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BEC > Microeconomics (M42) > Flashcards

Microeconomics (M42) Flashcards

1
Q

This is the quantity of a good or service that consumers are willing and able to purchase at a range of prices at a particular time

A

Demand

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2
Q

Graphically, a demand curve shows an ____ relationship between the price and quantity demanded

A

Inverse

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3
Q

____ products are demanded at higher prices

A

Fewer

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4
Q

This happens when demand variables other than price change

A

A demand curve shift

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5
Q

This measures the sensitivity of demand to a change in price

A

Price Elasticity of Demand

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6
Q

If the Elasticity of Demand is > 1 then…

A

Elastic (sensitive to price changes)

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7
Q

If the Elasticity of Demand is = 1 then…

A

Unitary

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8
Q

If the Elasticity of Demand is less than 1 then…

A

Inelastic (not sensitive to price changes)

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9
Q

As prices increase, and demand is > 1 (elastic), how will revenue be effected?

A

Decreased

If demand is very elastic, an increase in price will cause fewer purchases to be made - causing a decrease in revenue

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10
Q

As prices increase, and demand is less than 1 (inelastic), how will revenue be effected?

A

Increased

If demand is inelastic, an increase in price will not affect purchases made, causing an increase in revenue

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11
Q

As prices decrease, and demand is > 1 (elastic), how will revenue be effected?

A

Increased

If demand is elastic, a decrease in prices will cause more purchases to be made - causing an increase in revenue

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12
Q

As prices decrease, and demand is less than 1 (inelastic), how will revenue be effected?

A

Decreased

If demand is inelastic, a decrease in price will not affect purchases made, causing a decrease in revenue

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13
Q

This measures the change in the quantity demanded of a product given a change in income

A

Income Elasticity of Demand

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14
Q

If the income elasticity of demand is > 0 what does this mean for normal goods and inferior goods?

A

Normal goods will be purchased more and inferior goods will be purchased less as consumers have more income to purchase the ‘normal’ goods that they desire

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15
Q

If the income elasticity of demand is less than zero, what does this mean for normal goods and inferior goods?

A

Normal goods will be purchased less and inferior goods will be purchased more as consumers have less income to purchase the ‘normal’ goods that they desire

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16
Q

This measures the change in demand for a good when the price of a related or competing product is changed

A

Cross-Elasticity of Demand

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17
Q

If the Cross-Elasticity of Demand Coefficient is positive (> 0), what does this mean for the two products?

A

They are substitutes

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18
Q

If the Cross-Elasticity of Demand Coefficient is negative (less than 0), what does this mean for the two products?

A

They are complements (like PB&J)

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19
Q

If the Cross-Elasticity of Demand Coefficient is zero (= 0), what does this mean for the two products?

A

They are unrelated

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20
Q

If the income elasticity of demand coefficient for a particular product is 3.00, the good is likely …

A

a luxury good

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21
Q

This refers to the fact that as the price of a good falls, consumers will use it to replace similar goods

A

Substitution Effect

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22
Q

This refers to the fact that as the price of a good falls, consumers can purchase more with a given level of income

A

Income Effect

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23
Q

The more goods an individual consumes, the more total utility the individual receives. However; the marginal (additional) utility from consuming each additional unit decreases. What is this law?

