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Economic Principles > cost curves, equilibrium, and curve movers in microeconomics > Flashcards

cost curves, equilibrium, and curve movers in microeconomics Flashcards

1
Q

the average total cost falls when….

A

marginal cost is lower than average total cost

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2
Q

why does marginal cost fall when average total cost falls?

A

because the fixed cost remains constant while the variable costs per quantity decrease, lowering the average total cost

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3
Q

The intersection occurs because the fixed cost element causes the

A

average total cost curve to react slower than the marginal cost curve.

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4
Q

explainn the substitution effect

A

As the cost of a good rises, you will increasingly look to find substitutes to replace that good that is cheaper than the new, higher priceAs the cost of a good rises, you will increasingly look to find substitutes to replace that good that is cheaper than the new, higher price

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5
Q

what are the 2 variables that cause a change in the quantity demanded

A

income effect and substitution effect

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6
Q

explain the income effect

A

a change in the quantity demanded as a result in a change in the consumers purchasing poower

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7
Q

what variables shift the demand curve

A

Income

Prices of related goods

Tastes

Population and demographics

Expected future prices

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8
Q

An increase in income (normal good) will shift the demand curve to the _______ because….

A

right
because consumers spend more of their income on the good

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9
Q

An increase in income (inferior good) will shift the demand curve to the _______ because….

A

left
because consumers spend less of their higher income on the good

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10
Q

an increase in the price of a substitute will shift the demand curve to the ______ because…

A

right
consumers buy less of the substitute good and more of this good

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11
Q

an increase in the price of a complimentary good will shift the demand curve too the ____ because…

A

left
consumers buy less of the complementary good and less of this good

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12
Q

an increase in the expected price of a good will cause the demand curve to shift to the ____ because

A

consumers buy more of the good today to avoid the higher price in the future

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13
Q

what variables shift the supply curve?

A

Prices of inputs

Technological change

Prices of substitutes in production

Number of firms in the market

Expected future prices

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14
Q

an increase in the price of an input will cause the supply curve to shift to the _______ because…..

A

left
the costs of producing the good rise

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15
Q

an increase in productivity will cause the supply curve to shift to the _______ because…..

A

right because the cost of producing goods falls

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16
Q

an increase in the price substitute in production will cause the supply curve to shift to the _______ because…..

A

left
because more of the substitute is produced and less of the good is produced

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17
Q

an increase in the number of firms in the market will cause the supply curve to shift to the _______ because…..

A

right
additional firms result in a greater quantity supplied at every price

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18
Q

an increase the expected future price of the product will cause the supply curve to shift to the _______ because…..

A

left
less of the good will be offered for sale today to take advantage of the higher price in the future

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19
Q

what is the formula for the price elasticity of demand using the mid-point formula

A

(Q2-Q1)/(Q1+Q2/2) / (P2-P1)/ (P1+P2/2)

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20
Q

IF DEMAND IS elastic than the absolute value of price elasticity is______

A

greater than 1

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21
Q

IF DEMAND IS inelastic than the absolute value of price elasticity is______

A

less than 1

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22
Q

IF DEMAND IS unit-elastic than the absolute value of price elasticity is______

A

equal to 1

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23
Q

IF DEMAND IS perfectly elastic than the absolute value of price elasticity is______

A

infinite

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24
Q

IF DEMAND IS perfectly inelastic than the absolute value of price elasticity is______

A

0

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25
Q

list the determinaNTS OF THE PRICE ELASTICITY OF DEMAND

A

Availability of close substitutes

Passage of time

Whether the product is a luxury or a necessity

Definition of the market

Share of expenditure on the good in the consumer’s budget.

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26
Q

product has more substitutes available, it will have a ________ demand. If a product has fewer substitutes available, it will have a _______ demand.

A

more elastic
less elastic

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27
Q

The demand curve for a luxury is _________ than the demand curve for a necessity.

A

more elastic

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28
Q

The more narrowly we define a market, the ________ demand will be.

A

more elastic

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29
Q

the demand for a good or service will be ______if purchasing the good or service involves a small share of the average consumer’s budget.

