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LSE > EC102 (microeconomics) > Flashcards

EC102 (microeconomics) Flashcards

1
Q

Opportunity cost

A

The value of the highest valued foregone alternative

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2
Q

Positive analysis

A

Descriptive statements of cause and effect

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3
Q

Normative analysis

A

Statements that embody value judgements

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4
Q

Demand curve

A

Relation between the market price and the quantity demanded during a given time period

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5
Q

Supply schedule

A

Relation between market price and the amount of food that producers are willing to supply during a given time period

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6
Q

Equilibrium

A

A state of affairs that will persist because no party has any incentive to change their behaviour

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7
Q

Completeness assumption

A

A consumer when confronted with any 2 bundles can tell us which they prefer, or whether they’re indifferent between them

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8
Q

Transitivity assumption

A

Preferences are such that if X is preferred to Y and Y is preferred to Z then X is preferred to Z

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9
Q

Non satiation assumption

A

More is better

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10
Q

Marginal rate of substitution (MRS)

A

The negative of the slope of an indifference curve; it measures the rate at which the consumer is willing to trade one good for the other

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11
Q

Indifference curve

A

The set of all bundles among which a consumer is indifferent

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12
Q

Diminishing marginal rate of substitution

A

When the MRS falls as we move down along an indifference curve

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13
Q

Indifference map

A

The entire collection of indifference curves

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14
Q

Perfect substitutes

A

Good that can be substituted for each other at a constant rate. They have a constant MRS

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15
Q

Perfect compliments

A

Goods that have to be consumed in fixed proportions

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16
Q

Total utility

A

Total satisfaction sometimes given by a numerical score of consuming a commodity bundle

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17
Q

Utility function

A

Formula showing the total utility associated with a given bundle

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18
Q

Ordinal utility function

A

A utility function allowing for the ranking of bundles but doesn’t allow for precise comparisons

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19
Q

Cardinal utility function

A

The values of the utility function tell us exactly how much better some bundle is to another

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20
Q

Price taker

A

A consumer whose price per unit of a commodity is not affected by the number of units purchased

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21
Q

Budget constraint

A

Representation of bundles among which a consumer can choose given their income and prices

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22
Q

Feasible set

A

The collection of bundles satisfying the budget constraint

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23
Q

Interior solution

A

An equilibrium bundle which contains some of each good

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24
Q

Corner solution

A

An equilibrium bundle which the consumption of one commodity is 0

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25
Q

Marginal utility

A

The change in total utility associated with consumption of one additional unit

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26
Q

Price consumption curve

A

The set of commodity bundles traced out as the price of a commodity varies

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27
Q

Cross price effect

A

The impact of a change in the price of one good on the quantity demanded of another good

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28
Q

Substitutes

A

Two goods with similar wants. An increase in the price of one good will lead to a rise in demand of the other

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29
Q

Compliments

A

Two goods that are used together. An increase in price of one leads to decrease in demand for the other

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30
Q

Normal good

A

An increase in income leads to a rise in consumption

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31
Q

Inferior good

A

An increase in income leads to a fall in demand

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32
Q

Income consumption curve

A

The set of equilibrium commodity bundles traced as consumer income varies

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33
Q

Market demand curve

A

The relationship between a commodities price and the demand by all market participants

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34
Q

Horizontal summation

A

The process of adding together individual demand curves to find the market demand curve

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35
Q

PED

A

-%#X/%#P

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36
Q

Inelastic

A

PED<1

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37
Q

Elastic

A

PED>1

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38
Q

Unit elastic

A

PED=1

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39
Q

Perfectly inelastic

A

PED=0. Quantity demanded does not change as price changes

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40
Q

Perfectly elastic

A

PED=infinite. If price rises demand will fall to 0

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41
Q

Luxury good

A

When YED>1

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42
Q

Consumer surplus

A

Difference between what a consumer is willing to pay and what they have to pay

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43
Q

Compensated demand curve

A

Shows how he quantity demanded varies with price assuming that as price changes consumers are compensated with enough income to keep them at their initial utility level

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44
Q

Time endowment

A

The upper limit of time that can be dedicated to labour or leisure

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45
Q

Value of the time endowment

A

The amount of money an individual would have if he worked ever available hour

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46
Q

Labour supply curve

A

Showing the relationship between the quantity of labour supplied and the wage rate

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47
Q

Compensating differential

A

The wage premium paid to workers to compensate them for jobs with undesirable characteristics

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48
Q

State of the world

A

The outcome of a certain situation

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49
Q

Contingent commodities

A

A commodity whose level depends on the state of the world

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50
Q

Expected value

A

The value of some variable which depends which state of the world occurs on average

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51
Q

Actuarial fair

A

A gamble whose expected value is 0

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52
Q

Fair odds line

A

A budget constraint that reflects the opportunities presented by an actuarially fair gamble

