If |ℇ| > 1 and price increases, what happens to total revenue?

A

Decreases

75
Q

If MR < MC, then there is marginal _____. (profit/loss)

A

Loss.

An additional unit produce will incur loss (should produce less)

76
Q

A good is said to be ____ if its QDemanded is not sensitive to change.

A

Inelastic

76
Q

If the own-price elasticity of demand for a product is -2, a 10% increase in the product’s price will have what effect on the QDemanded?

A

20% decline in the QDemanded.

-2 = %△QD/10%
%△QD = -20%
77
Q

Why is it that quantity supplied decreases when the price of the good is low?

A

Produces are discouraged to supply since they will not earn as much

77
Q

It is the elasticity at a particular point on a curve between 2 points

A

Point elasticity

77
Q

It is the elasticity at the midpoint between 2 selected points

A

Arc elasticity (recommended)

78
Q

What is the formula for marginal profit?

A

Marginal revenue - marginal cost = marginal profit

79
Q

What is the inverse supply function? (use Q, P, and x)

A

P = Q - x

80
Q

It is the intersection between the demand and supply curve

A

Market equilibrium

81
Q

This refers to a set of goods or services sold in an economy

A

Market basket

82
Q

Why is it that when MR = MC, the production rate should be held constant?

A

Because producing an extra unit (or more) beyond this would lead to MC > MR which means that the company is incurring loss.

83
Q

Cross-price elasticity is defined as _____.

A

ℇxy = %△QDy / %△Px

84
Q

If Px and QDy are directly proportional, then good x and good y are _____.

A

Substitutes (+)

85
Q

As we increase quantity, marginal cost _____ because _______

A

Increases; diminishing marginal productivity/returns

86
Q

This elasticity refers to the responsiveness of QDemanded to changes in income; either positive or negative

A

Income elasticity

87
Q

It refers to the feeling of producers when they make a profit

A

Producer Surplus

88
Q

If income and quantity demanded are directly proportional to each other, then the product is a _____ good.

A

Normal

88
Q

Unitary total revenue is if demand is perfectly _____ and when managers increase price, consumers do not purchase.

A

Elastic

89
Q

True or false.
Ordinal ranking gives enough info because consumers have no natural measure of the amount of pleasure derived from the baskets.

A

True.

90
Q

If |ℇ| = 1 and price increases, what happens to total revenue?

A

Total revenue will start decreasing because the total revenue is already maximized when |ℇ| = 1

91
Q

If |ℇ| > 1 then %△QD ___ %△P and it is ____. (elastic, inelastic, unitary elastic)

A

>

elastic

93
Q

It is the unit for utility

A

Utils

94
Q

What is the slope of a perfectly elastic demand curve? Is it a vertical or a horizontal line?

A

Slope = 0

Horizontal

95
Q

In an indifference curve, Mux (△x) ___ Muy (△y)

A

Mux (△x) = Muy (△y)

96
Q

If Px and QDy are inversely proportional, then good x and y are _____.

A

Complements (-)

96
Q

If MR > MC, then there is a marginal _____. (profit/loss)

A

Profit.

Revenue will be generated for an additional unit produced (should produce more)

97
Q

What is the relationship between the slope of the indifference curve and the marginal utility of good x and good y? (Formula)

A

Mux / Muy = - (△y / △x)

99
Q

Profit is maximized and there is marginal profit if marginal ____ = marginal ____

A

Marginal Revenue = Marginal Cost

99
Q

As we increase quantity, marginal revenue _____ because _______

A

Decreases; diminishing marginal utility

100
Q

It is a measure of happiness

A

Utility

101
Q

Under the “transitive” assumption, if A>B and B>C, then A __ C

A

A>C

102
Q

This is responsible for the convexity of the indifference curve

A

Marginal Rate of Substitution (MRS)

103
Q

It is the process that tries to transform inputs into output (preference -> happiness; good/service -> satisfaction)

A

Utility function

105
Q

An increase in consumption in a given period causes a decrease in satisfaction with each additional good or service. What law states this?

A

Diminishing Marginal Utility Law

106
Q

A utility function is defined as _____.

A

u = (coefficient)x + (coefficient)y

107
Q

This is an assumption that a consumer is able to rank any 2 baskets

A

Complete

108
Q

This is an assumption that a consumer makes consistent choices

A

Transitive

109
Q

It is based on preferences of the consumer; determines choices and demand

A

Utility

110
Q

This is an assumption that a consumer has unlimited wants and needs; more is better because people are greedy

A

Non-satiation

111
Q

It is the mathematical expression for happiness or utility

A

Utility function

111
Q

This ranking indicates whether a consumer prefers one basket to another but does not contain quantitative information about the intensity of that preference

A

Ordinal

112
Q

What are the 4 properties of an indifference curve?

A

Negative slope (consumer likes both goods x and y)
Convex
Lies on 1 and only 1 indifference curve
Not thick

113
Q

It refers to the additional satisfaction gained by the consumption or use of one more unit of a good or service (either positive or negative)

A

Marginal utility

113
Q

It is the rate at which the consumer willingly substitute one good for another while maintaining the same level of utility

A

Marginal Rate of Substitution (MRS)

114
Q

It refers to the satisfaction a person receives in consuming different goods and services

A

Utility

114
Q

Marginal utility is defined as ______.

A

Mu = △TU / △Q

= change in total utility / change in quantity consumed or used

117
Q

Under the “complete” assumption, if A>B and B>A, then A __ B

A

A≈B

117
Q

This ranking is a quantitative measure of intensity of a preference of a basket over another

A

Cardinal

118
Q

Locus of points that represent different consumption of market baskets that give the same level of utility

A

Indifference curve

118
Q

It is the absolute value of the slope of an indifference curve

A

Marginal Rate of Substitution (MRS)

Managerial Economics (1 decks)

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