Micro Final Flashcards
PPB
production possibility boundary - amount of resources possible to produce
- can shift with changes in technology, price of resources or production
positive
statement that can be proven/fact based
normative
statement that is opinion based
absolute advantage
can produce greater quantity or mangnitude
comparative advantage
can produce with lower opportunity costs than other country
specialization
will specialize where they have lower comp. advanange
trade
you must give away less than it would cost you to produce yourself
demand
price change causes shift along demand curve (Qd)
- shifts in curve = consumer income, compliments, substitues
compliments
purchased with a product (printer and ink)
substitutes
ex. pepsi and coke
supply
shifts due to technology, tax, entry/exit
Equalibrium
set supply = to demand, solve for P sub back in to find q
Tax
subtract from entire supply equation
Elasticity of demand
change in Q relative to P
inelastic demand
not responsive to change in price (less than 1)
elastic demand
very responsive to change in price (greater than 1)
inelastic supply
not responsive to change in price
elastic supply
very responsive to change in price
percentage change
% change in Q/ % change in P
Equation for when you have two points
(Q2-Q1/P2-P1) x ((P2+P1/Q2+Q1)
one point
change q/change p - this is slope of demand cureve x (p/q)
greater than 1
elastic
less than 1
inelastic
normal goods
when income increases Qd increases
inferior goods
when income increases Qd decreases
giffin goods
inferior good where income effect is greater than substitution effect
how to find if inferior or normal?
% change in Qd / % change in income —– + (normal), - (inferior)
cross price elastity
% change Qd for goodx / % change in price for goodY
to find percentage change in something
old demand - new demand / old demand
Economic surplus
consumer and producer surplus together
Price floors
minimum price set, creates a surplus
price ceiling
maximum price set, creates a shortage
quota
same as floor and celing but vertical
deadweight loss
loss of economic surplus due to government intervention
black market
go up to demand curve from the quantity being supplied to find price on the black market
marginal utility
increases when consumption decreases, decreases when consumption increases
budget line
plot all possbible purchases (like PPB)
indifference curve
where it is tangent with budget line = purchase. Furtehr from origin the better
to max utility or long run coss
MUx/Px = MUy/Py
income and substitution effect
- draw budget line and indif curve (point A)
- draw new budget line and indif curve (point B)
- shift new budget line to tough old indifference curve (C)
Dis between A and C is substituion effect
Dis. between B and C is income effect
If income and substituion move in same direction
normal good
If income and substituion move in opposite direction s
inferior good
marginal labour and capital
ML/MK decreases with more employees / capital
Assumptions
- many sellers, 2. many buyers, 3. no differenciation 4. free entrance
Perfect competition
many firms with same product.
- zero profit
- produce where MC = ATC
Monopoly
price makers
- produce where MC = MR and charge up to the demand curve
- deadweight loss is between MC and demand
Monopolistic competition
many small firms w different products and prices (setters)
- SR = monopoly (MR = MC and charge P)
- LR = firms enter shifting demand and Rev down until demand is tangent to ATC
Game theory
make pay off matrix
Nash equalibrium
scenario where NEITHER firms would change their strategy
Dominant strategy
which strategy will maximize the payout for each firm regardless of what the other does?
- if it would change based on other firm there is no dominant strategy
