Economics- Midterm Flashcards
Diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases
Production possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
Market
A market is a group of buyers and sellers of a particular good or service. The buyers as a group determine the demand for the product, and the sellers as a group determine the supply of the product.
competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
Quantity demanded
Amount of a good that buyers are willing and able to purchase
Law of demand
All other things being equal, the QUANTITY demanded of a good FALLS when the PRICE of the good RISES
which way does the demand graph slope? Why?
Downwards, because other things being equal, lower P= greater Q demanded
What are some variables that SHIFT the demand curve?
1) Income
a. Lower income= less money you have to spend in total→ therefore less to spend on goods
2) Price of related goods
a. Substitutes
i. Fall in price of one good reduces demand for another good
ii. E.g. almond milk and cow’s milk
b. Complements
i. Fall in price of one good raises demand for another good
ii. E.g. cereal and milk
3) Tastes
4) Expectations
a. Expectations about the future may affect demand for a good or service today
b. E.g. if you expect to earn a higher income next month→ you may choose to save now and spent more later
5) Number of buyers
a. The greater the number of buyers, the Q demanded in the market would be HIGHER at every price and market demand would INCREASE
What causes movement along the demand curve?
A change is price
quantity supplied
The amount of a good that sellers are willing and able to sell
Supply curve
A graph of the relationship between the price of a good and the quantity supplied
Equilibrium
A situation in which the market price has reached the level at which quantity supplied equals quantity demanded
Equilibrium quantity
The quantity supplied and the quantity demanded at the equilibrium price
Equilibrium price
The price that balances quantity supplied and quantity demanded
Efficiency
The property of society getting the most it can from its scarce resources
Opportunity cost
Whatever must be given up to obtain some item
Market failure
A situation in which a market left on its own fails to allocate resources efficiently
Externality
The impact of one person’s actions on the well being of a bystander
Market power
The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
Productivity
The quantity of goods and services produced from each unit of labor input
Substitutes
Two goods for which an increase in the price of one leads to an increase in the demand for the other
Complements
Two goods for which an increase in the price of one leads to a decrease in the demand for the other
Surplus
A situation in which quantity supplied is greater than quantity demanded
Shortage
A situation in which quantity demanded is greater than quantity supplied
Budget constraints
The limit on the consumption bundles that a consumer can afford
Marginal rate of substitution
The rate at which a consumer is willing to trade one good for another.
The marginal rate of substitution between two goods depends on their marginal utilities.
Indifference curve
A curve that shows consumption bundles that give the consumer the same level of satisfaction
Total revenue
The amount a firm receives for the sale of its output
Total cost
The market value of the inputs a firm uses in production
Profit
Total revenue minus total cost
Explicit costs
Input costs that require an outlay of money by the firm
Implicit costs
Input costs that do not require an outlay of money by the firm
Fixed costs
Costs that do not vary with the quantity of output produced
Variable costs
Costs that vary with the quantity of output produced
Average total costs
Total cost divided by the quantity of output
Average fixed costs
Fixed cost divided by the quantity of output
Average variable costs
Variable cost divided by the quantity of output
Marginal cost
The increase in total cost that arises from an extra unit of production
Diminishing marginal utility
The more of the good the consumer already has, the lower the marginal utility provided by an extra unit of that good.
Marginal utility
The extra utility gained from consuming one more unit of a good, holding others constant. Utility is a measure of the satisfaction from consuming goods.
Marginal rate of transformation
The slope of the production possibilities curve, and the rate at which society can transform one good into another.
Marginal Rate of Technical Substitution
The amount of one factor of production given up per unit increase in another factor of production, while maintaining the same level of output.
Production function
The relationship between the maximum output that can be produced corresponding to any combination of factor inputs.
Price elasticity of demand
The percentage change in quantity demanded resulting from a 1 percent change in price.
Price elasticity of supply
The percentage change in quantity supplied resulting from a 1 percent change in price.
Perfect competition
A market structure with (1) numerous buyers and sellers, (2) perfect information, (3) free entry and exit, and (4) a homogeneous product
Deadweight loss
A measure of the net loss of society’s welfare resulting from a misallocation of resources, usually situations in which the marginal benefits of a good do not equal marginal costs
Public good
A good (e.g., national defense) that no one can be prevented from consuming, (i.e., nonexcludable) and that can be consumed by one person without depleting it for another (i.e., nonrival). The marginal cost of providing the good to another consumer is zero
Monopoly
Situations in which a firm faces a negatively sloped demand curve. In a pure monopoly, no other firm produces a close substitute for the firm’s product. The demand curve facing the monopolist is the market demand curve.
Monopsony
Situations in which a firm faces a positively sloped supply curve in the product or factor market because it is the only buyer. The supply curve facing the monopsonist is the market supply curve.
Technical efficiency
occurs when the firm produces the maximum possible sustained output from a given set of inputs
Allocative efficiency
situations in which either inputs or outputs are put to their best possible uses in the economy so that no further gains in output or welfare are possible
