Lecture Notes

Question 0

Explicit cost

Answer 0

Outlay of money

Ex. Travel costs to attend a game. Price of game ticket etc.

Question 1

David Ricardo

Answer 1

Principles of political economy and taxes, 1817

Argued each country should specialize in it’s comparative advantage and then trade its specialties with other and each would be better off

Question 2

Implicit cost

Answer 2

Not an outlay of money, often own resources used to acquire object

Ex: lost wages to attend game
Time

Question 3

Demand Schedule

Answer 3

How much is demanded at every price

Question 4

Supply Scedule

Answer 4

How much is supplied at every price

Question 5

Equilibrium

Answer 5

A price at which demand equals supply

Question 6

Adam smith the wealth of nations, 1776

Answer 6

Every individual neither intends to promote the public interest nor knows how much he is promoting it. He intends only his own gain, and he is in this led by an invisible hand to promote an end which has no part in his intention.

Question 7

Efficient

Answer 7

If efficient, can’t rearrange trades to make someone better off without making someone else worse off

Competitive equilibrium

Can’t increase profits by different traders, holding the number of traders constant

Question 8

Profit

Answer 8

Profit = revenue - cost

P= R - C

Question 9

Revenue

Answer 9

Revenue equals price times quantity

R = P x Q

Question 10

Total cost

Answer 10

Total cost equals fixed cost plus variable cost

TC = FC + VC

Question 11

Variable costs

Answer 11

Cost that increase as output is increased

Question 12

Fix cost

Answer 12

Cost of inputs

Question 13

Average cost

Answer 13

Average cost equals ( total cost) divided by quantity

AC = (TC) / Q

AC = (FC)/ Q + (VC)/ Q

AC = AFC + AVC

Question 14

Marginal cost

Answer 14

The increase in cost from one more unit of output

related to variable cost but not the same

Question 15

Cost rules

Answer 15

If MC > AC, AC is rising

if MC < AC then AC is falling

If MC = AC, AC is neighing rising nor falling

Where MC = AVC, AVC is at a minimum

Question 16

How much to produce in order to maximize profits

Answer 16

If price is greater than minimum AVC, produce output for which P=MC

If price is less than minimum AVC produce nothing

Question 17

Law of supply

Answer 17

If the price of a good or service increases, Sellers are willing to supply more of it

short run supply curve is upward sloping because marginal cost is rising

Question 18

Marginal utility

Answer 18

Increasing utility for one more unit of a good

Question 19

Marginal rate of substitution

Answer 19

(Marginal utility of good A) / (marginal utility of good B)

Question 20

Diminishing marginal utility

Answer 20

Marginal utility of a good declines as a consumer gets more that good

Question 21

Maximizing utility

Answer 21

PA/PB = (MU A)/(MU B)

MU B/PB = MU A/PA

Question 22

Normal good

Answer 22

Increase in income increases demand for this good

Question 23

Inferior good

Answer 23

Increase in income decreases demand for this good

Question 24

Law of demand

Answer 24

If the price of a good or service increases, buyers tend to demand less per period

Buyers turn to substitutes (the substitution effect)

Buyers have less purchasing power (the income effect)

Question 25

Surplus (consumer and producer)

Answer 25

Consumer surplus; willing to pay minus expenditures

producer surplus: revenue minus cost of production

Question 26

Change in revenue

Answer 26

Delta R = Delta Q / Q + Delta P / P + (Delta Q / Q) (Delta P / P)

Or ^R/R = ^Q/Q + ^P/P