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BEC > Microeconomics > Flashcards

Microeconomics Flashcards

1
Q

What is economics

A

It is the study of how we allocate scarce resources to satisfy unlimited wants

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2
Q

What is an inverse relationship with demand curve

A

As price goes up - the quantity of a product or service that a group of consumer will want will go down - negatively sloping

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3
Q

What does a demand curve show

A

it shows the inverse relationship between price and quantity

It is the quantity demanded

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4
Q

What is the difference between demand and quantity demanded

A

demand refers to the demand curve that can be plotted on a graph

quantity demanded is on the x axis -

at higher prices - quantity demanded is lower

at higher prices quantity demanded is lower

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5
Q

What is a demand curve shift

A

A demand curve shifts when there are changes to relevant factors other than price

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6
Q

What is it called when quantity demanded become larger for each price

A

Demand shift upwards

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7
Q

What is it called when quantity demanded become smaller for each and every price

A

Demand shift downward

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8
Q

What are factors that have a direct relationship on a a demand curve ( demand curve shifts upwards)

A
  • price of a substitute good
    (Increase in hamburger prices will increase the demand for hotdogs)
  • Expectations of price changes (you will buy now because you think the price will go up later - stock up today)
  • Income (this is for normal goods - when your income goes up -wealth increases- demand increases for normal goods)

Extent of the market - New customers may increase demand increasing the size of the market (remove trade barriers, or a baby boom will increase demand for babyfood)

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9
Q

What are factors that have a inverse relationship with the demand curve - Demand curve shifts downwards

A
  • Price of complement good ( This is when the increase in price of one good will have a decrease in demand of another) example - increase in price of chips will decrease the demand for salsa
  • Income ( For inferior goods) As your wealth increases - demand for inferior goods ( like a used car) will decrease and demand for new cars will increase
  • Consumer boycott - an organized boycott will decrease demand - union strike
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10
Q

Changes in consumer tastes

A

these have a indeterminate relationship

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11
Q

What is the theory of derived demand

A

The demand for the resources used to produce product A is derived from the demand for product A

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12
Q

What is elasticity

A

It is the sensitivity of something like quantity demanded to changes in something else ( price)

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13
Q

What is the difference between something that is elastic, inelastic, and unity elastic

A

Elastic - Ed greater than 1 - total revenue will decline f price is increased

Inelastic - ED less than 1 - total revenue will increase if price is increased

Unit elastic - total revenue is not sensitive to price change

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14
Q

What does Inelasticity of Demand measure

A

the effect of changes in consumer income on changes in the quantity demanded of a product

% chg in quantity demanded / % chg in income

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15
Q

What does a positive income elasticity indicate

A

normal good - as your income increases demand for the normal good also increases (I make more money so I buy more luxury goods)

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16
Q

What does a negative income elasticity indicate

A

inferior good - as income increases demand for the inferior good will decrease (income increases so demand for used cars decreases)

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17
Q

What is cross-elasticity of demand

A

This measures the change in the quantity demanded of a good to the change in the price of another good

Substitutes - margarine for butter - direct relationship(if price of butter goes up demand for margarine ( a substitute) will go up as well

Complements - these are inverse - if the price of chips goes up the demand for salsa will go down.

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18
Q

What is a supply curve

A

This shows the direct relationship between the prices of a product or service and the quantity that a group of suppliers are willing to supply

As the price a product increases the quantity supplied increases

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19
Q

What is the difference between supply and quantity supplied

A

Supply is the x axis - it has quantity supplied on the x-axis and price of y axis

Quantity supplied is amount that is supplied -

At higher prices, quantity supplied is higher.

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20
Q

What happens when quantity supplied becomes larger for each and every price

A

The supply curve shifts outward

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21
Q

What happens when quantity supplied becomes smaller of reach and every price

A

The supply curve shifts inwards

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22
Q

What factors have a direct relationship with supply curve

A

Number of producers - more people are making the supply so therefore more supply

Government subsidies - they give money so supplies can produce more supplies

Price Expectations - If producers expect higher prices - they will make more supplies

Technological Advances - this reduces production costs and in crease quantity supplied

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23
Q

What factors have an inverse relationship

A

Increase in production cost - is costs increase, producers will decrease the quantity they will make

Prices of other products - If make product A and B and product A becomes more profitable - then they will decrease their supply of product B

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24
Q

What is price elasticity of supply

A

This is how sensitive quantity supplied of a good or service is to a change in price or cost

ES = % chg in quantity supplied / % chg in Price

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25
Q

What are economic rents and surpluses and opportunity costs

A

The opportunity cost is when the benefit given up from not using the resource for anoretic purpose

Example - you accept a job for $60K instead of a job for $50K

the economic rent is 10K from accepting the higher paying job and the opportunity cot is the 50K from the job given up.

