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AP Micro > general review > Flashcards

general review Flashcards

1
Q

what are the shifters for demand

A

INEPT:
income
number of buyers
expectations of future prices
price of related goods
tastes and preferences

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2
Q

Supply shifters:

A

NITE
Number of sellers
Input prices
technology
expectations of future prices

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3
Q

Traditional economy

A

the production, distribution, and consumption of goods and services are guided by cultural norms and values that have been passed down through generations (Amish community)

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4
Q

Command economy (communism)

A

resources and businesses are owned by the government. The government decides what goods and services will be produced and what prices will be charged for them

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5
Q

market economy (capitalism)

A

individual entrepreneurs decide what to produce and how to produce it
they make decisions based on supply and demand

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6
Q

what does a linear PPC curve mean

A

opportunity costs are constant

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7
Q

what does a concave PPC curve mean

A

when opportunity costs increase as production of a good increases

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8
Q

reasons why demand curve is downward sloping

A
  • income effect
  • substitution effect
  • diminishing marginal utility
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9
Q

TR > TVC

A

firm will operate and loss will be < FC

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10
Q

TR < TVC

A

firm will temporarily shut down

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11
Q

accounting profit is always higher than economic profit

A

true

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12
Q

if firm is making zero economic profit, they are still making…

A

accounting profit

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13
Q

what does a lump sum subsidy effect in the short run

A

only FC not MC or MR

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14
Q

long run

A

all inputs ( labor and capital ) are variable including FC
- allows for greater flexibility in production choices

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15
Q

short run

A

at least one input is fixed
- because firms are only able to influence prices through production-level adjustments

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16
Q

MP increase, and TP increase
at an increasing rate, its called

A

increasing returns ( upward sloping part of the upside down MC curve which is the MP curve )

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17
Q

MP decrease, and TP increase at decreasing rate, is called

A

diminishing returns

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18
Q

MP negative (below x-axis), and TP decrease is called

A

negative returns

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19
Q

shifters for Demand for labor

A

NSPE
1. # of consumers
2. substitutes
3. productivity of workers -> can change through gov. regulation (Lower MRP)
4. Education (higher MRP)

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20
Q

shifters for supply of labor

A

LNATI
1. Leisure Time
2. # of alternatives
3. age distribution
4. Time spent on education
5. Immigration, # of people available to work

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21
Q

characteristics of monopsonistic factor market

A
  1. one buyer of labor, on competition
  2. wage makers
  3. always hire fewer quantity of workers, also lower wage rate
  4. high barriers to entry
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22
Q

why does monopsonistic factor makers pay lower wages and hire fewer workers than perf comp

A

because they price from MRP = MFC DOWN to the supply curve

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23
Q

short run MC eventually increase because of the effect of

A

diminishing marginal product

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24
Q

compared to perfect competition, a monopoly price and output are

A

price is higher and output is lower

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25
Q

In a perfectly competitive labor market, an increase in an effective minimum wage will result in

