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Foundational Biology > Intro micro > Flashcards

Intro micro Flashcards

1
Q

Net benefits is equal to

A

NB = TB - TC
total benefits - total cost

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2
Q

Opportunity cost definition

A

The value lost by not selecting a particular option .

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3
Q

Total opp cost

A

= Direct opp cost + Indirect opp cost

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4
Q

Direct opp cost
Indirect opp cost

A

Direct = Cost of resource that’ll be used in the chosen alternative(EXCLUDES Sunk costs)

Indirect = Benefits - Direct costs of next best alternative action
e.g. Direct cost of A + NB of B = opportunity cost of forgoing B

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5
Q

Absolute advantage

A

Ability to produce a good using FEWER INPUTS than another producer

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6
Q

Comparative Advantage

A

Ability to produce a good at LOWER Opp cost than other producer

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7
Q

Sunk cost

A

Reflects the value of resources used BEFORE making a decision(not considered in OPP cost)

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8
Q

Marginal benefit

A

Increment in total benefit by increasing the level of activity by 1 unit

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9
Q

Marginal cost

A

Increment in total costs by increasing the level of activity by 1 unit

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10
Q

When is Net benefit maximised?

A

MB ≥ MC, if MB is LESS than MC, its not optimal

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11
Q

Does a change in consumer tastes leads to a movement along the demand curve

A

FALSE, it will SHIFT demand not a movement along it.

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12
Q

Increase in price leads to a decrease in qty demanded

A

TRUE, qty demanded and price are inversely related

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13
Q

A decrease in production costs leads to a rightward shift in supply curve

A

TRUE

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14
Q

An increase in price leads to a leftward/upwards shift in the supply curve

A

FALSE, its not a non price determinant doesnt shift curve

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15
Q

Assume that tastes change so that tennis is no longer as desirable to play as it is now . What will happen to market of tennis ball

A

Demand decreases

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16
Q

When does trade occur(refer to MB and MC)

A

When both parties have MB≥MC for BOTH parties

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17
Q

Characteristics of Competitive markets

A

Many sellers with homogenous goods
Sellers are price takes
No barrier of entry
Economic profits are 0 in long run

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18
Q

Law of Demand

A

Price & qty are inversely related ceteris paribus

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19
Q

Law of Supply

A

Price & qty are positively related ceteris paribus

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20
Q

Shifts in supply

A

Technology
Input prices
Price expectations

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21
Q

Elasticity definition

A

The responsiveness of Demand & Supply to changes in price(magnitude of change)