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53
Q

Risk averse

A

An individual who won’t accept an actuarially fair gamble

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54
Q

Risk loving

A

An individual who prefers an uncertain prospect with a value to a certain value

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55
Q

Risk neutral

A

An individual who is indifferent among alternatives with the same expected value

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56
Q

Actuarially fair gamble

A

The premium equals the expected pay out

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57
Q

Total economic cost

A

The firms total expenditure on the inputs when expenditure is measured in terms of opportunity cost

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58
Q

Economic profit

A

Total revenue - total economic cost

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59
Q

Imputed cost

A

The opportunity cost incurred when the owner of a factor employs the factor in one use rather than in its best alternate use

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60
Q

Sunk expenditure

A

A factor expenditure that once made cannot be recovered

61
Q

Depreciation

A

The fall in the value of an asset over a defined period of time

62
Q

User cost of capital

A

The opportunity cost that an owner incurs as a consequence of owning and using an asset

63
Q

Total revenue curve

A

Showing the relationship between a firms output level and the resulting amount of revenue

64
Q

Total economic cost curve

A

Showing the relationship between a firms output level and the resulting level of total economic cost

65
Q

Isoquant

A

Showing all of the input combinations that yield the same level of output

66
Q

Variable factor

A

A factor whose level can be changed

67
Q

Fixed factor

A

A factor whose level cannot be changed

68
Q

Short run

A

A period where one factor is variable

69
Q

Long run

A

A period in which all factors are variable

70
Q

Marginal physical product (MPP)

A

The expected amount of output that can be produced when the firm uses one additional unit of an input

71
Q

Increasing marginal returns

A

The MPP rises as the amount of the input used rises

72
Q

Constant marginal returns

A

The MPP remains unchanged as the amount of a factor used rises

73
Q

Diminishing marginal returns

A

The MPP falls as the amount of an input used rises

74
Q

Marginal rate of technological substitution (MRTS)

A

The rate at which the substitution of one factor for anouther

75
Q

Degree of returns to scale

A

The rate at which the amount of output increases as the firm increases all of its inputs proportionally

76
Q

Constant returns to scale

A

A proportional increase In all inputs leads to a proportional rise in output

77
Q

Increasing returns to scale

A

A proportional increase in all inputs leads to a more then proportional rise in output

78
Q

Decreasing returns to scale

A

A proportional rise in all input levels leads to less the proportional rise in output

79
Q

Isocost line

A

Representation all input combinations that cost the same amount.

80
Q

Expansion path

A

The long run set of least cost input levels traced out as the level of output changes

81
Q

Economies of scale

A

Long run costs fall as output rises

82
Q

Diseconomies

A

Long run costs rise as output increases

83
Q

Price taking firm

A

Chooses it’s actions under the assumption that it cannot influence the prices of the output that it sells or the inputs that it buys

84
Q

Marginal output rule

A

MR=MC

85
Q

Shutdown rule

A

If AC>AR for all levels of output the firm should shut down

86
Q

Free entry

A

When new suppliers can enter the market without any restrictions on the process of entry

87
Q

Blocked entry

A

When it’s impossible for new suppliers to enter the market at any reasonable cost

88
Q

Market structure

A

The economic environment in which buyers and sellers in an industry operate

89
Q

Homogenous suppliers

A

Perfect substitutes with MRS=1. Homogenous goods are seen as identical to buyers

90
Q

Constant cost industry

A

An industry where long run average cost remain unchanged as output rises

91
Q

Increasing cost industry

A

An industry where long run average costs rise with the industry output level

92
Q

Decreasing cost industry

A

An industry in which long run average costs fall as industry output rises

93
Q

Heterogeneous suppliers

A

Producers of a single food who have different costs of production from one another

94
Q

Economic rent

A

What the supplier of a good or service is paid above and beyond what is needed to induce it to supple the output

95
Q

As Valorem tax

A

A tax whose value depends on the value of the transaction

96
Q

Unit tax

A

A tax that’s levied as a fixed amount per unit

97
Q

Statutory insurance of a tax

A

The economic agent who is legally responsible for the payment of a tax

98
Q

Economic incidence of a tax

A

The change in the distribution of income brought about by the imposition of the tax

99
Q

Elasticity of supply

A

The percentage change in supply divided by the percentage change in price

100
Q

Total surplus

A

The sum of consumer and producer surplus

101
Q

Excess burden

A

The amount by which the Ellis’s of surplus suffered by consumers and producers exceeds the collected tax revenue

102
Q

Social welfare function

A

A function or schedule that shows how the well being of society depends upon the utilities of its members

103
Q

First welfare theorem

A

The result that the competitive equilibrium is efficient because it maximises total surplus

104
Q

Price maker

A

An economic decision maker that recognises that its quantity choice has an influence on the price at which it buys or sells a good