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26
Q

What is an economic profit

A

this is the excess of the profit the are receiving over the normal profit rate

27
Q

What is market equilibrium

A

they is when quantity demanded = quantity supplied

28
Q

What is a price ceiling

A

when the government sets a max that you can charge ( rent control

29
Q

What is a price floor

A

This is when the government sets a minimum that an item can be charged ( minimum wage

30
Q

What is equilibrium price

A

This is the point where the supply meets the demand.

the point where the two curve meet - naturally without the government stepping in

All the goods being offered for sale will be sold

31
Q

What is utility

A

This is consumer satisfaction - consumer seek to maximize their satisfaction

32
Q

What is marginal utility

A

a consumer chooses to spend their money on one thing (versus other choices) based on the fact that that item has marginal utility - greater than those of the other choices

33
Q

Laws of diminishing marginal utility

A

The more you consume roof one thing - the less satisfying the next one will be

first choice chip cookies is awesome - the 25th is not as much

34
Q

How do you maximize total satisfaction

A

This is when the last dollar spent on a product generate the same amount of marginal utility

35
Q

Pure Monopoly

A
  • One firm sells a product
  • No close substitutes
  • May have a patent
  • blocked entry
  • demand curve vertical
36
Q

Monopolistic Competition

A
  • Multiple suppliers
  • mom and pop restaurants, groceries, hair dressers
  • Large number of sellers
  • heterogeneous products (different products)
  • Lots of non-price competition - advertising
  • easy entry, easy exit
  • demand curve is very flat
  • marginal revenue is close to marginal cost
  • not a lot of economic profit
  • Prices are generally higher than perfectly competitive, but lower than a monopoly
  • quantities are higher than a pure monopoly
37
Q

Oligopolistic

A

Few producers

can be both:

  • heterogeneous - airline manufacturers
  • homogeneuos - oil industry
  • pay attention to others in their
  • engage in a lot of non-price competition - ( product differentiaion or providing high levels of service)
  • kinked demand curve
  • lots of barriers to enter - its very costly, or complex to set up the infrastructure (automobiles are aerospace)
  • government licensing can effectively create government oligologies (cell phones companies)

government try to regulate oligopolies - forbidding cartls and price fixing

  • prices tend to be higher than under monopolistic competition but are lower than under a pure monopoly
38
Q

Pure/perfect competition

A
  • Rarely exists
  • commodities markets
  • large number of buyers and sellers
  • same product
  • no non price competition
  • no price controls
  • demand curve elastic - downward sloping
  • selling corn or wheat
  • The quantity demanded will increase if suppliers come in and drop the price.
  • At the same time the demand will decrease if the exit by suppliers increases prices

-

39
Q

What is deflation

A

This is GENERAL decline in price level

It is also a negative inflation rate

40
Q

What is the difference between GDP and GNP

A

GNP - Gross National Product - total dollar value of goods and services produced by a country’s RESIDENTS

  • this is regardless of whether they are produced in the United States

GDP - Gross domestic product - or nominal GDP - This is the total dollar value at current or nominal market prices of all final goods and services produced WITHIN one Country’s borders. Doesn’t matter the citizenship of the people or where the headquarters of the company are

41
Q

What is the Income Approach to calculating GDP

A
  • sums all income earned in the production of final goods and services

wages, interest, rents, business profits

  • plus adjustments for indirect taxes and economic depreciation ( when you need to replace equipment that wears out)
42
Q

What is the Expenditure Approach to calculating GDP

A

Sums all of the expenditures to purchase final goods and services by households, business, government, and foreign sector (exports) minus imports

43
Q

What is real GDP

A
  • This is the total dollar value of all final goods and services produced expressly using a price level that is constant over time
44
Q

What is potential GDP

A

This is used to help estimate the degree to which the economy is underutilizing resources or overheating

Example if actual real GDP falls short of potential real GDP = resources being underused. the result is that unemployment rates will be higher

If Actual Real GDP is exceeding potential GDP = the economy is overheating - the economy has unsustainably low unemployment , boom conditions, and price inflation is inevitable

45
Q

What is non-accelerating inflation rate of unemployment (NAIRU

A

This is the natural rate of unemployment

If the actual unemployment rate falls below NAIRU -

results in boom conditions higher inflation

46
Q

CPI

A

Consumer price index

compare the price of a fixed basket of goods to an earlier base period

dollar value LIFO

47
Q

PPI

A

this is at the whole sale cost

48
Q

GDP deflator

A

most comprehensive this is used to convert nominal GDP to real GDP

49
Q

Interest Rate Effect

A

As interest rates go up - people can’t afford to borrow money so there is a ripple effect - houses don’t sell, building goes down, more unemployment

higher inflation rates increase nominal interest rates

50
Q

wealth effect

A

Higher inflation rates reduce the value of most income

51
Q

What is the difference between capitalism, communism, and mixed economies

A

Capitalism - free enterprise - this is when private parties own most of the means of production an make most economic decisions