A

Law of Diminishing Marginal Utility

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24
Q

The main deciding factor for consumption is…

A

Personal Disposable Income

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25
This is the amount of income consumers have AFTER receiving transfer payments from the government (e.g., welfare) and paying their taxes
Personal Disposable Income
26
The Marginal Propensity to Consume (MPC) + the Marginal Propensity to Save (MPS) =
1
27
This is the percentage of additional income that is saved
Marginal Propensity to Save (MPS)
28
This is how much of each additional dollar in personal disposable income a consumer will spend
The Marginal Propensity to Consume (MPC)
29
The higher the price the ____ (more/less) products will be supplied
More
30
This occurs when the supply variables other than price change
Supply Shift Curve
31
This measures the percentage change in the quantity supplied of a product resulting from a change in the product price
Elasticity of Supply
32
A product's ____ is determined by demand and supply
Equilibrium
33
This is the price at which all the goods offered for sale will be sold
Product Equilibrium
34
This will cause good shortages
Price Ceiling Because suppliers will devote their production facilities to producing other goods
35
This will cause overproduction and surpluses
Price Floors
36
This is a minimum specified price that may be charged for a good
Price Floor
37
This is a maximum price that may be charged for a good
Price Ceiling
38
This term is used to describe damage to common areas that is caused by the production of certain goods but is not included in the production costs of the goods
Externalities
39
This is the fixed cost per unit of production - it goes down consistently as more units are produced
Average Fixed Costs (AFC)
40
This is total variable costs divided by the number of units produced. It initially stays constant until the inefficiencies of producing in a fixed-size facility cause variable costs to begin to rise
Average Variable Costs (AVC)
41
This is the added cost of producing one extra unit. It initially decreased but then begins to increase due to inefficiencies
Marginal Cost (MC)
42
This is total costs divided by the number of units produced. Its behavior depends on the makeup of fixed and variable costs
Average Total Cost (ATC)
43
This law states that as we try to produce more and more output with a fixed productive capacity, marginal productivity will decline
Law of Diminishing Returns
44
When demand increases (decreases) but there is no change in supply, how will this effect equilibrium price?
Equilibrium price will also increase (decrease)
45
Demand and Equilibrium price have a ____ (direct/inverse) relationship
Direct
46
When demand increases (decreases) but there is no change in supply, how will this effect the quantity purchased?
Quantity Purchased will also increase (decrease)
47
Demand and Quantity Purchased have a ______ (direct/inverse) relationship
Direct
48
When supply increases (decreases) but there is no change in demand, how will this effect equilibrium price?
Equilibrium will decrease (increase)
49
Supply and Equilibrium price have a ____ (direct/inverse) relationship
Inverse
50
When supply increases (decreases) but there is no change in demand, how will this effect quantity purchased?
Quantity Purchased will also increase (decrease)
51
Supply and Quantity Purchased have a ______ (direct/inverse) relationship
Direct
52
If demand increases but supply decreases, how does that effect both equilibrium price and quantity purchased?
Equilibrium price increases, along with demand Quantity Purchased is indeterminate
53
If demand decreases but supply increases, how does that effect both equilibrium price and quantity purchased?
Equilibrium price decreases, along with demand Quantity Purchased is indeterminate
54
If both demand and supply increase (decrease), how does that effect both equilibrium price and quantity purchased?
Equilibrium price is indeterminate Quantity purchased will increase (decrease) as it has a direct relationship with both demand and supply
55
What are the three possible outcomes when a firm increases all production factors by a given proportion?
1) Constant return to scale (output increases in the same proportion) 2) Increasing returns to scale (output increases by a greater proportion) 3) Decreasing returns to scale (output increases by a smaller proportion)
56
This is the amount of profit necessary to compensate the owners for their capital and/or managerial skills. It is just enough profit to keep the firm in business in the long run
Normal Profit
57
This is the amount of profit in excess of normal profit. In a perfectly competitive market, this type of profit cannot be experienced in the long run
Economic Profit
58
In microeconomics, the distinguishing characteristic of the long run on the supply side is that
All inputs are variable
59
What market structure has a large number of sellers, each of which is too small to affect the price of the product or service
Perfect (Pure) Competition
60
What market structure has only a single seller of a product or service for which there are no close substitutes
Pure Monopoly
61
Which market structure has many firms selling a differentiated product or service
Monopolistic Competition
62
What market is characterized by significant barriers to entry?
Oligopolies
63
How do you calculate the Price Elasticity of Demand?
% Change in Quantity Demanded / | % Change in Price
64
How do you calculate the Price Elasticity of Demand when asked to use the ARC Method?
[Change in Quantity Demand / Avg Quantity] / [Change in Price / Avg Price]
65
How do you calculate the Income Elasticity of Demand?
% Change in Quantity Demanded / | % Change in Income
66
How do you calculate the Cross Elasticity of Demand? (the change in quantity demanded for X versus the change in price for Y)
% Change in Quantity Demanded of X / | % Change in Price of Y
67
The consumption function is as follows: C = C0 + C1Yd What does C stand for?
Consumption for the period
68
The consumption function is as follows: C = C0 + C1Yd What does Yd stand for?
Disposable Income for the period
69
The consumption function is as follows: C = C0 + C1Yd What does C0 stand for?
The Constant
70
The consumption function is as follows: C = C0 + C1Yd What does C1 stand for?
The slope of the consumption function which is also the MPC (Marginal Propensity to Consume)
71
How do you calculate the elasticity of Supply?
% Change in Quantity Supplied / | % Change in Price
72
The distinguishing characteristic of ______ markets is mutual interdependence of firm pricing and output decisions
Oligopolistic
73
The distinguishing characteristic of ______ markets is a single seller of homogeneous product with no close substitutes
Monopolies
74
The distinguishing characteristic of ______ markets is a single seller of heterogeneous product with no close substitutes
Monopolies
75
The distinguishing characteristic of ______ markets is significant entry and exit barriers in the industry
Oligopolistic Oligopolistic markets have significant barriers to entry
76
Identify the formula for calculating a price index
[Price of market basket in a given year / Price of same market basket in base year] * 100

BEC (17 decks)

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