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EC 111 > Micro Quiz/Test #2 > Flashcards

Micro Quiz/Test #2 Flashcards

1
Q
  1. Price Elasticity
  2. Income Elasticity
  3. _____________
A

Cross-price elasticity of demand

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2
Q

Symbol of cross-price elasticity of demand

A

Exy

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3
Q

What is Exy

A

Looks at how responsive the demand for good x is to change in the price of good y

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4
Q

Define Exy

A

% change in demand for good x over % change in price of good y

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5
Q

A(n) ____ in the price of good y leads to a(n) ____ in the demand for good x
Exy > 0

A

increase, increase
or
decrease, decrease

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6
Q

When Exy > 0 tells us that goods x and y are _____ goods.

A

substitute

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7
Q

A(n) ____ in the price of good y leads to a(n) _____ in the demand for good x
Exy < 0

A

decrease, increase
or
increase, decrease

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8
Q

When Exy < 0 tells us that goods x and y are _____ goods.

A

complementary

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9
Q

A(n) ____ in the price of good y leads to _____
Exy = 0

A

increase or decrease, no change

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10
Q

When Exy = 0 tells us that goods x and y are _____ goods.

A

unrelated

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11
Q

Consumer Theory

A

Maximum Total utility

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12
Q

Total Utility

A

The total happiness or the total satisfaction from consuming a given quantity of a good

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13
Q

Marginal Utility

A

The change in total utility from consuming an additional unit of a good

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14
Q

Law of Diminishing Utility

A

The more of a good consumed at some point, total utility will rise by less and less.

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15
Q

Production Theory

A

maximize profits

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16
Q

How can producers maximize profits

A
  1. Productivity of Inputs
  2. Costs of Production
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17
Q

Total Product

A

the total amount of output produced by a firm

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18
Q

Productivity of Inputs: 2 factors

A

Labor and Capital

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19
Q

Symbols of Labor and Capital

A

L and K

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20
Q

Function of Total Product

A

A firm’s output is a function of the amount of labor and capital that it employs
TP F(L,K)

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21
Q

Marginal Product of Labor (MPL)

A

the change in a firm’s output from employing an additional unit of labor

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22
Q

Marginal Product of Capital (MPK)

A

the change in a firm’s output from employing an additional unit of capital

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23
Q

Short Run

A

a period of time that is not long enough for a firm to change all of its inputs

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24
Q

3 points of short run:

A
  • it takes a longer period of time to change capital than it does to change labor.
  • in the short run a firm has enough time to change labor
  • in the short run the firm does not have enough time to change capital
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25
Q

Short-run production formula

A

TP = F(L *K)
capital amount is changed in the short run

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26
Q

Long Run

A

a period of time that is long enough for a firm to change all of its inputs.
Labor and capital can change in the long run

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27
Q

Long-run production function formula

A

TP = F(L*K)

28
Q

Costs of production Equation

A

Total Cost = Explicit Costs + Implicit Costs

29
Q

Explicits Costs (EC)

A

Any money spent by a firm.

30
Q

Examples of EC

A

labor costs, capital costs, training, materials, etc.

31
Q

Implicit Costs (IC)

A

opportunity costs of any money spent by the firm
The value of the best thing given up whenever the firm spends money

32
Q

Objective of Firm is to ______

A

maximize profits

33
Q

Define profit

A

Profit = Total revenue - total cost
π = TR - TC

34
Q

When π > 0 the firm has earned ________

A

an economic profit

35
Q

When π = 0 the firm has earned ________

A

a normal profit

36
Q

When π < 0 the firm has incurred ________

A

an economic loss

37
Q

Total Fixed Costs (TFC)

A

costs that do not change as a firm either increases or decreases its output. costs that are not a function how much output the firm produces

38
Q

What does AFC stand for and formula?

A

Average Fixed Costs
TFC/TP (total fixed costs/total product)

39
Q

What does AVC stand for and formula?

A

Average Variable Costs
TVC/TP (total variable costs/total product)

40
Q

What does ATC stand for and formula?

A

TC/TP (total costs/total product)
or
AFC + AVC (average fixed costs + average variable costs)

41
Q

What does TVC stand for and mean?

A

Total variable costs
Costs that are direct function of how much output the firm produces

42
Q

What happens to TVC between 0 and TP1

A
  • labor decreases more productive MPL increases
  • TVC increases at a decreasing rate
43
Q

What happened to TVC beyond TP1

A
  • labor is less productive
  • MPL decreases, TVC increases at increasing rate
44
Q

What does MC stand for and mean

A

Marginal Cost
The change in total cost from producing an additional unit of output

45
Q

Relation between AVC to ATC

A

ATC = AFC + AVC
- any output ATC > AVC by the amount of AFC
- output increases, AFC decreases
- output grows the distance between ATC and AVC gets smaller minimum ATC occurs at a greater output

46
Q

Relation between MC to AVC and ATC

A
  • MC intersects AVC at minimum AVC
  • MC intersects ATC at minimum ATC
  • If MC<AVC, then AC decreases
  • If MC>AVC, then AC increases
47
Q

Four types of competition

A
  1. Perfect Competition
  2. Monopoly
  3. Monopolistic Competition
  4. Oligopoly
48
Q

What defines perfect competition?

A
  • many small firms
  • firms produce homogeneous output
  • price is known by all consumers and all producers
  • no barriers to entry/exit
49
Q

In a perfectly competitive market, the forces of ____ and _____ determine _____.

A

demand, supply, price

50
Q

What is represented by Uppercase X

A

total market output of all firms

51
Q

What is represented by Lowercase x

A

output of a single firm

52
Q

Each firm determines how much ____ to sell at the ______

A

output, market price

53
Q

perfectly competitive firms are “_____”

A

price takers

54
Q

TR

A

Total Revenue

55
Q

Formula of TR

A

TR = Price * Total Product

56
Q

AR

A

Average Revenue

57
Q

Formula of AR

A

AR = Total Revenue / Total Product
(TR/TP)

58
Q

What does MR stand for and what does it mean

A

Marginal Revenue
The addition to total revenue from selling an additional unit of output

59
Q

For a perfectly competitive firm,
Price ___ AR ____MR

A

=,=,=

60
Q

In a perfectly competitive firm TR is shaped as an

A

linear upward sloping function

61
Q

What are the two ways to identify
a perfect competition firm’s profit maximizing output

A
  1. use total revenue and total cost
  2. use marginal revenue and marginal cost
62
Q

For Method 1 for output >TP1
TC __ TR
π __ 0
Economic Loss or Normal Profit or Economic Profit

A

> ,<, Economic Loss

63
Q

For Method 1 Between 0-TP0
TC __ TR
π __ 0
Economic Loss or Normal Profit or Economic Profit

A

> ,<, Economic Loss

64
Q

For Method 1 At TP0 or at TP1
TC __ TR
π __ 0
Economic Loss or Normal Profit or Economic Profit

A

=,=, Normal Profit

65
Q

For Method 1 Between TP0-TP1
TC __ TR
π __ 0
Economic Loss or Normal Profit or Economic Profit

A

<,>, Economic Profit

66
Q

For Method 1 at TP☆
TR __ TC by the _____ amount
Profit is _____

A

> , greatest, maximized

EC 111 (5 decks)

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