105
Q

Market power

A

Anouther name for a firms ability to influence price

106
Q

I fragment all units

A

The units of output that the firm could have sold at the old price but now must sell at the new lower price that prevails when it increases its output level

107
Q

Process innovation

A

An idea that lowers the cost of producing existing products

108
Q

Product innovation

A

An idea that gives rise to a new good or service

109
Q

Deadweight loss of monopoly

A

The loss on total surplus that arises because a monopolist produces less than the total surplus maximising amount of output

110
Q

Price discrimination

A

The practice of charging different consumers different prices for the same good

111
Q

First degree price discrimination

A

The practice of selling each unit of output at a price equal to the buyers maximal willingness to pay for that unit

112
Q

Second degree price discrimination

A

The same price schedule is offered to all buyers and they sort themselves through self selection

113
Q

Third degree price discrimination

A

The practice of identifying desperate groups of buyers and charging different prices to these groups

114
Q

Duopoly

A

A market in which there are only 2 suppliers

115
Q

Best response curve

A

A schedule showing a decision makers beat course of action for each set of choices made by another decision maker

116
Q

Nash equilibrium

A

A market is in Nash equilibrium when each firm is choosing the strategy that maximises its profit given the strategies of the other firms within the market

117
Q

Courtney equilibrium

A

A Nash equilibrium in a market in which each firms strategy consists of its choice of output level

118
Q

Residual demand curve

A

The firm specific demand curve faced by a supplier given the price or output strategies chosen by its rivals

119
Q

Best response curve or reaction curve

A

A schedule showing a decision makers best course of action for each set of choices made by another decision maker

120
Q

Players

A

The decision maker in a game

121
Q

Strategy

A

A players plan of action in a game

122
Q

Actions

A

The particular things that are done according to a players strategy in a game

123
Q

Payoffs

A

The rewards enjoyed by a player at the end of the game

124
Q

Game tree

A

An extension of a decision tree that provides graphical representation of a strategic situation

125
Q

Decision rule

A

A strategy that specifies when actions will be taken conditional on what happens earlier in the game

126
Q

Dominant strategies

A

A strategy that works as least as well as any other one regardless of what the other players do

127
Q

Dominant strategy equilibrium

A

An outcome in a game in which each player follows a dominant strategy

128
Q

Perfect equilibrium

A

A set of strategies that satisfies both Nash and credibility conditions

129
Q

Commitment

A

The process whereby a player irreversibly alters its payoffs in advance so that it will be in the players self interest to carry out a threatened action when the time comes

130
Q

Games of imperfect information

A

A game in which doe players must make a move but is unable to observe the earlier or simultaneous move by some other player

131
Q

Game of incomplete information

A

A game in which some player is unsure about some of the underlying characteristics of the game such as another players payoffs

132
Q

Prisoners dilemma

A

A strategic situation in which two players each have a dominant strategy but playing this pair of strategies leads to an outcome in which both sides are worse off than they would be if they cooperated by playing alternate strategies

133
Q

Pure strategy

A

A strategy that specifies a specific action at each decision point

134
Q

Mixed strategy

A

A strategy that allows for randomisation among actions at some or all decision points

135
Q

Asymmetric information

A

A situation in which one side of an economics relationship has better information than the other

136
Q

Hidden characteristics

A

Things that one side of a transaction knows about itself that the other side would like to know but does not

137
Q

Hidden actions

A

Actions taken by one side of an economic relationship that the other side of the relationship cannot observe

138
Q

Signal

A

An observable indicator of a hidden characteristic

139
Q

Self selection device

A

A mechanism in which an informed party in an economic relationship is offered a set of options and the choice made by the informed party reveals his hidden characteristics

140
Q

Screening

A

An uniformed party’s attempt to sort the informed parties

141
Q

Private valuations

A

Where the intrinsic value of the good being auctioned varies among bidders

142
Q

Common variations

A

Where the intrinsic value of a good being bid for is the same for all bidders

143
Q

Revenue equivalence

A

The fact that English first price and second price sealed bid auctions produce the same revenue returns for the sellers

144
Q

Winners curse

A

Where in s common values auction the winner finds that they’ve paid more for the good than its intrinsic value

145
Q

Residual claimant

A

A party to a contract who gets all of the residual profit

146
Q

Externality

A

A direct effect of the actions of one person or firm on the welfare of another party in a way not transmitted by market forces

147
Q

Social marginal cost

A

Incremental cost of production which includes the opportunity cost of all scarce resources weather priced or not

148
Q

Coase theorem

A

Assuming there are no bargaining costs once ownership rights to a resource are established individuals will bargain their way to an efficsnt use of resources

149
Q

Pigouvian tax

A

A tax levied upon each unit of pollution in an amount just equal to the marginal damage it inflicts upon society at the efficient level of output

LSE (3 decks)

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