Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Micro Econ > Mid term2(chapter 5-10) > Flashcards

Mid term2(chapter 5-10) Flashcards

1
Q

What are the resource allocation mehtods

A

Market, Command, First come, lottery, competition, force, personal characteristics, majority rule, contest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

how does market price work

A

whoever can afford to pay the market price gets the scarce resource. for the most part this is the best method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

how does the command system work

A

someone in authority decides how resources are allocated. works well in orgs with clear lines of command but bad in an entire economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

how does majority rule work

A

majority voters choose how to allocate resources. works best when decision affects a lot of people and personal interest just be surpressed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

how does contest work

A

allocates reproduces to a winner or group of winners. works best when efforts of parties are hard to monitor and reward directly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

how does first come first served work

A

allocates resources to the first in line. works best when resource can serve just one person at a time in sequence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

how does lottery work

A

allocates resources to a random winner of some sort. work best when there is no way to distinguish between potential users of a resource

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

how does personal characteristics work

A

allocate resources to the person with the ‘‘right characteristics”.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

how does force work

A

people forcefully take and allocate resources from one another

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what is value and price

A

value is what we get and price is what we pay

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

how are marginal benefit and demand related

A

value of one more good is the marginal benefit of that good, we measure value by the maximum someone is willing to pay to obtain the good, demand is also willingness to pay so demand curve is MB curve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what is individual demand vs market demand

A

individual demand is how much of a good a single person demands at a given price and market demand is the horizontal sum of all individual demands in a market at a given price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what is consumer surplus

A

the excess of the benefit received from a good over the price paid for it

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

how is consumer surplus calculated

A

the marginal benefit(value) of a good minus its price summed over the quantity bought. this is the area under the demand/MB curve but over the price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what is cost and price

A

cost is what the producer gives up and price is what the producer receives

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

how are marginal cost and supply related

A

cost of producing one more unit of a good is the marginal cost, MC is the minimum price a firm is willing to accept for a good, supply is also minimum supply-price, supply curve is MC curve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what is individual and market supply

A

individual supply is the quantity a single firm produces at a given market price and market supply is the horizontal sum of all firms quantities produced at a given price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what is producer surplus

A

the excess of the amount received over the cost of producing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

how is producer surplus calculated

A

price received for a good minus cost of a good summed over the quantity produced. is is the area under the price but above the supply/MC curve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

why is competitive equilibrium efficient

A

competitive equilibrium is where demand is equal to supply which is also where MC is equal to MB meaning total surplus is maximized and allocative efficiency is achieved

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what is market failure

A

when markets are inefficient and either under or over produce

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

what happens in under production

A

marginal benefit exceeds marginal cost and a deadweight loss is created shrinking total surplus

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what happens in over production

A

marginal cost exceeds marginal benefit and a deadweight loss is created shrinking total surplus