Communism- or socialism - this is when the government makes most of the means of production and economic decisions

Mixed economies - in between systems - both private and governments own substantial fractions the means of production. US is an example of this - Gov may impose taxes on trade that favor or disfavor certain activities or in how they spend their revenues and regulatory policies that can encourage or discourage various activities

52
Q

When does price discrimination work best

A

When consumer are split into distinct segments

  • coupons for early bird sales ( first 100 through the door)
  • selling the same shampoo to people versus horses
53
Q

What is a natural monopoly

A

This is when economies of scale permit large firms to underprice and eliminate all others

54
Q

What is predatory pricing

A

This is when you charge a competitively lower price to drive out competitors and then later increase them once they have effectively achieved a monopoly

55
Q

What laws have been passed to reduce anticompetitive market practices

A

Sherman Act - not price fixing among suppliers

Clayton Act - Prohibit stock mergers that reduce competition, and price discrimination

Robinson Paton Act - prohibit discounts to large purchasers

Celler-Kefauer Act - prohibit acquisition of the assets of a competitor if it would reduce competition

56
Q

What is personal disposable income, marginal propensity to Consume (MPC), and marginal propensity to save (MPS)

A

Personal disposable income - this is the availability of income of a consumer after subtracting mandatory payment of taxes

With your personal Disposable Income you have two choices:

  • Spend it: MPC - marginal propensity to Consumer - the percentage of the next dollar you will spend 40%
  • Save it MPS - the percentage of the next dollar you will save 60%

must equal - 1

57
Q 
Fixed Costs (FC)
Variable Costs (VC)
Total Costs (TC)
Marginal Costs (MC)
Marginal Revenue (MR)
Marginal Revenue product
A

Fixed Costs - Rent per month - these wont change if there is a change in the level of production

Variable Costs - payments to hourly workers, materials used in manufacturing These are costs that will rise as production rises

Total Costs - This is the sum of fixed and variable costs TC = FC + VC

Marginal costs - This is the cost of producing one extra unit

Marginal Revenue - The change in total revenue from the sale of 1 more unit of output

Marginal Revenue Product - The increase of total revenue by the addition of additional unit of input or resource

58
Q

How does a manager maximize revenue (level of production)

A

They choose a level of production where their marginal revenue (The change in total revenue from the sale of 1 more unit of output) equals marginal costs (This is the cost of producing one extra unit)

59
Q 
What is a returns scale
Increase Returns of Scales
Decreasing Returns to Scales
Economies of Scale
Decreasing Returns of Scale
A

This is the increases in units produced (output) that result from increases in production costs (inputs)

At lower levels of production and the use of inputs - firms can have a return of scales greater than 1 (Increasing Returns of Scale)

Returns of scale that are less than 1 (Decreasing Returns of Scale)

Alternatively they can have greater efficiencies when they produce more units of a product - Economies of Scale

This is when you can spread your fixed costs over a larger number of units

Diseconomies of scale - this sis increase inefficiencies. Example is that when you produce a lot but not you have costs of storing inventory, increased number of workers, or lower skilled workers that can cost you money

60
Q

What these product differentiation strategies:

  • Physical Differences
  • Perceived differences
  • customer support differences
A

Physical Differences - individual features, quality or appearance

Perceived Difference - image, brand name advertising

Customer Support Difference - return policies, technical support

61
Q

Cost Leadership Strategies:

  • Process Reengineering -
  • Lean Manufacturing
  • Supply Chain Management
A

Process Reegineering - in-depth redesign of firm’s existing processes to improve performance

Lean Manufacturing - Identify and remove the misuse of resources in the firms existing production processes

Supply Chain Management - sharing relevant information in the chain of sales that ranges from the final consumer to the various levels of suppliers

62
Q

What are the two approaches to calculate GDP:

Income and expenditure

A

Income earned - sum all income earned in the production of final goods and services

Expenditure approach - sum all expenditures to purchase final goods and services by households

63
Q

What id the difference between Real GDP and GDP -Nominal

A

Real GDP is the total value of all final goods and services using a price level that is CONSTANT over time

Nominal GDP - Is the total dollar value of of all final goods at CURRENT or nominal prices

You adjust nominal GDP to get real GDP by removing the effects of increases in rices - inflation

BEC (30 decks)

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