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Economics Quiz 2 > Exam > Flashcards

Exam Flashcards

1
Q

Definition of utility

A

satisfaction

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2
Q

Definition of law of diminish marginal utility

A

states that beyond a certain quantity, additional units of a specific good will yield declining amounts of extra satisfaction to a consumer.

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3
Q

Definition of marginal utility

A

extra satisfaction

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4
Q

Definition of theory of consumer behavior

A

rational behavior, preferences, budget constraint, prices.

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5
Q

Utility maximizing rule

A

Consumer allocates his or her income so that the last dollar spent on each product yields the same amount of extra (marginal) utility

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6
Q

Utility maximizing formula

A

mu of product A/price of a = mu of product b/price of B

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7
Q

The 3 reasons why demand curve is down sloping. (lots of question related to this)

A
  1. The ability of people to substitute their demand for a good with another when price rises and vice versa. Aka Substitution Effect.
  2. Law of Diminishing Marginal Utilility. For every successive amount you consume your satisfaction will at first increase and then increase at an decreasing rate and finally decrease. Hence the negative nature of the slope.
  3. Amount of consumers of the good in question. If you raise prices fewer consumers can buy the goods, and vice versa. Hence the downwards sloping demand curve. Aka Income Effect.
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8
Q

Definition of behavioral economics

A

the branch of economics that combines insights from economics, psychology, and neuroscience to better understand those situations in which actual choice behavior deviates from the predictions made by earlier theories.

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9
Q

Definition of framing effects

A

because people evaluate situations in terms of gains and losses, their decision-making can be very sensitive to the mental frame that they use to evaluate whether a possible outcome should be viewed as a gain or loss.

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10
Q

Definition of anchoring

A

irrelevant information can anchor decisions.

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11
Q

Definition of mental accounting

A

looking at consumption options in isolation, thereby irrationally failing to look at all their options simultaneously.

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12
Q

Definition of endowment effect

A

tendency people have to put a higher valuation on anything that they currently possess than on identical items that they do not own but might purchase.

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13
Q

Example of implicit cost

A

non monetary

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14
Q

What is the total cost for an economist

A

explicit and implicit costs, including a normal profit

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15
Q

Difference between implicit and explicit costs.

A

implicit- non monetary

explicit- monertary

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16
Q

What is accounting profit?

A

The total revenue minus costs. Total Sales Revenue-Total explicit cost.

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17
Q

What is economic profit?

A

revenue-explicit+implicit costs=economic profit

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18
Q

What is normal profit?

A

minimum level of profit needed for a company to remain competitive in the market.

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19
Q

What is the formula to find economic profit?

A

revenue-explicit+implicit costs=economic profit

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20
Q

What is the difference between short run and long run?

A

short run has fixed costs, in the long run everything is variable.

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21
Q

Example of short run.

A

variable costs

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22
Q

Do you believe short run and long run are specific calendar time and are the same for all industry.

A

nope

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23
Q

Characteristic of short run.

A

short run, in which some factors are variable and others are fixed, constraining entry or exit from an industry.

24
Q

Characteristics of long run.

A

the long run is the conceptual time period in which there are no fixed factors of production as to changing the output level by changing the capital stock or by entering or leaving an industry.

25
Q

Definition of Marginal Product

A

extra output or added product associated with adding a unit of a variable resource.

26
Q

Definition of law of diminishing marginal returns.

A

assumes that technology is fixed and this the techniques of production do no change. successive units of a variable resources are added to a fixed resources beyond some point the extra, or marginal, product that can be attributed to each addition unit of the variable resource will decline.

27
Q

Calculation of marginal product

A

change in total product/change in labor input

28
Q

Definition of fixed costs

A

cost that do not vary with changes in output.

29
Q

Example of variable cost

A

costs that change with level of output (payment for materials, fuel, power, etc)

30
Q

Example of fixed cost for a business

A

rental, interests debts, insurance premiums

31
Q

Formula of marginal cost

A

change in total cost/change in output=change in total cost/quantity

32
Q

Does average fixed cost increase of decrease when output decreases.

A

decreases

33
Q

Calculation of average cost

A

TC/Q

34
Q

Formula for Average Fixed cost

A

divide total fixed cost by quantity. TFC/Q

35
Q

Formula for average fixed cost

A

divide total fixed cost by quantity. TFC/Q

36
Q

Does fixed cost increase or decrease when output increase or decrease?

A

neither.

37
Q

Do we have fixed cost in the long run or short run?

A

short run

38
Q

Calculation of total cost

A

TC=TFC+TVC

39
Q

Calculation of average total cost

A

TC/Q= AFC+AVC

40
Q

When output increases does ATC increase or decrease?

A

decrease

41
Q

Definition of diseconomies of scale

A

Diseconomies of scale are the forces that cause larger firms and governments to produce goods and services at increased per-unit costs. The concept is the opposite of economies of scale. The rising part of the long-run average cost curve illustrates the effect of diseconomies of scale.

42
Q

Definition of economies of scale

A

a proportionate saving in costs gained by an increased level of production.

43
Q

Definition of minimum efficiency scale

A

the minimum efficient scale is defined as the lowest production point at which long-run total average costs (LRATC) are minimized.

44
Q

Definition of natural monopoly

A

A natural monopoly is a monopoly in an industry in which it is most efficient (involving the lowest long-run average cost) for production to be concentrated in a single firm.

45
Q

Difference between price taker and price maker. In which market structure do we find them?

A

Price setters are those companies that dictate the price its customers pay for goods and services. Price takers are those companies that cannot dictate their prices but their prices are dependent.

price taker- perfect or pure competition market

price makers- monopoly

46
Q

Marginal revenue definition

A

marginal revenue (R’) is the additional revenue that will be generated by increasing product sales by 1 unit. It can also be described as the unit revenue the last item sold has generated for the firm.

47
Q

The output level that maximized profit MR=MC may be applied to which industry or market structure.

A

monopoly

48
Q

Definition of break even.

A

reach a point in a business venture when the profits are equal to the costs.

49
Q

Definition of profit maximizing output rule

A

Marginal product of labor, marginal revenue product of labor, and profit maximization[edit] The general rule is that firm maximizes profit by producing that quantity of output where marginal revenue equals marginal costs.

50
Q

What is the main reason a firm enter an industry?

A

profit

51
Q

What is constant cost industry?

A

An industry in which costs of the most efficient size firm remain constant as the entire industry expands or contracts in the long run.

52
Q

What is decreasing cost industry?

A

The industry for a commodity (good or service) is termed a decreasing cost industry if the long-run supply curve of the commodity is downward-sloping. In other words, an increase in the quantity produced leads to a decrease in the price per unit.

53
Q

What is increasing cost industry?

A

An industry for which the costs of production increase as the number of companies involved with that industry increases. This happens because each new company in the industry increases demand for supplies and factors needed for production. Increasing-cost industries tend to require goods or services for production that are inelastic in supply.

54
Q

Difference between productive efficiency and allocative efficiency and what is the formula for both?

A

Productive efficiency is when resources are used the best way to produce a given output. So that means output is produced at the lowest cost. When this efficiency increases it means that, for example, each farm can produce more apples than before.

Allocative efficiency is when resources are used in the way consumers wish for them to be. this is where MB=MC. If consumers want 5000 apples and 8000 oranges, and each farm produces 1000 pieces of fruit, then there will be 5 farms producing apples and 8 producing oranges

55
Q

What is creative destruction?

A

something new kills something older

Economics Quiz 2 (1 decks)

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