A

decrease # of workers being hired

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26
Q

the three types of taxes that can fix inequality

A

progressive tax
proportional tax
regressive tax

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27
Q

what is regressive taxes

A

a tax where the proportion of income paid in taxes decreases as income rises

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28
Q

what are porpotional taxes

A

everyone pays the same regardless of the level of income

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29
Q

what are progressive taxes

A

proportion of income paid in taxes rises as income rises

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30
Q

formula for utility maximization

A

MUx/Px = MUy/Py

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31
Q

rate of change formula

A

(new - old / old) x 100 = %

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32
Q

price elasticity of demand formula

A

%changeQD / %changeP

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33
Q

price elasticity of supply formula

A

%changeQS / %changeP

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34
Q

income elasticity formula

A

%changeQD / %changeIncome

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35
Q

cross price elasticity formula

A

%changeQD of good X / %changeP of good Y

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36
Q

what is the difference between ATC and AVC equal to

A

AFC

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37
Q

if TR > TC, firm is earning

A

economic profit

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38
Q

if TR = TC, firm is earning

A

normal profit

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39
Q

if TR , TC, firm is earning

A

economic loss

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40
Q

is MR > MC, firm should

A

produce more output as long as MR curve is greater than MC curve

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41
Q

if MR < MC, firms should

A

produce less output, If MC curve is greater than MR curve

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42
Q

D > MR in what competition

A

imperfect, monopolistic

43
Q

Possible Outcomes for oligopoly

A
  1. Tacit Collision
    - firms making decisions without direct communication
  2. Cartel Covert Collision
    - communicate openly to create an up to 4 firm monopoly (illegal activity)
  3. Strategic choice/ game theory
    - companies make decisions by weighing decisions of other companies
  4. stable pricing over time
    - price will stabilize overtime
44
Q

what does a lump sum tax change

A

only changes fixed costs, has no effect on MC therefore there is no effect on the quantity produced in the market by a lump sum tax

45
Q

how do you fix a negative externality

A

taxation

46
Q

how do you fix a positive externality

A

a subsidy

47
Q

in marginal analysis, how can you calculate consumer surplus of a unit

A

CS = MB - P
look at MB from the unit you’re looking at and from before it and subtract that from the price of the good.

48
Q

what is a fair return price

A

where price = ATC

49
Q

when is AP of labor at its max

A

when AVC is at its minimum

50
Q

what is the difference between
P < ATC and P < AVC

A

P < ATC: firm is making economic losses, firm will leave industry in long run
P < AVC: why a firm shuts down

51
Q

ways of calculating economic profit

A

TR - ( E.C. + I.C.)
(P - ATC) x Q
TR - TFC - TVC

just profit: TR-TC

52
Q

what is true about a constant cost industry

A

the prices of inputs used to produce a good don’t change when more firms enter the industry
A constant cost industry exists when the entry of more firms has no impact on input prices. Constant cost industries have horizontal long-run supply curves.

53
Q

what are the long run conditions for a monopolistically competitive firm

A

P = ATC, MR = MC, P > MC

54
Q

if TR is increasing as output increase, MR is

A

greater than zero

55
Q

why is a monopoly inefficient

A

produces too little output and sets a price above marginal cost

56
Q

MSC and MSB in a production eternality

A

MSC > MSB

57
Q

MSC and MSB in a consumption externality

A

MSC < MSB

58
Q

allocatively efficient quantity in externalities

A

MSB = MSC

59
Q

what type of goods are common resources

A

non-excludable and rival

60
Q

what will lead to more equal distribution of income

A

more progressive income taxes

61
Q

difference between VC is

A

MC

62
Q

If a monopoly starts practicing perfect price discrimination, how would producer surplus and efficiency in the market change?

A

producer surplus and efficiency both increase

63
Q

when and why will countries trade

A

only when they can get something else at a lower opportunity cost than if they produced it themselves

64
Q

firms specialize in what

A

in what they have comparative advantage in and they are want the other good

65
Q

why does MR = D for perf competition

A

because the firm sells each unit of output at a constant price
which is why the additional revenue earned with an additional unit of output (MR) is equal to the market price.

66
Q

relationship between MR and D for a monopoly

A

monopoly are price setters and so to sell an additional. unit of output they have to lower their price on all units of output.
so the extra revenue earned from selling an additional unit of output is offset by the selling of other units at a lower price.

67
Q

characteristics of natural monopoly

A
  • large fixed costs
  • long economies of scale
  • downward sloping ATC curve
  • production point: MR = MC
  • Government will correct by forcing them to set price : at ATC=D
68
Q

difference between perfect price discrimination and price discrimination

A

Perfect price: MR and Demand merge to now downward sloping curve P = MR = D = AR curve
- produce where P = MC
- no DWL, all turns into producer surplus

69
Q

why is a monopoly allocatively efficient when it perfectly price discriminates

A

because the last unit sold will have a price equal to marginal cost.

70
Q

why does the MR and demand curve merge when a monopoly perfectly price discriminates?

A

the monopolist is able to charge each consumer their maximum willingness to pay,

because we’re able to earn exactly the additional willingness to pay for each additional unit, unlike before.

71
Q

when do diminishing marginal returns start on a graph

A

when MC is at its minimum because the next unit of output will be produced at a higher cost, which results from diminishing returns.

