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Econ 201 > Chapters 6 - 10 > Flashcards

Chapters 6 - 10 Flashcards

1
Q

Utility

A

the satisfaction that a customer gets from consuming a good or service

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2
Q

Total Utility and Marginal Utility

A

Total: the total amount of satisfaction
that the consumer gets
Marginal: the additional utility a consumer gets from consuming one additional unit

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2
Q

Total Utility and Marginal Utility

A

Total: the total amount of satisfaction
that the consumer gets
Marginal: the additional utility a consumer gets from consuming one additional unit

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3
Q

Diminishing Marginal Utility

A

Marginal utility decreases as total consumption increases

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4
Q

How does a utility maximising consumer allocate expenditures?

A

so the marginal utility gained from the last dollar spent on each product is equal

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5
Q

How does utility maximization relate to the demand curve?

A

as the price of a product goes up, the utility maximizing consumer decreases quantity demanded of the product

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6
Q

The substitution effect

A

the change in quantity demanded of a product whose relative price has changed (holding real income constant)
- increases quantity demanded (movement along the demand curve)

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7
Q

The income effect

A

change in quantity demanded of a product resulting from a change in real income
- increases quantity bought (shift in the demand curve)

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8
Q

Giffen goods

A

products with positive demand curves

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9
Q

giffen goods characteristics

A

inferior good, takes a large proportion of household income

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10
Q

Consumer surplus

A

the difference between the market price and the maximum price that the consumer is willing to pay

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11
Q

six ways to organize a firm

A
  1. A single proprietorship
  2. An ordinary partnership
  3. The limited partnership (general and limited)
  4. A corporation (private and public)
  5. A state-owned enterprise (Crown corporations)
  6. Non-profit organizations
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12
Q

Basic types of financial capital

A

equity and debt

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13
Q

Socially responsible to maximize profits?

A

Goal of maximizing profits benefits customers and
their employees, and it leads to innovation, which
improves living standards

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14
Q

The production function

A

shows the maximum amount of output that can be produced give a set of inputs

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15
Q

Accounting profit

A

Revenue - explicit costs

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16
Q

Economic profit

A

Revenue - (explicit costs + implicit costs)

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17
Q

The short run

A

production has fixed factors

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18
Q

The Long Run

A

Production has all variable factors except for technology

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19
Q

The very long run

A

all factors are variable

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20
Q

Total and average product

A 
TP = the total amount of product produced over a length of time
AP = TP/number of units of variable factor used to produce it
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21
Q

Marginal product

A

change in total output that results from using one more unit of variable factor

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22
Q

Marginal cost

A

increase in total cost resulting from increasing output by one unit

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23
Q

Technical efficiency

A

when a given number of inputs are combined in a way to maximize the level of output

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24
Q

How does a firm maximize profit?

A

by choosing the lowest cost combination of labour and capital

25
Q

Cost minimization

A

the firm chooses the lowest cost production method

26
Q

What is the LRAC curve

A

the curve that shows the lowest possible cost of producing each level of output when all inputs can be varied

27
Q

Economies of scale

A

when long run average cost is falling as output increases

28
Q

Minimum efficient scale

A

the smallest output at which the LRAC is at its minimum

29
Q

Constant returns

A

when a firm is experiencing output larger in proportion to its input

30
Q

decreasing returns

A

when a firm is experiencing output at a level smaller relative to its inputs

30
Q

decreasing returns

A

when a firm is experiencing output at a level smaller relative to its inputs

31
Q

SRATC curve

A

shows the lowest cost of producing when one or more factors are fixed

32
Q

Market Power

A

when a firm can influence the price of their product

33
Q

Competitive market

A

when the firms in the market have little or no market power

Perfectly competitive market is when the firms have 0 market power

34
Q

what are the assumptions of a competitive market

A

all firms sell a homogenous product
customers know the nature of the product being sold and the prices sold by other firms
minimum efficient output of each firm is small relative to the industry’s total output
the industry has freedom of entry and exit

35
Q

Average revenue

A

revenue per unit sold

36
Q

Economic loss

A

when a firm’s total cost > total revenue

37
Q

When is it worthwhile for a firm to produce?

A

when its revenue exceeds its variable costs

38
Q

when should a firm cease production

A

when its revenue cannot cover variable costs, it is losing more by producing than if it was not producing

39
Q

Shut down price

A

the price that is equal to a firm’s minimum average variable cost

40
Q

how does a firm decide how much to produce?

A

if production adds more to revenue than it does to cost, the firm should increase production

41
Q

Profit maximization for a competitive firm

A

the profit maximizing level for a competitive firm is where price (marginal revenue) equals marginal cost

42
Q

short run supply curves

A

given by the marginal cost curve above the AVC curve

43
Q

short run equilibrium

A

when the quantity demanded and supply are met in an industry

44
Q

long run industry equilibrium

A

the firms in the industry are making zero profit, the price in the industry is the break even price

45
Q

conditions for long run equilibrium

A

the firms are neither making profits or losses

existing firms are operating at the minimum efficient scale

46
Q

Monopolist

A

A firm that has majority or all power in a market

47
Q

Demand curve for a monopolist

A

negatively sloped

48
Q

demand curve for a firm in perfect competition

A

horizontal (quantity has no effect on price for each individual firm)

49
Q

Marginal revenue for a Monopolist

A

Is not equal to price, because a monopolist must reduce the price off all its units to sell one extra unit
Monopolists marginal revenue is the price minus this lost revenue

50
Q

Profit maximizing output for a monopolist

A

where MC = MR

51
Q

Monopolist supply curve

A

the monopolist does not have a supply curve because it is a price taker

52
Q

Perfect comp vs monopoly price setting

A

For a perfectly competitive market, p = MC

For a monopoly, p > MC

53
Q

Why is the monopoly economically inefficient?

A

it produces at a lower quantity to maximise profits and therefore causes deadweight loss for society

54
Q

Entry barriers

A

for a monopoly to survive it must prevent other firms from entering the market

55
Q

Creative destruction

A

in the very long run, technological advancements circumvent the entry barriers set by monopoly’s
creative destruction is the coined term to define when one monopolist replaces another through innovation

56
Q

Cartels

A

when firms band together and agree to restrict output in order to maximize profits

57
Q

Price discrimination

A

selling different units for different prices for reasons other than differences in cost

58
Q

When is price discrimination possible

A

Market power
different valuations of the product
Able to prevent arbitrage

59
Q

Hurdle pricing

A

when firms create an obstacle that firms must get over to get a lower price

60
Q

Price discrimination and economic efficiency

A

If price discrimination leads to increase in output than economic surplus is increased and therefore so is economic efficiency

Econ 201 (3 decks)

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