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Microecon > Lectures > Flashcards

Lectures Flashcards

1
Q

Positive Statement

A

Descriptive claim

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2
Q

Normative statement

A

claims about what ought to be

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3
Q

Cost-benefit principle

A

Only pursue choices whose benefits are as large as their costs

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4
Q

willingness to pay

A

how much are you willing to pay for a benefit?

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5
Q

Framing

A

how different alternatives are described

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6
Q

Opportunity cost

A

the most valuable alternative you have to give up to pursue a choice

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7
Q

Sunk costs

A

losses that have already been incurred

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8
Q

Production possibility frontier

A

shows various outcomes you attain with your scarce resources

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9
Q

marginal principle

A

decisions about quantity are best made incrementally. Break “how many” decisions down into a series of marginal questions

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10
Q

diminishing marginal benefit

A

when marginal benefit starts to decline for each additional unit

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11
Q

increasing marginal costs

A

marginal costs increase for each additional unit

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12
Q

rational rule

A

If something is worth doing, keep pursuing it until marginal benefits equal marginal costs

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13
Q

interdependence principle

A

your best choice depends on your other choices, the choices others make, expectations and developements in other markets

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14
Q

modeling principle

A

Because behavior is complicated, try breaking it down into a simple model

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15
Q

preferences

A

how you value different choice

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16
Q

demand curve

A

shows relationship between the price of a good and the quantity of that good

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17
Q

ceteris paribus

A

keeping other things the same

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18
Q

Law of demand

A

As price decreases, quantity demanded increases

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19
Q

Demand curve shifters

A
  1. income
  2. preferences
  3. expectations
  4. congestion and networking effects
  5. type and number of buyers
  6. price of related goods
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20
Q

supply curve

A

relationship between price and quantity a supplier is willing to supply at that price

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21
Q

Law of supply

A

As the price of a good increases, the quantity supplied increases

22
Q

Perfect competition

A

all firms sell an identical product and there are a large number of buyers and sellers

23
Q

Fixed costs

A

costs that don’t depend on quantity produced

24
Q

variable costs

A

costs that depend on quantity produced

25
Q

Rational rule for sellers

A

keep selling until marginal costs equal price

26
Q

Supply shifters

A
  1. Price of inputs
  2. Price of related goods
  3. Type and number of sellers
  4. Expectations
  5. Productivity
27
Q

Equilibrium

A

quantity supplied equals quantity demanded

28
Q

Types of disequilibrium

A

shortage and surplus

29
Q

Signs that markets are in disequilibrium

A
  • long lines
  • bundling of extras
  • secondary markets
30
Q

Elasticity

A

A measure of responsiveness

31
Q

Price elasticity of demand

A

% change in Qd/ % change in price

32
Q

Arc formula

A

((Q2-Q1)/(Q2+Q1/2))/ ((P2-P1)/(P2+P1)/2)

33
Q

Perfectly inelastic

A

Qd not responsive to price changes

34
Q

Perfectly elastic

A

Qd infinitely responsive to price changes

35
Q

Factors that affect price elasticity

A
  • Competition
  • Specificity
  • Luxury goods
  • Ease of search for alternatives
  • More time to procure a good
36
Q

Cross price elasticity of demand

A

% change in Qd/ % change in price of another good

37
Q

Income elasticity of demand

A

% change in Qd / % change in income

38
Q

Price elasticity of supply

A

% change in Qs / % change in price

39
Q

Elasticity of supply

A

ability to store a good
- ease of inputs
- extra capacity
- ease of entry and exit
- more time to adjust

40
Q

Tax leads to

A
  • A decrease in the equilibrium quantity
  • An increase in price paid by buyers
  • A decrease in price received by sellers
41
Q

Tax incidence

A

who bears the final impact of the tax

42
Q

Statutory burden

A

whom the tax is levied on

43
Q

Economic burden

A

what the final impact is

44
Q

What determines the tax incidence

A

price elasticities of demand and supply
- Whichever is more elastic bears less of the burden

45
Q

To graph taxes

A
  • if tax is levied on suppliers: shift the supply curve
  • if tax is levied on the demanders: shift the demand curve
  • tax generally shifts curves left/ in
46
Q

Market equilibrium price

A
  • money that goes from buyer to sellers
  • If tax is on demander, then demander pays supplier and supplier pays gov
  • If tax is on supplier, then demand pays supplier and supplier pays gov
47
Q

Subsidy

A

payment made by the gov to demanders or suppliers (negative tax)

48
Q

Price ceiling

A

max price that sellers can charge

49
Q

price floor

A

min price sellers can charge

50
Q

mandate

A

requires a minimum quantity to be bought or sold

51
Q

quota

A

sets a max quantity that can be bought/ sold

Microecon (13 decks)

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