A

less elastic

30
Q

When demand is inelastic, a reduction in price will ________ total revenue

A

decrease

31
Q

reducing price when demand is elastic will _____ total revenue

A

increase

32
Q

if demand is elastic an increase in price reduces revenue because

A

the decrease in quantity demanded is proportionally greater than the increase in price

33
Q

if demand is elastic a decrease in price increases revenue because

A

the increase in quantity demanded is proportionally greater than the decrease in price

34
Q

if demand is inelastic a decrease in price reduces revenue because

A

the increase in quantity demanded is proportionally smaller than the decrease in price

35
Q

if demand is inelastic an increase in price increases revenue because

A

the decrease in quantity demanded is proportionally smaller than the increase in price

36
Q

if demand is unit-elastic an increase price does not affect revenue because

A

the decrease in quantity demanded is proportionally the same as the increase in price

37
Q

if demand is unit-elastic a decrease price does not affect revenue because

A

the increase in quantity demanded is proportionally the same as the decrease in price

38
Q

if the products are substitutes then the cross price elasticity of demand will be….

A

positive

39
Q

if the products are complements then the cross price elasticity of demand will be….

A

negative

40
Q

if the products are unrelated then the cross price elasticity of demand will be….

A

0

41
Q

what is the formula for cross-price elasticity of demand

A

cross price elasticity of demand= (%change in quantity demanded of one good)/(% change in price of another good )

42
Q

what is the formula ffor income elasticity of demand

A

income elsaticity of demand= (% change in quantity demanded)/(% chang in income )

43
Q

what is the formula for price elasticity of supply

A

price elasticity of supply=(%change in quantity supplied)/(% change in price )

44
Q

if the income elasticity of demand is positive but less than 1 it is

A

normal and a necessity

45
Q

if the good is a luxury the income elasticity of demand is

A

positive and greater than 1

46
Q

an inferior good has a _____ income elasticity

A

negative

47
Q

The key determinants of the price elasticity of supply are:

A

Passage of time

Type of industry

Availability of inputs

Existing capacity

Inventories held.

48
Q

if supply is elastic the absolute value of price elasticity is

A

greater than 1

49
Q

if supply is inelastic the absolute value of price elasticity is

A

less than 1

50
Q

if supply is unit elastic the absolute value of price elasticity is

A

1

51
Q

if supply is perfectly elastic the absolute value of price elasticity is

A

infinite

52
Q

if supply is perfectly inelastic the absolute value of price elasticity is

A

0

53
Q

The additional output produced by a firm as a result of hiring one more worker is called the

A

marginal product of labour

54
Q

The marginal product of labour tells us how much

A

total output changes as the quantity of workers hired changes

55
Q

________ is the change in a firm’s total cost from producing one more unit of a good or service.

A

marginal cost

56
Q

how do you calculate marginal cost

A

MC = (change in total cost)/(change in quantity)

57
Q

When the marginal product of labour is rising, the marginal cost of output will be

A

falling

58
Q

When the marginal product of labour is falling, the marginal cost of production

A

will be rising.

59
Q

We can conclude that the marginal cost of production falls and then rises—producing a U-shape—because

A

the marginal product of labour rises and then falls.

60
Q

As long as marginal cost is below average total cost, average total cost will

A

fall.

61
Q

When marginal cost is above average total cost, average total cost will

A

rise

62
Q

Marginal cost will equal average total cost when average total cost is at

A

its lowest point

63
Q

As output increases, average fixed cost ____ because

A

in calculating average fixed cost we are dividing something that gets larger and larger—output—into something that remains constant—fixed cost

64
Q

The marginal cost (MC), average total cost (ATC) and average variable cost (AVC) curves are all

A

u-shaped

65
Q

the MC curve intersects the AVC and ATC curves at their

A

minimum points

66
Q

As output increases, the difference between average total cost and average variable cost_____ because ______

A

decreases
the difference between average total cost and average variable cost is average fixed cost, which gets smaller as output increases.

67
Q

The long-run average cost curve shows the

A

lowest cost at which the firm is able to produce a given level of output in the long run, when no inputs are fixed

68
Q

ong-run average costs fall as it

A

increases its scale of production and the quantity of output it produces

69
Q

the effects of economies of scale in, which shows the relationship between

A

short-run and long-run average cost curves

70
Q

Diminishing returns applies only to the short run, when

A

at least one of the firm’s inputs, such as the quantity of machinery it uses, is fixed.

71
Q

Diseconomies of scale explain why

A

long-run average cost curves eventually slope upwards.

72
Q

Diseconomies of scale Exist when

A

a firm’s long-run average costs rise as it increases its scale of production and the quantity of output it produces.

Economic Principles (20 decks)

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