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Econ 101 > Econ Exam 2 > Flashcards

Econ Exam 2 Flashcards

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1
Q

Consumer surplus and example

A

the amount of benefit consumers derive from paying less then they are willing and able to pay for a commodity (product is $3 but consumer would be willing and able to pay up top $10, the consumer surplus is $7)

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2
Q

Marginal Benefit

A

additional benefit to a consumer from consuming one more unit of a commodity, the demand curve is the marginal benefit cause it shows the amount consumers would be willing and able to pay for one more unit of item.

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3
Q

Producer surplus

A

The amount of benefit producers derive from selling their product for more then they are willing and able to sell for, EX) if a it takes $3 for a producer to make a product but can sell for $10 the producer surplus is $7

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4
Q

Marginal Cost

A

the increase in cost to a firm from producing one or more unit of output, supply curve is the marginal cost because it shows the lowest prices producers are willing and able to sell and item.

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5
Q

What does the equilibrium show

A

the the marginal benefit and marginal cost are the same and a economically efficient level of output. At equilibrium economic surplus is maximized.

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6
Q

Economic Surplus

A

the sum of consumer surplus and producer surplus

PS+CS=ES

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7
Q

Deadweight loss

A

the loss of economic surplus resulting from a market not being at a competitive equilibrium

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8
Q

IF the government imposes a price floor then…

A

consumer surplus has shrunk

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9
Q

Tax incidence

A

the actual division of the burden of a tax between buyers and sellers in a market

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10
Q

taxes and inelastic and elastic demand

A

if demand is perfectly inelastic then the consumers bore all. if it is elastic the sellers bore more of the taxes

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11
Q

Externalities

A

costs or benefits that accrue to parties outside of (external to) the economic transaction

these parties are usually ignored by the transacting parties

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12
Q

negative externality examples

A

Factory polluting water… they make tires which then imposes a negative externality on fishermen, noise from a factory, gasoline admissions

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13
Q

how does the government help negative externalities

A

the government could intervene to help try and correct the negative externality with taxes, regulations or property rights assignment. Adding on taxes to a firm that is polluting the river makes it more expensive for suppliers to make tires which will then make the tire company make less tires which then leads to less pollution

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14
Q

Pigouvian taxes

A

taxes that are imposed to help align the private and social costs

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15
Q

Coase theorem

A

under ideal economic conditions, where there is a conflict of property rights, the involved parties can bargain or negotiate terms that will accurately reflect the full costs and underlying values of the property rights at issue, resulting in the most efficient outcome.

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16
Q

what curve does negative externalities shift

A

supply curve to left(marginal private cost -> marginal social cost)

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17
Q

what curve does positive externalities shift

A

demand curve to right(marginal private benefit -> marginal social benefit)

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18
Q

Examples of positive externalities

A

if a firm was able to recycle trash to produce its tires at no extra cost. This helps stop to pollution of rivers which is a positive effect on society. carpooling, locating close to work, live in campus, education, vaccinations

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19
Q

how to help positive externalities

A

the government can subsidize production. This means they can give them tax breaks, payments, or other economic support

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20
Q

Public goods

A

nonrivalry and nonexcludability goods

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21
Q

rivalry goods

A

A’s consumption of a good means that B cannot consume the good

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22
Q

Excludability goods

A

the ability to exclude someone from a consuming a good

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23
Q

Private goods

A

goods that are both rival and excludable. A good were you can exclude them from consuming a good and one persons consumption of this good means another person cannot consume it.

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24
Q

Example of rival and excludable good

A

a private good like food, clothes,

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25
Q

Common resource and example

A

a good that is a rival but not excludable. if Joe cuts down a tree then Jane cannot use that tree now but no one has property rights of the forest and trees

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26
Q

natural monopolies and example

A

goods that are excludable but not rival. example is cable TV, I am excluded if I don’t pay for it but if I am watching it it does not prevent anyone else from watching cable tv.

