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ECON 101 MICRO > Midterm 2 > Flashcards

Midterm 2 Flashcards

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1
Q

Price Elasticity of Demand

A

Measures the responsiveness of Quantity Demanded to a Change in Price

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2
Q

Income Elasticity of Demand

A

Measure the responsiveness of Quantity Demanded to a change in Income

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3
Q

Elasticity of Supply

A

Measures the responsiveness of Quantity Supplied to a change in Price

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4
Q

Cross Price Elasticity

A

Measures the responsiveness of Quantity Demanded of one good to the change in Price for another good

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5
Q

Sin Tax

A

Governement taxing certain goods (cigarettes & alcohol) to indirectly generate revenue to cover the Consumers’ Tax Burden

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6
Q

3 Assumptions of Preferences

A
  1. Completeness
  2. Transitivity
  3. Nonsatiation
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7
Q

Completeness

A

Consumer has choice between 2 goods, so they rank them so that ONLY 1 of these is true:

i) Consumer prefers 1 over 2
ii) Consumer prefers 2 over 1
iii) Consumer is indifferent

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8
Q

Tansitivity

A

Consumer prefers good X over good Y, then they must prefer good W over good Z

  • Prefer pink to yellow, & prefer yellow to orange therefore you prefer pink to orange (Because pink is above yellow, which is above orange)
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9
Q

Nonsatiation

A

More of a commodity is preferred to less
- Ceteris paribus

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10
Q

Utility

A

Satisfaction, happiness, need for fulfillment consumers recieve from good/ service

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11
Q

Marginal Utility

A

Change in Utility results from incremental change in consumption of good/ service

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12
Q

Law of Diminishing Marginal Utility

A

More of a good/ service is consumed, the Smaller the Increase in Utility
- 3rd adds less than the 2nd, 4th adds less than the 3rd
- does NOT apply to $

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13
Q

Consumers’ Objective

A

To Maximize their Utility subject to their income

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14
Q

Consumer Equilibrium

A

Must satisfy BOTH conditions:
1) Consumer must spend ALL of their income
2) Gossen’s 2nd Law (Equimarginal in Consumption)

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15
Q

Discrete VS Continous

A

Discrete: CANNOT be broken into pieces
- Can’t sell 1/4 of a car
Continous: CAN be continually divided
- Sell orange juice in 1L, 250ml, etc.

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16
Q

Voluntary Programs

A

Responsibilty is on the individual
- There is NO incentive

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17
Q

Impure PRIVATE Good

A

Club good

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18
Q

Impure PUBLIC Good

A

Open access resources

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19
Q

Consumer Surplus

A

Difference between what the consumer is willing to pay & what they have to offer

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20
Q

Marginal Value

A

Value to society
- Necessary vs Luxury

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21
Q

Sunk Cost Fallacy

A

Allowing past cost decision to influence current behavior

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22
Q

OverConfidence

A

People assume they know more than they do
- Leads to bad decisions/ mistakes

23
Q

OverEmphasizing the Present

A

People put too much emphasis upon current consumption

24
Q

Framing Bias

A

Consumers may react to a small difference in price

25
Q

Warm Globe Bias

A

People make choices because they are trying to influence people’s perception of themselves

26
Q

Sole Propietorship

A

Business is owned by a single person
PROS:
- easy to form & dissolve
- decision making power resides with sole owner
- only taxed once
CONS:
- Unlimited Liability for debts of the firm

27
Q

Unlimited Liability

A

Owner’s personal assets can be seized by the firm’s creditors

28
Q

Partnership

A

Business is owned by 2+ people
PROS:
- easy to form & dissolve
- permits specialization
- spreads risk
CONS:
- Joint Unlimited Liability
- decision making is more complex

29
Q

Joint Unlimited Liability

A

Each partner is equally liable for debt acquired by business

30
Q

Corporation

A

Legal entity that may conduct business in its own name just as an individual does
- owners = shareholders
PROS:
- can raise large sums of money
- Limited Liabilty
CONS:
- subject to Double Taxation
- subject to Principal Agent Problem

31
Q

Limited Liability

A

Personal assets CANNOT be seized

32
Q

Double Taxation

A

Profits of corporation are subject to
1) Corporate Taxation
2) Income Tax

33
Q

Principal Agent Problem

A

Managers not doing what was promised to the Shareholders

  • Shareholers want to MAX firm profits
  • Managers want to MAX personal salary
34
Q

Primary Market for Stocks

A

Corporation issues a new stock
- where the 1st transaction occurs

35
Q

Secondary Market for Stocks

A

Existing stock are bought & sold

36
Q

Variable Inputs

A

Quantity of the input CAN be charged within the time period

37
Q

Fixed Inputs

A

Quantity of the input CANNOT be changed within the time period

38
Q

Short-Run

A

At least 1 input is Fixed

39
Q

Long-Run

A

ALL inputs are Variable

40
Q

Total Product

A

Total amount of labour reduced during some time period

41
Q

Law of Diminishing Marginal Returns

A

As more of an input as added to production process, eventually the increase in output will diminish
- All other inputs constant

42
Q

Accounting Costs

A

Actual expenditures & expenses for capital equipment

  • ONLY includes Explicit Costs
43
Q

Economic Costs

A

Accounting Cost + Opportunity Costs

44
Q

Fixed Costs in Short-Run

A

Costs that DO NOT change as output changes
- ex: Price of car, Registration fees

45
Q

Variable Costs in Short-Run

A

Costs that DO change as output changes
- ex: Gas, Maintenance

46
Q

Perfect Competition structure

A

Lots of little firms, homogeneous products, MANY buyers & sellers, FREEDOM of entry & exit, NO influence on market

47
Q

Monopoly structure

A

Only 1 firm

48
Q

Monopolistic Competition structure

A

Hybrid of Monopoly & Perfect Competition

49
Q

Oligopoly structure

A

Few LARGE firms, homogeneous products, power over price, HIGH entry barriers

50
Q

Marginal Revenue

A

Change in Total Revenue resulting from an incremental change in output

51
Q

Marginal Costs

A

Change in Total Cost resulting from an incremental change in output

  • Measures how much cost changes as we produce 1 more of some product
52
Q

Producers’ Surplus

A

Amount producers are paid - what they are willing to accept

  • CANNOT be negative
53
Q

Change in Quantity Demanded

A

Caused by change in product’s Price

  • Movement ALONG Demand Curve
54
Q

Change in Quantity Supplied

A

Caused by change in Price

  • Movement ALONG Supply Curve

ECON 101 MICRO (2 decks)

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