Microeconomics Flashcards
D= b +m(a) b is the
B is the intercept
The intercept is the value of the
Dependent variable at the lowest value of the independent variable
In a free market economy
Government regulation and commerce is the least significant factor
Labor. Capital and natural resources are all
Economic resources
Under any economic system all economic resources are
Scarce
Increase on the income of market participants causes
The demand curve to shift outward
A reduction in price will not cause a
Reduction in price commodity
An increase in demand causes a
Shift of the demand curve
When the cost of input factors to the production increases. The supply curve shifts
The supply curve will shift inward
A shift in the supply curve inward will cause
The same quantity to be provided at a higher price
A factor that would not cause an increase in the supply curve is
Ah increase in the price of the commodity
If the price for a good if fixed by government fiat below market equilibrium price
Excess demand
A price ceiling will cause a
Shortage of supply and excess of demand
Percentage change in supply is greater than price supply
Is elastic
Elasticity of demand measures the percentage change in quantity of a commodity demanded as result of a
Given percentage change in price of a commodity
A high price elasticity of demand example
There are many substitutes
Percentage change less than 1 is
In elastic
Percentage change is equal to 1 is
Unitary
Percentage change is greater than 1 is
Elastic
Price elasticity equation
Percent change in quantity / percent change in price
When the Total utility is maximized the marginal utility of the last dollar spent on each and every item acquired
Must be the same
Equation for utility is
Utils/price = Utils/price
As an individual acquires or consumes more units of a commodity the total utility
Increases and the marginal utility decreases
If output increases lesser than inputs there are
Decreasing returns to scale
Diminishing returns is when
One input is fixed
In the long run analysis assumes that all
Inputs are varied
The extent of competition in the market is central to determining
The nature of market structure
When the market price is less than average variable cost the firm should
Cease to produce and exit the market
In a perfectly competitive market the demand curve is
Horizontal
In perfect competition price equals
Marginal revenue
In a perfect competition firms can
Easily enter or leave the market
In a natural monopoly it is a condition where there are
Increasing returns to scale
A monopolistic firm that maximizes revenue uses it’s resources
Inefficiently and at higher price then perfect competition
In a monopolistic competition there are the following characteristics
Product or service is slightly differentiated
Large number of sellers
Close substitutes for the product or service
Ease of entry into or exit from market
Monopolistic competition is maximized when
Marginal revenue = marginal cost
Collusive pricing
Firms conspire to set the price at which a good or service will be provided
Goods or services offered at different prices in different markets or market segments is
Dual pricing
Setting of prices low in an attempt to eliminate the competition
Predatory pricing
A group of firms that conspire to make price and output decisions
A cartel
An oligopoly has
Few sellers
Price leadership is
Tacit collusion
A firm is not assured to make a profit in the short run for
Perfect competition. Monopolistic competition, oligopoly, pure monopoly
Perfect competition is not a market found in the
US
Increases in a demand curve are results of
Shifts
Increases in demand shifts
Outward
Shifts in the supply curve to the left is
Inward (closer to y axis)
A higher equilibrium is caused by an
Increase in demand
When demand is elastic the percentage change in demand is greater than the percentage change in
Price
According to the law of diminishing returns the marginal product (output) falls as more units of a
Variable input are added to fixed inputs
Characteristics of perfect competition are
A large number of independent buyers and sellers who is too small to affect price
Homogenous product or service
Resources are completely mobile
Perfect info
Govt does not set prices
In a perfectly competitive market in the short run MR =
MC
A firm should cease to exist in perfect competition when price is less than
Average variable cost
Price is what in perfect competition
Marginal revenue
Mr is less than atc but greater than avc firm is covering variable cost and contributions to fixed cost but not
Making a profit
If mr is less than vac the firm is not coveting variable cost and there is a
Loss with every unit produced
In a perfect monopoly marginal revenue is belw demand because it has to
Lower the price to sell more units
