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MBA > Fundamentals of Economics > Flashcards

Fundamentals of Economics Flashcards

1
Q

Define Buyers and Sellers (Market Participants)

A

Refers to who is included and who is excluded from a particular market

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2
Q

What do Market Participants do?

A

Households, Firms, or Government that…

Provide Demand - Those who buy Goods and Services

Provide Supply - Those who sell goods and services

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3
Q

What is Demand

A

How much people want to buy.

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4
Q

What are the “determinates of demand”

A

Price
Tastes (preference)
Income
Related goods (Substitute Items)
Future Price Expectation

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5
Q

What makes up the Demand Function?
(Qd - function(Pi, Y, T, Ps, Pc, Pe)

A

Quantity = the function of (Price of an item, Income, Tastes (preferences), price of substitutions, price of compliment items, price expected)

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6
Q

What is Quantity Demanded

A

The amount of a good or service that people are willing and able to buy at various prices, (centers paribus)

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7
Q

What is the Law of Demand

A

Price and Quantity demanded are negatively related, centers parades

as prices rise, quantity demanded drops and visa versa.

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8
Q

Market Demand Curve

A

Will be a downscoping line that is the Sum of all individual demand curves at each price

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9
Q

What defines an increase in demand

A

Any change in the world (Other than price) that will cause people to want to buy more of the good or service)

(Same line slope shifts to the right)

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10
Q

What defines a decrease in demand

A

Any change in the world (other than price) that will cause people to want to buy less of the good or service

(Same line slops shifts to the left)

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11
Q

What is Elasticity

A

Measure of the responsiveness of one variable to changes in another variable.

The Sensitivity of one variable when related to variable changes value

Specifically, it measures the % change in one variable when another variable changes by 1%

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12
Q

What is Own Price Elasticity?

A

The % Change in Qd (demand) in response to a 1% Change in price of the product

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13
Q

What is Cross Price Elasticity

A

The % Change in Qd (demand) in response to a 1% Change in the Price of a related good

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14
Q

What is Income Elasticity

A

The % change in Qd(demand) in response to a 1% Change in income

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15
Q

What is Price Elasticity of Demand (Ed)

A

The responsiveness of Qd (demand) to changes in P (Price)

Ed = ((%change Qd) / (%change P))

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16
Q

What are the three possible relationships between Qd (demand) and P (price)

A

Elastic - Responsive
Inelastic - Unresponsive
Unit Elastic - Change is the same percentage

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17
Q

Calculating Elasticity

A

Arc Method

Ed = %change Q / %change P

%change Q = (Change in Qd / Average Qd) x 100

%change P = (Change P / Average P) x 100

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18
Q

What does price elasticity of demand mean for me and my business?

A

What will happen to my total revenue if I change price?

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19
Q

Revenue Formula

A

Revenue = Price * Quantity

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20
Q

What is Supply

A

How many units you want to produce

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21
Q

What are the determinants of supply?

A

Price
Technology of production
prices of inputs
Expected future price of the good

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22
Q

What makes up the supply Function?
Qs = function(Pi, A, Pinputs, Pe)

A

Quantity of Supply
Price of the item
Technology (A)
Price of Inputs
Expected future Price

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23
Q

What is quantity supplied

A

the amount of a good or service that sellers are willing and able to produce(sell) at various prices, ceteris paribus

24
Q

What is the Law of Supply?

A

Price and quantity supplied are positively related

as prices rise, quantity rises and visa versa

25
Q

What is the Market Supply Curve?

A

an upscoping line that is the sum of all the individual supply curves we find in the market

26
Q

What is Market Equilibrium

A

Where the supply and demand curves cross.

there are no forces changing the price. Sellers can sell as much as they want and buyers can buy as much as they want.

27
Q

Why do we use a supply and demand model?

A

Explain how prices of things are determined
Explain how quantities of things are determined
Explain how we allocate those things

28
Q

What is a market

A

a collection of buyers and sellers that determine the price and amount of goods/services/resources

29
Q

What is a “Competitive Market”

A

Many buyers competing to buy the good
many sellers competing to sell the good
nearly identical products or services
relatively inexpensive to enter/exit the market

30
Q

What are the four types of markets

A

Output markets - goods and services
Input markets - factors of production
Financial markets - credit markets
foreign exchange markets
illegal markets

31
Q

What is “market definition”?

A

Who is included and excluded from a particular market. How broad or narrow a market is?

ex. automobiles, new auto mobiles, new cars, new sedans, entry level luxury sedans, etc…

32
Q

How do markets find equilibrium

A

They find their way through surpluses and shortages

33
Q

who pushes price toward equilibrium

A

naturally, through forces

34
Q

which side of the market has the most power over the price?

A

.. that depends

35
Q

What drives sales demand?

A

Price. but also income, change in taste, change in complimentary goods, changes in substitutes

36
Q

What drives sales supply

A

Price. but also price of inputs, technology of production, worker productivity

37
Q

What are explicit costs?

A

Costs the require an actual outlay of money

38
Q

what are implicit costs

A

costs that do not require an actual money outlay (Opportunity costs)

39
Q

What are accounting costs

A

explicit costs

40
Q

what are economic costs

A

explicit costs + implicit costs

41
Q

What is “Production Function”

A

a relationship between the quantity of inputs and the quantity of outputs

42
Q

What are the parts of the production function?
Q - Af(L,K)

A

Quantity of output
Current level of Technology (A)
Amount of Labor
Amount of physical Capitol (K)

43
Q

What is a short run

A

The amount of time such that at least one input is held fixed (usually easier to change Labor)

44
Q

what is long run

A

the amount of time such that all inputs are free to vary (no inputs fixed)

45
Q

What is the marginal production function

A

shows the additional amount of output generated from increasing 1 input by 1 unit and holding the other inputs fixed

46
Q

What is the marginal produce of labor

A

the short run relationship between output and labor, holding other inputs fixed.

one increase in output if labor is increased by 1 unit, holding other inputs fixed

47
Q

What are diminishing returns?

A

the inputs stay the same, but the output gets less

48
Q

What are the short run costs?

A

Fixed costs - costs that don’t change with output changes

Variable costs - costs that do change with output changes

Total Costs - fixed plus variable costs

49
Q

What is marginal cost?

A

the additional cost from producing 1 more unit of output

MC = (change TC) / (change Quantity)

50
Q

What is the short run “big idea”

A

to increase production, you have to hire more workers. eventually those workers becomes less productive. That causes each unit progressively more expensive and it costs you more over time

51
Q

What are long run costs?

A

all inputs are variables - none are fixed

One total cost
One Average Cost

52
Q

what is Long Run Average Cost

A

Traces of the lowest possible short run cost curves

53
Q

What is Increasing returns to scale (IRS)

A

if you double output, total costs are declining

54
Q

what is constant returns of scale (CRS)

A

if you double output, total casts are constant

55
Q

What is decreasing returns of scale (DRS)

A

if you double output, total costs are increasing

56
Q
A

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