72
Q

there is no producer surplus when

A

the supply curve is perfectly elastic, horizontal

73
Q

the country that has the lower comparative advantage will export that good

A
74
Q

dQD > dP what is demand

A

elastic

75
Q

what happens if a firm decreases wage rate

A

MRP > MFC, so firm will increase the quantity of labor demanded until the marginal revenue product of labor equals its marginal factor cost.

76
Q

What happens to price elasticity of demand as the price of a good increases along a linear demand curve?

A

price elasticity of demand increases

77
Q

although a binding price ceiling is below equilibrium, it is the max price

A

price floor is above equilibrium but it is the minimum price the firm can charge

78
Q

Which types of firms are allocatively inefficient in the long run?

A

A single price monopoly and monopolistic competition both charge a price that exceeds marginal cost, so they are both allocatively inefficient.

79
Q

what type of costs are fixed costs

A

variable costs

80
Q

when does price discrimination occur

A

differences in a product’s price do not reflect difference in costs of production

81
Q

when will a firm continue to operate at a loss

A

when P > AVC so losses are LESS THAN fixed costs, so firm will continue to operate and not shut down

82
Q

how would higher wages effect the supply curve

A

would cause decrease in supply and shift left in supply curve

An increased wage means a higher income, and since leisure is a normal good, the quantity of leisure demanded will go up. And that means a reduction in the quantity of labor supplied.

83
Q

profit maximizing for a natural monopoly

A

MR=MC quantity and price equals up to the demand curve

84
Q

how do per unit subsidy and taxes affect a monopoly graph

A

subsidy: MC shifts down
tax: MC shifts up

85
Q

how to know if you have deadweight loss in imperfect competition

A

P/D<MC

86
Q

how to calculate total net benefit

A

TB - TC

87
Q

how to calculate marginal net benefit

A

MB from that unit - the marginal cost

88
Q

where do you find the price and quantity at which a natural monopolist earns zero economic profit

A

D = ATC

89
Q

how do you calculate a lump sum subsidy

A

(LRATC - Price) x Quantity

90
Q

when a per unit tax is applied in perf comp what changes and what doesn’t

A

MC, ATC, AVC all change
Price doesn’t because firm is price taker

91
Q

when a per unit tax is applied in monopolistic comp what changes and what doesn’t

A

MC, ATC, and Price increase because price maker at MR = MC

92
Q

what does a lump sum tax change

A

only increases ATC, won’t change output level

93
Q

if price of a product decreases what happens in a factor market

A

each firm’s marginal revenue product of labor decreases, which decreases the demand for labor. When the demand for labor decreases, employment decreases.

94
Q

if price of a product increases what happens in a factor market

A

each firms marginal revenue product. increases which increases the demand for labor. when demand of labor increases, marginal revenue product increases to produce at MRP=MFC

95
Q

what happens when demand for labor increases

A

output and employment increase

96
Q

what type of market is a monopsony

A

one buyer of labor and many sellers of labor ( households)

97
Q

why is market supply of labor upward sloping in a monopsony

A

to hire more labor, it must increase the wage it pays to all workers it hires. Therefore, the marginal factor cost of labor for a firm hiring labor in a monopsony market is greater than the supply of labor.

98
Q

why is MFC>S curve in a monopsony

A

firm hires labor in a monopsony market it must increase the wage rate to hire more workers. But every time it does so, it has to pay a higher wage to all workers, not just the additional workers (with the exception of the first worker hired).

99
Q

An entrepreneur has earned enough total revenue to cover her accounting costs, but economic losses are being incurred. What must be true?

A

her accounting profits must be less than her implicit costs

100
Q

what will cause the demand curve for labor to shift

A

its derived demand, so any change in: product price, product demand, and/or productivity of workers

101
Q

what will cause the supply curve for labor to shift

A

of workers, availability of workers, population age, value of leisure time

102
Q

should you impose a lump sum or per unit subsidy on a monopoly

A

per unit because MC will shift down

103
Q

what should you impose on a monopsony to produce where perf comp would

A

S= D, MRP = S

AP Micro (6 decks)

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