microeconomics Flashcards
PPF curve
shows the different combinations of goods that may be produced if all resources are efficiently utilised
opportunity cost
the cost of foregoing the next best alternative
accounting profit
excess revenue above explicit costs (costs associated wit production)
economic loss / sub-normal profit
normal profits
accounting profit that does not cover opportunity costs
accounting profit that covers opportunity costs (economic profit is 0)
supply
amount of a good that sellers are prepared to provide at a certain price over a given period of time
demand
amount of a good buyers are prepared to pay at a given price over a given period of time
PED
% change in qty / % change in price
elastic and perfectly elastic
PED >1
% change in qty > % change in demand
luxury goods
PED = infinity
perfect competition
unit elastic
PED =1
% change in qty = % change in price
inelastic and perfectly inelastic
PED < 1
% change in price > % change in qty
necessities
PED = 0
product that is vital
PED and total revenue
PED >1 , TR increase
PED <1 , TR decrease
PED =1 , TR at MAX
income elasticity of demand
% change in qty / % change in income
cross elasticity of demand
% change in qty / % change in price of substitute or complementary good
cross elasticity of substitute and complimentary
positive
negative
PES
% CHANGE IN QTY SUPPLIED / % CHANGE IN PRICE
elastic and perfectly elastic
PES > 1
durable goods
manufactured goods
PES = infinity
inelastic and perfectly inelastic
PES < 1
PES = 0
production function
relationship be/een different combos of factor inputs and output
short run production function
period of time for which at least one of the factors is fixed
law of diminishing returns
further increase in variable input lead to a steadily decreasing marginal product
short run costs for a manufacturer
total costs
average costs
marginal costs
MC = ATC
at ATC’s lowest value
long-run production function
period of time where no factor of production is fixed
MES
LOWEST POINT ON THE LONG RUN AVERAGE total COST CURVE
level of output where internal economies of scale fully exploited
> MES low output many firms can exist
> MES large i.e. high ratio of fixed costs to variable costs
perfect competition market
MR = AR = Demand = Price
> where revenues are maximized MR = MC
> long run AR =ATC
> short run AR > ATC
ATC
explicit + opportunity costs
monopolies produce at a level
MR , D downward sloping
PRODUCE AT MR = MC
D = AR = P
MR steeper (2x) than D
maintain supernormal profit in long-run AR > ATC
monopolistic competition
> many producers and consumers
no firm has total control over market price
non-price differences perceived by consumer
few barriers to entry
producers have a degree of control over price (rarely reach economies of scale)
oligopolies price behaviour
> cartel
kinked demand - all members react to each other’s price behaviour
price leadership - one firm more dominant than other . predatory pricing illegal
game theory - speculative
Porter’s five competitive forces
> bargaining powers of suppliers
bargaining power of customers
threat of new entrants
threat of substitutes
rivalry between competitors
product life cycles
> intro phase
growth phase
maturity phase
decline phase
obsolescence
SWOT analysis
internal
> strengths
> weaknesses
external
> opportunities
> threats
four Ps
place
product
promotion
price
effective demand
demand that consumers are not only willing but also able to place on a good or service
manufactured gds vs agricultural goods
more elastic ( greater supply elasticity)
PES long run
more elastic than in the short run
factors of production
land
labour
capital
entrepreneurship