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27
Q

Public goods and example

A

goods that are both non rival and non excludable. for example a blue sky, a street light, national defense, public tv

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28
Q

what can happen to nonexclutable goods

A

free riding because you cannot exclude people from consuming the good who has not paid for it

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29
Q

What can change a nontrivial good to a rival good

A

crowding, for example college or a drinking fountain

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30
Q

indy indépendance

A

it does not matter if the buyer or selling is taxed but the burden depends on the elasticity of demand

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31
Q

budget equation when you cannot borrow

A

B>or equal to PyQy+PxQx

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32
Q

budget equation when you can borrow

A

B= Pp*Qp+Pm+Qm

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33
Q

slope of the budget line

A

-Px/Py

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34
Q

Budget line definition

A

a line that shows the amount of goods X and Y that would be possible to purchase, based on the prices of X and Y and the consumers budget

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35
Q

budget line equation

A

Y= -Px/Py + B/Py

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36
Q

As prices rise in my consumption bundle

A

real incomes fall

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37
Q

as prices fall in my consumption bundle

A

real incomes rise

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38
Q

If a price of one good increase that means my budget line would

A

shift on only one axis to the left

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39
Q

Whenever the budget constraint is closer to the origin

A

there is a decrease in real income

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40
Q

equation to graph the x and y intercept on a budget graph

A

budget/ price of good x or y

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41
Q

Real incomes increase when

A

you can afford more

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42
Q

real income decreased when

A

you can afford less

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43
Q

If your whole budget increases then

A

the whole curve shifts right parallel to the original curve

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44
Q

Business firm

A

an organization owned and operated by private individuals the specialize in production

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45
Q

Production

A

a process of combining inputs to make outputs

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46
Q

Example of Inputs going into an output

A

glass, tires, metal, sound system -> production processs -> car

47
Q

Sole proprietorship

A

a firm owned by a single individual

48
Q

Partnership

A

a firm owned and usually operated by several individuals who share profits and bear personal responsibility of any loses

49
Q

corporation

A

a firm owned by those who buy a share of stocks and whose liability is limited to the amount of their investment in the firm. This allows a business to grow but also lets people be apart of the corporation (buying a share of apple)

50
Q

Advantages of a sole proprietorship and partnership

A

simple to set up, limited bureaucracy, owner of firm is also a manager, single taxation (taxed only once, profits of firm are considered part of the household)

51
Q

Disadvantages of sole proprietorship and partnership

A

difficult to raise funds, hard to continue after owner dies or retires, full liability of owner to any loss, law suit, etc (comes for house or car or etc)

52
Q

Advantages of a corporation

A

easier to raise funds, easier to continue after a death or retirement, limited liability.

53
Q

disadvantages of a corporation

A

difficult top set up, more bureaucracy (more paperwork, corporate obligations, etc), dual taxation, incentives of managers may not be the same as owner.

54
Q

Principle agent problem

A

when the principle(boss) and agent (workers) do not have aligned incentives or morals.

55
Q

how do you help the principle agent problem

A

aligning the interests of both the principal and the agent and removing any conflict of interest. example giving a kid money for good grades, or a graded A-F system to get students to work are and study information.

56
Q

Corporate head of directors set up

A

board of directors (12) -> CEO -> CFO, COO,CMO, CIO

57
Q

Production function

A

for each different combination of inputs, the production function shows the maximum quantity of output a firm can produce over some period of time

58
Q

Technology

A

method by which inputs are combined to produce a good or service

59
Q

Fixed input

A

an input whose quantity must remain constant regardless of how much is produced. Example rent because it does not change

60
Q

Variable input

A

an input whose usage can vary as the level of output varies. Examples are employment, raw materials, wages

61
Q

Long run

A

time horizon long enough for a firm the vary all of its inputs. Ex, all costs are variable because costs can change over a long amount of time

62
Q

Short run

A

time horizon over which at least one output does not vary, Ex some fixed costs, example a testing period for a company

63
Q

Total product (Q)

A

maximum quantity of output that can be produced from a given from a given combination of outputs

64
Q

Marginal Product of Labor (MPL)

A

change in total product caused by a one unit increase in labor input

MPL=change in quantity/change in labor

65
Q

Average Product of Labor (APL)

A

Average amount of output produced by a worker

APL= Q/L

66
Q

What are inputs of a computer lab

A

Labor (computer specialist)
Capital (office, desk, chairs, telephone, software)

67
Q

What are the outputs of a computer lab

A

designed website

68
Q

what happens when the marginal Product of Labor (MPL) is less then the Average Product of Labor(APL)

A

It brings the average down

69
Q

we assume the following about preferences

A

people have preferences, they are logical, and more is preferred to less

70
Q

Marginal Rate of Substitution (MRS)

A

Of good Y for good X tells the maximum amount of Y a consumer would be willing and able to give up for one more unit of X

71
Q

When the MRS is declining it shows

A

the principle of diminishing marginal rate of substitution

72
Q

As we move down and to the right along the indifference curve, the amount of Y we are willing to give up for one unit of X is caused by

A

satiation

73
Q

the optimal point will conform to the following two conditions

A

On the budget line (the budget becomes a binding constraint)

on the indifference curve farthest from the origin

74
Q

On a nice indifference curve were does the optimal bundle occur

A

tangency of the budget line

75
Q

Corner solution

A

when a consumer has a extreme preference on a good (will be in the corner of the graph)

76
Q

Quantity demand of a indifference curve is where on the graph

A

where the budget and indifference curve meets

77
Q

Why would the production function increase by a increasing rate(increasing returns)

A

there could be gains from specialization or matching of the variable input and fixed input

78
Q

Why would the production function increase by a diminishing rate or return

A

the gains from specializing and matching of variable input and fixed input are declining as it becomes more saturated

Example: if you are specializing and matching labor (variable input) and computers (fixed input) are declining because the office becomes saturated with workers (variable input) to the number of computers (fixed input)

Example: the production function would start to decrease if they added a 7th worker because of bureaucracy and lack of space may become so great that adding another worker may reduce the total output

79
Q

Law of Diminishing Returns

A

as more and more of any input is added to a fixed amount of other inputs, the marginal product will start to decline

80
Q

Sunk Cost

A

a cost that has been paid or must be paid regardless of any future action being considered

Example: deposit to go to USD

81
Q

Explicit Cost

A

Money actually paid out for the use of inputs, you need to see the visible receipt and were money actually changes hands

Example: rent paid out, loans, interest paid, wages, salaries

82
Q

Implicit costs

A

the cost of inputs for which there is no direct money payment, costs are actually given up but no money changes hands

Example: foregone rental income from ownership of a property or foregone interest income from lending or investing a sum of money, Owner contributes to costs for there own firm

83
Q

What type of cost should not matter in a production decisions

A

sunk costs

84
Q

What type of cost should matter in a production decision

A

implicit and explicit

85
Q

Fixed cost

A

cost of fixed inputs

86
Q

variable cost

A

cost of variable inputs

87
Q

Total Cost equation

A

FC+VC=TC

88
Q

Average fixed cost equation

A

FC/Q=AFC

89
Q

Average variable cost equation

A

FV/Q=AVC

90
Q

Average total cost equation

A

TC/Q=ATC

91
Q

Marginal cost equation

A

change in TC/change in Q= MC

92
Q

Fixed costs do not vary so the fixed cost is perfectly….

A

horizontal and positive

93
Q

change in TC/change in Q= MC is also the

A

slope

94
Q

If marginal cost is increasing the marginal production is

A

decreasing and vis versa

95
Q

ATC=

A

AFC+AVC

96
Q

The MC curve cuts the AVC and AFC curves at there what point

A

minimum point

97
Q

is the long run total cost less then or greater then the total cost

A

less then or equal to the TC

98
Q

Where is the minimum effect scale in the LRTC

A

at the minimum of the LRTC curve

99
Q

Economies of scale

A

long run average total cost decreases as output increases (0 -> Q2) in an economy of scale there are many small firms in a economy

100
Q

Diseconomies of scale

A

LRATC increases as output increases (Q2 or higher)

101
Q

Constant returns to scale

A

when the LRATC is unchanged as output increase (flat)

102
Q

Natural monopoly has many

A

room for only one firm and the LRATC curve and D curve will intersect

103
Q

Oligopoly has

A

a market of few large firms

Example: If the demand is 100,000 and a firm can only produce 25,000 of a product then there is room for 4 firms

104
Q

Market with coexisting small and large firms example

A

a orange grove, gap and Macys compared to local department stores (graph will look like a weird U were the bottom is horizontal for a second) n

105
Q

Acounting costs

A

only considered explicit costs

106
Q

Economic costs

A

consider both implicit and explicit cost

107
Q

Profit equation

A

Total revenue -TC or Price*quantity-TC

108
Q

Accounting profits

A

TR-accounting costs

109
Q

Economic profits

A

TR- Economic costs

110
Q

Largest profit occurs when

A

TC and TR are farthest away

111
Q

In short run, forms need to be able to generate revenue that is

A

equal or greater then their AVC

112
Q

In Long run, firms need to be able to generate revenue

A

equal or greater then their ATC

113
Q
A

Econ 101 (6 decks)

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