Economics: Microeconomics Flashcards
Accounting Costs
Monetary value of economic resources used in performing an activity. The can be explicit out of pocket current payment or an allocation of historical payments (depreciation) for recourses. They do not include implicit opportunity costs
Accounting Profit
Income as reported on the income statement, in accordance with prevailing accounting standards, before the provisions for income tax expense
Average Fixed Cost
Total Fixed Cost divided by quantity produced
Average product
Measures the productivity of inputs on average and is calculated by dividing total product by the total number of units for a given input that is used to generate that output
Average Revenue
Total revenue divided by quantity sold
Average total cost
Total cost divided by quantity produced
Average variable cost
Total variable cost divided by quantity produced
economic cost
The number of units is produced and sold at which the companies net income is zero (Revenues = total cost) in the case of perfect competition, the quantity at which price average revenue and marginal revenue equal average total cost
Compliments
Goods that tend to be used together; technically, two goods whose cross-price elasticity of demand is negative
Cross-price elasticity of demand
The percentage change in quantity demanded for a given change in the price of another good; the responsiveness of the demand for product A that is associated with the change in price of product B
Decreasing returns to scale
When a production process leads to increases in output that are proportionally smaller than the increase in inputs
Demand Curve
Graph of the inverse demand function. A graph showing the demand function, either the highest quantity willingly purchased at each price or the highest price willingly paid for each quantity
Demand Function
A relationship that expresses the quantity demanded of a good or service as a function of own-price and possibly other variables.
Diseconomies of Scale
Increase in cost per unit resulting from increases production
Economic Costs
All the renumeration needed to keep a productive resource in its current employment or to acquire the resource for productive use; the sum of total accounting costs and implicit opportunity costs
Economic loss
The amount by which accounting profit is less than normal profit
Economic Profit
Equal to accounting profit less the implicit opportunity costs not included in total accounting costs; the difference between total revenue and total cost
Economies of Scale
Reduction in cost per unit resulting from increased production
Elastic
Said of a good or service when the magnitude of elasticity is greater than one
Elasticity
The percentage change in one variable for a percentage change in another variable; a general measure of how sensitive one variable is to a change in the value of another variable
Elasticity of Demand
A measure of density of the Quantity demanded to a change in the products own price %ChangeQ/%ChangeP
Elasticity of Supply
A measure of the sensitivity of quantity supplied to a change in price %changeQ/%changeP
Giffen Goods
Goods that are more as the price of the good rises because it is a very inferior food whose income effect overwhelms its substitution effect when price changes
Increasing marginal returns
When the marginal product of a resource increases as additional units of that input are employed
Increasing returns to Scale
When a production process leads to increases in output that are proportionally larger than the increase in inputs
Inelastic
Said of a good or service when the magnitude of elasticity is less than one. Insensitive to price changes
Inferior Goods
A good whose consumption decreases as income increases
Input productivity
The amount of output produced by workers in a given period of time-for example, output per hour workers; measures the efficiency of labor
Inverse Demand Function
A restatement if the demand function in which price is stated as a function of quantity
Law of Demand
The principle that as the price of a good rises, buyers will choose to buy less of it and as price falls, they will buy more.
Law of Diminishing Marginal Returns
The observation that a variables factors marginal product must eventually fall as more of it is added to a fixed amount of the other factors.
Long-run average total cost
The curve describing average total cost when no costs are considered fixed.
Macroeconomics
The branch of economics that deals with aggregate economic quantities, such as national output and national income.
Marginal Cost
The cost of producing an additional unit of a good
Marginal product
Measures the productivity of each unit of input and is calculated by taking the difference in total product from adding another unit of input (assuming other resources quantities are held constant).
Marginal Revenue
The change in total revenue divided by the change in quantity sold; simply the additional revenue from selling one more unit
Microeconomics
The branch of economics that deals with markets and decisions making of individual economic units, including consumers and businesses
Minimum efficient scale
The smallest output that a firm can produce such that its long run average total cost is minimized
Normal goods
Goods that are consumed in greater quantities as income increases
Normal Profit
The level of accounting profit to just cover the implicit opportunity costs ignores in accounting costs
Opportunity Cost
The value that investors forgo by choosing a particular course of action; the value of something in its best alternative use
Own Price
The price of a good or service itself (as opposed to the price of something else.
Own-price elasticity of demand
The percentage change in quantity demanded for a percentage change in goods own price, holding all other things constant
Perfectly elastic
When the quantity demanded or supplied of a given good is infinitely sensitive to a change in the value of a specified variable (e.g. price )
Perfectly inelastic
When the quantity demanded or supplied of a given good is completely insensitive to a change in the value of a specified variable (e.g.,price).
Quasi-fixed cost
A cost that stays the same over a range of production but can change to another constant level when production moves outside of that range
Real Income
Income adjusted for the effect of inflation on the purchasing power of money. Also known as the purchasing power of income. If income remains constant and goods price falls, real income is said to to rise, even through the number of monetary units (eg dollars) remains unchanged.
Short-run average total cost
The curve describing average total cost when some costs are considered fixed
Shutdown point
The point at which average revenue is equal to the firms average variable cost.
Substitutes
Said of two goods or services such that if the price of one increases the demand for the other tends to increase, holding all other
things equal. (E.g butter and margarine)
Total cost
The summation of all costs for which costs are classified as fixed or variable.
Total fixed cost
The summation of all expenses that do not change as the level of production varies
Total Variable Cost
The summation of all variable expenses
Unit Elastic
An elasticity with a magnitude of -1
Variable costs
Costs that fluctuate with the level of production and sales
Veblen goods
Goods that increase in desirability with increasing price
