Midterm 1 Flashcards
Consumption of good 1 ⬆️ (P⬇️)
Consumption of good 2 ⬇️ (P⬆️)
Relationship of the goods?
Substitutes
Price elasticity of a necessity good?
Less elastic
More substitutes; D elasticity?
More elastic D
Movement UP D curve; elasticity will?
Increase
Increased P means movement __ D curve, and an increased Q
UP (right)
Factors increasing Q demanded
- P⬇️
- P (substitute) ⬆️
- (consumer) I ⬆️
Effects of ⬆️ length of planning horizon
Fixed costs ⬇️
# variable inputs ⬆️
The extra total cost (TC) of one more unit of output
Marginal Cost (MC)
⬆️ output price = __ Q supplied
⬆️
Why does Qs increase when output price increases?
Individual producers move along their MC curves
MC shifts UP when:
There’s a change in input prices or technology
If the associated production function displays Stage III of production, what will happen to MVP?
It will eventually become negative
What is the Law of Diminishing Returns?
As we use more variable input, eventually additional output (added by input) will start to decrease; MPP⬇️
If a production fxn obeys the law of diminishing returns, then as we increase the level of variable input used in production, what happens?
Eventually MPP will start to decrease
Slope of input demand functions?
Downward sloping
P of an input ⬇️ 🟰 Q demanded of input by producers __
⬆️
When is Economic Welfare maximized?
At long-run market equilibrium in perfectly competitive markets
Consumer Surplus is defined by:
Aggregate well-being for consumers in the market based on what they would be willing to pay
Reasons for DWL:
- overuse of resources (in the market)
- resources not being utilized to their best
- negative economic rent being generated (in the market)
Negative economic rent (negative profits) is when:
There is oversupply
(For any quantity beyond the point where the market price intersects the supply curve)
Optimal level of input (for a profit maximizing producer):
The extra value generated from the next unit of input used is equal to the Marginal Factor Cost (MFC)
Where MVP = MFC
Profit maximization
DWL from ⬇️ eq Q due to shift in consumer tastes & preferences because:
There is no DWL
What does technical change represent?
A shift in the production function. Production can increase with same or less input for same output level.
MC shifts down and out when:
A decrease in cost for any given level of output
Competitive goods _______ for limited resources
Compete
Price of a substitute is a ________ ________ for its substitut’s supply function
Supply shifter
VMP = __ x ____
VMP = p x MPP
Income is a ______ shifter
Demand
If price is staying the same, then why is quantity changing?
From a SHIFT in the D curve