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

what are the sources of market failure

A

taxes and subsidies, price and quantity regulations, externalities, public goods and common resources, monopoly, high transaction costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
how do taxes and subsidies lead to ineficiency
taxes decrease price received and increase price paid leading to underproduction, subsidies decrease price paid and increase price received leading to overproductsion
26
how do externalities lead to ineficiency
external costs lead to overproduction and external benefits lead to underproduction
27
how do public goods and common resources lead to ineficiency
it is in everybody's interest to not pay for public goods(free-rider problem) leading to underproduction. it is in everybody's interest to use common resources leading to overproduction
28
How do monopolies lead to ineficiency
It is in the controlling firms best interest to increase scarcity leading to underproduction
29
how do high transaction costs lead to ineficiency
transaction costs lead to underproduction
30
how is fairness determined
fair results mean that everybody ends up with equal resources(utilitarianism). fair rules means that people in similar situations are treated similarly
31
what are the two rules that are argued to create fairness
there must be enforced laws that establish and protect private property. private property must be transferred from one to another by only voluntary exchange
32
what is a price ceiling/cap
a regulation making it illegal to charge more than a certain price for a good or service
33
what do price ceilings create
illicit markets, increased search activity, shortages
34
how do price ceilings create ineficiency
price ceilings below the equilibrium make MB exceed MC creating a deadweight loss and an area of potential loss from increased search activity
35
are price ceilings fair
not according to fair rules because it blocks voluntary exchange and not according to fair results because resources are not allocated any more to the poor than they were
36
what is a price floor
a regulation making it illegal to trade at a price under a specified level
37
how do price floors create ineficiency
a price floor above the equilibrium creates a surplus of labour and a deadweight loss as well as potential losses from increased search activity
38
what is tax incidence
the division of the tax burden between buyers and sellers
39
what does a tax on sellers do
shifts the supply curve left increasing price paid by buyers, decreasing price received by sellers, and decreasing quantity boght
40
what does a tax on buyers do
shifts the demand curve left increasing the price paid by buyers, decreasing the price received by sellers, and decreasing the quantity bought
41
what is a tax wedge
the concept that no matter who the tax is imposed on the outcome is the same regarding tax incidence. the equilibrium quantity becomes the point where the vertical gap between supply and demand equals the tax
42
how does a tax create ineficiency
a tax decreases quantity bought and causes marginal benefit to exceed marginal cost creating a deadweight loss, shrinking total surplus, and creating an area of tax revenue
43
what determines tax incidence
elasticity. tax is entirely on buyers when demand is perfectly inelastic or supply is perfectly elastic, and tax is entirely on sellers when supply is perfectly inelastic or demand is perfectly elastic
44
what is the benefits principle
whoever receives the most benefit from government services should pay the most tax
45
what is the ability to pay principle
the idea that whoever can pay the most taxes should pay the most taxes. reinforces the benefits principle
46
what is a production quota
a regulation that sets a maximum on the amount that can be produced in a period
47
what is a subsidy
a payment made by the government to a producer
48
how do quotas create inefficiency
a quota below the equilibrium quantity decreases quantity produced making MB exceed MC making an incentive for producers to cheat
49
how do subsidies create ineficiency
a subsidy increases the supply curve which increases quantity produced, increases cost, and decreases price meaning MC exceeds MB
50
what is the budget line
the limits to a households consumption choices. the line that connects the most someone can buy of one product using all their income with the most they can buy of another product using all of their income
51
what is the budget equation
expenditure = income
52
what is real income
a persons income expressed int the quantity of an item they can purchase with al of their income
53
what is relative price
the price of one good divided by another good. it is the magnitude of the slop of the budget line. it is how much of an item must be forgone to get an additional unit of another item and is an opportunity cost
54
what is an indifference curve
a line that shows the combinations of two items in which a consumer is indifferent. always looking to move to a higher indifference curve as any point on a higher curve is preferred to any point on a lower curve
55
what is marginal rate of substitution
the rate at which someone is willing to give up good y to get an extra unit of good x. it is the magnitude of the slope of the indifference curve
56
what is the diminishing marginal rate of substitution
the general tendency for a person to be willing to give up less of good y to get one more good x while remaining indifferent as quantity of x increases
57
what is the best affordable choice
the point on the budget line that is on the highest possible indifference curve. this is where relative price equals MRS
58
what is the price effect
the effect of a change in price of a good on the quantity of the good consumed
59
what is the income effect
the effect of a change in income on the quantity of a good consumed
60
what is a firm
an institution that hires and organizes factors of production to produce and sell goods
61
what is the difference between accounting profit and economic profit
accounting profit is total revenue minus total costs. economic profit is total revenue minus total costs with total costs being the opportunity cost of production
62
what is a firms opportunity cost of production
sum of the cost of using resources bought in the market, owned by the firm, supplied by the firms owner
63
why are resources bought in the market an opportunity cost
because the amount spent to purchase could have been spent on some other good or service
64
why are resources owned by the firm and opportunity cost
could have sold capital and rented from another firm. the firm is implicitly renting from itself. the opportunity cost is called the implicate rental rate
65
what is implicit rental rate made up of
economic depreciation and interest forgone
66
why are resources supplied by the owner an opportunity cost
the profit an entrepreneurship can expect to make is normal profit and is an opportunity cost and the salary forgone is an opportunity cost
67
what is the short run
the timeframe where at least one factor of production can not be changed. typically plant
68
what is the long run
the timeframe where all factors of production can be changed
69
what is a sunk cost
a cost that the firm can not get back
70
how can a firm increase output in the short run
increase labour
71
what are the three relationships between labour and output
total product, marginal product, average product
72
what is the total product
the total of all product produced with a given amount of labour
73
what is marginal product
the increase in total product that comes from an additional unit of labour
74
what is average product
the average output coming from each unit of labour. the total product divided by units of labour
75
what happens as labour increases
TP increases, MP increases then decreases, AP increases then decreases
76
why does marginal product increase then decrease as labour increases
initial increase comes from specialization and division of labour, decrease comes from each additional worker having less capital to use and less space to work
77
what is the law of diminishing returns
as a firm uses more of a variable input in a given quantity of fixed inputs, the marginal product of the variable input eventually decreases
78
how are marginal and average product related
when MP exceeds AP, AP is increasing. when MP is less and AP, AP is decreasing. when MP intersects AP, AP is at its maximum
79
what are the three cost concepts
Total cost, marginal cost, average cost
80
how does technology affect cost and product curves
more efficient production will shift cost curves down and product curves up. if the firm uses more capital fixed costs will increase and variable costs will decrease.
81
how do prices of factors of production affect cost and product curves
if prices increase cost curves will increase and shift. if fixed costs increase total cost and ATC will increase and marginal cost will not change. if variable costs increase TC, ATC and MC will all increase
82
what is the production function
relationship between maximum output possible and quantities of both capital and labour
83
what is marginal product of capital
the amount of additional product that is made for each unit increase in capital
84
how are the size/amount of plant and long run ATC connected
the greater the amount of plant the greater quantity where ATC minimum is achieved
85
what is the long run average cost curve
the relationship between the lowest attainable average total cost and output when both plant and labour are varried
86

Micro Econ (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions