microeconomics Unit 3 Flashcards
externalities
cost or benefits that fall on bystanders
example of an externality
second-hand smoke
complements are ________
positive externality
external cost
cost paid by people other than the consumer or the producer
private cost
paid by the consumer or the producer
social cost
cost to everyone; private cost plus the external cost
social surplus
consumer surplus + producer surplus + everyone else’s surplus
what do you do to fix a negative externality?
tax
what do you do to fix a positive externality?
substation
marginal utility
change in total utility/ change in quantity
law of diminishing marginal utility
satisfaction increases at a decreasing rate
what are firms?
companies or corporations
what is a competitive industry?
an industry where there is very little say in what the price is. Out of two producers the lower price will win
what three questions do firms ask themselves when trying to maximize profits in a competitive industry?
- what price is set?
- what quantity to produce?
- when to enter/ exit the industry?
In a competitive market what are the producers known as?
price takers, they sell the product at the market price can not lower, can not raise. perfectly elastic
what are the assumptions to be made when in a perfectly competitive market?
- there is a lot being sold
- being sold amongst many sellers
- each seller has a small percentage of the market
- the goods are identical
long run definition
the time after all exit or entry has occurred, all costs can change
short run definition
the time period before exit or entry can occur, no change to cost; fixed costs
fixed costs definition
don’t vary with output, should be ignored in the short run (can’t be changed)
variable costs definition
do very with output; direct relationship
sunk costs definition
nonrecoverable costs, not relevant (rent)
explicit cost definition
a cost that requires a money outlay
implicit cost definition
a cost that does not require an outlay of money; opportunity cost
what to take into account when maximizing profit
explicit and implicit costs
