Micro #5 Flashcards
The value of the difference between the price consumers are willing to pay for a product on the demand curve and the price actually paid for it.
Consumer suplus
The value of the difference between the actual selling price of a product and the price producers are willing to sell it for on the supply curve.
Producer surplus
What + What = Total surplus
Total Surplus = Consumer Surplus + Producer Surplus
@Deadweight loss is a result of three things: ___, ___, and ___.
Price ceilings, price floors, and taxations.
If a demand curve for a product were completely vertical, is considered what?
Perfect inelastic
The ratio of the percentage change in the quantity demanded of a product to a percentage change in its price
Price elasticity of demand
A condition in which the percentage change in quantity demanded is less than the percentage change in price
Inelastic Demand
Price elasticity of demand measures
How responsive or sensitive consumers are to a change in the price
Elasticity measures how sensitive consumers are, by measuring their change in ___ as the price of the product changes.
Quantity demanded
If a firm knows the price elasticity of demand. It helps them to determine the changes on the firm’s ____?
Revenues
A good that is jointly consumed with another good. As a result, there is an inverse relationship between a price range for one good and the demand for its “go together good”.
Complementary good
Any good for which there is an inverse relationship between changes in income and its demand curve.
Inferior good
The satisfaction, or pleasure, that people receive from consuming a good or service.
Utility
Is the unit of measurement for the satisfaction of utilities.
Util
Marginal utility is the change in what?
The change in total utility from one additional unit of a good or service
The change in total utility due to a 1-unit change in the quantity consumed is?
Marginal utility
The statement “as more of a good is consumed, the utility a person derives from each additional unit diminishes” is knows as the?
Law of diminishing marginal utility
Consumer equilibrium exists when:
A consumer selects or buys the combination of goods that maximizes utility.
The change in quantity demanded of a good or service caused by a change in its price relative to substitutes.
Substitute effect.
The change in quantity demanded of a good or service caused by a change in real income (purchasing power).
Income effect
Which one is an example of Explicit cost
Payments to non owners of a firm for their resources.
- wages paid to labor
- the rental charges for a plant
- the cost of electricity
- the cost of materials
- the cost of medical insurance
Which one is NOT an example of Explicit cost
The opportunity costs of using resources owned by a firm
The opportunity cost of using resources owned by a firm
Implicit cost
Which one is an example of implicit cost
@opportunity costs of resources
The sum of total fixed cost and total variable cost at each level of output
Total cost
Total revenue minus explicit and implicit costs
Economic profit
What total revenue minus total cost is equal to zero
@Total profit
Examples of fixed inputs
@Any resource for which the quantity cannot change during the period of time under consideration
- the physical size of a firm’s plant and the production capacity of heavy machines cannot easily change within a short period of time
Short run and long run - key differences
Short run: a period of time so short that there is at least one fixed input, firms are only able to influence prices through adjustments made to production levels
Long run: a period of time so long that all inputs are variable→ NO fixed costs, firms are able to adjust all costs
Short run, what time period is that covering?
In which a firm uses at least one fixed input
During the short run, a firm has enough time to adjust its variable inputs
Long run, what time period is that covering?
That is long enough to permit changes in all the firm’s, both fixed and variable
In the long run, total fixed cost does NOT exist
The change in total output produces by adding 1 unit of a variable input, with all other inputs used being held constant
Marginal product
Law of diminishing marginal returns (short run)
Occurs in the short run when one factor is fixed
The principle that states that beyond some point, the marginal product decreases as additional units of a variable factor are added to a fixed factor.
Law of diminishing marginal returns
Expenses that have to be paid by a company, independent of any business activity.
Fixed cost
- rent payment
- lease on a building
- insurance premiums
- loan payments
Examples of fixed costs
The change in total cost when one additional unit of output is produced
Marginal Costs
Economies of scale are created by greater efficiency of capital and by _______?
Increased specialization of labor
A situation in which the long-run average cost curve rises as the firm increases output
Diseconomies of scale
Diseconomies of scale exist for all of the following reasons except.
Firms size is too small