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22
Q

Demand elasticity = 0

A

Perfectly inelastic

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23
Q

Demand elasticity < 1

A

Inelastic

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24
Q

Demand elasticity > 1

A

Elastic

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25
Demand elasticity = 1
Unit elastic(45 degree angle), equally proportional changes when a variable changes
26
Demand elasticity = ∞
Perfectly Elastic
27
Supply elasticity = 0
Perfectly inelastic
28
Supply elasticity > 1
Elastic
29
Supply elasticity < 1
Inelastic
30
Supply elasticity = 0
Unit elastic
31
Supply elasticity = ∞
Perfectly elastic
32
Income elasticities: Normal goods Necessary goods Luxury goods Inferior
Normal goods > 0 Necessary goods 1 > y > 0 Engels law Luxury goods > 1 Inferior goods < 0
33
Cross price elasticity
Substitute goods have E > 0 (+) Complementary goods E< 0 (-)
34
Indirect interventions
Taxes Subsidies
35
Direct controls(Price and qty )
Price ceiling Price floor Quota
36
What is a tax incidence
Both buyers and sellers share burden of tax
37
Asymmetric information
when 1 economic actor knows MORE than the otherE
38
Experience good
- Product/service where features & characteristics arent observable at time of purchase but learns about quality over time - Seller information > buyer E.g. Used cars, hair cut, travel, advice May lead to adverse selection
39
Search goods
Producer/service with features & characteristics that are easily evaluated before purchase E.g. Groceries, toys
40
Credence good
Features and characteristics is difficult to ascertain at time of purchase and CONTINUES to be difficult to ascertain e.g. vitamins, car repair, education
41
Adverse selection
There's asymmetric information and an offer by the informed party reveals NEGATIVE INFORMATION about product being offered
42
Moral hazard
A party engages in risky behavior knowing that another party bears the consequencesT
42
Factors of production
Land Labour Capital
43
Production function
Q = (K, L ) K = Capital L = Land
44
Law of diminishing returns
As input increases in equal increments, a point will be reached where resulting additions lead to output decrease
45
Are short run costs fixed
At least 1 input fixed
46
Are long run costs fixed
All inputs are variable
47
STRC = ?
FC + VC
48
Are capital investments non-sunk?
Depends, if the capital can be sold then a % of fixed cost can be recovered meaning its partly non-sunk
49
SRMC =
SRTC' or VC'
50
SRATC =
SRTC/Qty or (VC+FC)/qty or AFC + AVC
51
Why do AFC decrease continuously
Because its the same fixed cost being spread over LARGER amounts of outputs
52
Characteristics of monopoly
1 firms is a price maker High barrier of entry 1 unique good no close substitutes
53
Revenue maximization in monopoly
MR = 0
54
Profit maximization
MR = MC
55
What is the derivative of TR equal to?
AR and MR
56
When should firms exit
Earning -profits = TR < TC
57
Market power
The ability to raise its selling prices ABOVE MC & the perfectly competitive level
58
1st degree(perfect) price discrimination
Each unit of product is sold to consumer who values it the most at MAX price that the consumer is willing to pay
59
3rd degree price discrimination
DIfferent group of consumers segmented. Firm sells SAME product at different price e.g. student discounts
60
Who wins an who loses in 3rd degree price discrimination
Elastic consumers WIN Ineleastic consumers LOSE Net effect depends on Demand curve
61
Dominant strategies
Better strategies regardless of how other players play Ignores interdependence
62
63
What makes nash equilibrim different than DSE
Nash equilibrium has players change what the do in response to what the other player does DSE is just 1 thing and does not change regardless of what the other player does
64
Characteristics of oligopolistic markets
Few firms that have some market power Products are homogenous
65
What is the ideal strategic behavior for Oligopolies
Cooperate with each other to form cartels acting as monopolists
66
Why do firms in oligpoly/duopoly cheat each other
They do whats best for them which means betraying the other party as there's no binding agreement
67
Cournot equilibrium
- The "Nash equilibirum in a duopoly" setting - Cartel outcome cannot be achieved as firms want to deviate - NE is reached by selfish outcome
68
What happens in a "predation game"
A incredible NE may be encountered, e.g. the choices of p2 doesn't matter when p1 chooses a option
69
Coordination problem in simultaneous games
There might be a coordination problem as they want to see each other's decision for the best outcome
70
What do dynamic games do to uncredible NE and coordination problem
It filters out the not credible NE Overcomes the coordination problem
71
Stackelberg competition
What qtys would firm choose if they take turns after the leader moves 1st and followed by 2nd player. They compete over qty
72
SPNE(Subgame Perfect NE)
Used in dynamic games to solve from the END outcomes.
73
Coarse theorem conditions
1. Property rights are specificed(what belongs to who) 2 Parties affected by externally can FREELY NEGOTIATE and trade 3. 0 transaction costs
74
What does Coarse theorem lead to
Efficient reallocation of resources(PARETO OPTIMALITY) independent of who initially holds property rights
75
Is the coarse theorm an attainable outcome
No, its an ideal outcome as there are transaction costs in real life
76
Rivalrous goods
Someone's use reduce amt available
77
Excludable
Others can be prevented from using
78
Public goods market failures
Non excludable leads to free rider problems Non rivalrous leads to '+' externality of production
79
What are the consumer preferences
1. Completeness 2. Reflexive 3. Transitive 4. Continuous 5. Monoticity 6. Convex
80
What does the consumer preference of completeness mean
Given bundles x&y either one is weakly preferred to the other or indifferent
81
What does the consumer preference of reflexive mean
Any bundle is at least as good as itself x≽x
82
What does the consumer preference of Transitive mean
If x≽y & y≽z then x≽z there cannot be cycles
83
What does the consumer preference of Continuous mean
preferences don;t have jumps(cannot be discrete), IC has to be a continuous line
84
What does the consumer preference of Monoticitiy mean
More is of everything is better
85
What does the consumer preference of Convex mean
between to points of a IC curve are always weakly preferred to those 2 points They CANNOT be worth less than IC curve
86
Short cut for MRS of cobb douglas utility function
(a·X₂) / (1-a) · X₁
87
What is the representation of cobb-douglas utility maximization of X₁
(a·m)/p₁
88
What is the representation of cobb-douglas utility maximization of X₂
(m-a)/p₂
89
If P > AVC should the firm shut down in short run?
no
90
how to find MR from TR
derive TR
91
What is the shape of MR in perfectly competitive markets
Perfectly STRAIGHT LINE = Price as well.

Foundational Biology (4 decks)

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