Principles of Econ Exam 2 Flashcards
Definition
Constant unitary elasticity
when a given percent price change in price leads to an equal percentage change in quantity demanded or supplied
Definition
price elasticity of demand
percentage change in the quantity demanded of a good or service divided the percentage change in price (Denoted:E d)
Definition
elastic demand
Demand is greater than one high of quantity demanded or supplied in price
Definition
elastic supply
The elasticity of either greater than responsiveness of quant or to changes in price
Definition
elasticity
An economics Concept that measures responsiveness of one variable two changes in another variable
Definition
elasticity of savings
The percentage change in the quantity of savings divided by the percentage change in interest rates
Definition
income elasticity of demand
The percentage change in the quantity of good A that is demanded as a result of a percentage change in income (Denoted E i)
Definition
inelastic demand
When the elasticity of demand is less than one, indicating that a one percent increase in price paid by the customer leads to less than a 1% change in purchases (and vice versa); this indicates a low responsiveness by consumers to price changes
Definition
Inelastic supply
When the elasticity of supply is less than one, indicating that a one percent increase in price paid to the firm will result in a less than one percent increase in production by the firm; this indicates a low responsiveness of the firm to price increases (and vice versa if prices drop)
Definition
infinite elasticity (a.k.a. perfect elasticity)
The extremely elastic situation of demand or supply where quantity changes by an infinite amount in response to any change in price; horizontal and appearance
Definition
Price elasticity
The relationship between the percent change in price resulting in a corresponding percentage change in the quantity demanded or supplied
Definition
Price elasticity of demand
Percentage change in the quantity demanded of a good or service divided by the percentage change in price
Definition
Price elasticity of supply
Percentage change in the quantity supplied divided by the percentage change in price
Definition
unitary elasticity
When the calculated elasticity is equal to one indicating that a change in the price of the good or service results in a proportional change in the quantity demanded or supplied
Definition
wage elasticity of labor supply
The percentage change in hours worked divided by the percentage change in wages
Definition
zero inelasticity
(a.k.a. Perfect inelasticity) the highly inelastic case of demand or supply in which a percentage change in price, no matter how large, results in zero change in the quantity; vertical in appearance
Chapter 6
Consumer Choices
Definition
behavioral economics
a branch of economics that seeks to enrich the understanding of decision-making by integrating the insights of psychology and by investing how given dollar amounts can mean different things to individuals depending on the situation
Definition
budget constraint
(or budget line) shows the possible combinations of two goods that are affordable given a consumer’s limited income
Definition
consumer equilibrium
point on the budget lines where the consumer gets the most satisfaction; this occurs when the ratio of the prices of goods is equal to the ratio of the marginal utilities. Look back at Chapter 6 Study guide for calculation
Definition
deminishing marginal utility
the common pattern that each marginal unit of a good consumed provides less of an addition to utility that the previous unit
Definition
fungible
the idea that units of a good, such as dollars, ounces of gold, or barrels of oil are capable of mutual substitution with each other and carry equal value to the individual
Definition
income effect
a higher price means that, in effect, the buying power of income has been reduced, even though actual income has not changed; always happens simultaneoulsy with a substitution effect
Definition
marginal utility per dollar
the additional satisfaction gained from purchasing a good given the price of the product; MU/Price
Definition
substitution effect
when a price changes, consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price; always happens simultaneously with an income effect
Definition
total utility
satisfaction derived from consumer choices
Chapter 7
Production, Cost, & Industry Structure
Definition
accounting profit
total revenues minus explicit costs, including depreciation
Definition
average profit
profit divided by the quanity of output produced; also known as profit margin
Definition
average total cost
total cost divided by the quantity of output
Definition
Average variable cost
variable cost dividded by the quantity of output
Definition
constant returns to scale
expanding all inputs proportionately does not change the average cost of production
Definition
diminidhing marginal productivity
general rule that as a firm employs more labor eventually the amount of additional output produced declines
Definition
diseconomies of scale
the long-run average cost of producing output increases as total output increases
Definition
economic profit
total revenues minues total costs (explicit plus implicit costs)
Definition
economies of scale
the long-run average cost of producing output decreases as total output increases
Definition
explicit costs
out-of-pocket costs for a firm, for example, payments for wages and salaries, rent, or materials (these costs have an associated paper trail of spending by the firm)
Definition
factors of produciton (or inputs)
resources that firms use to produce their products, for example, land, labor, and capital
Definition
firm
an organization that combines inputs of labor, capital, land, and raw or finised component materials to produce outputs
Definition
fixed cost
cost of the fixed inputs; expenditure that a firm must make before production starts and that does not change regardless of the production level
Definition
fixed inputs
factors of production that can’t be easily increased or decreased in a short period of time
Definition
implicity costs
opportunity cost of resources already owed by the firm and used in business, for example, expanding a factory onto land already owned
Definition
Long run
period of time during which all of a firm’s inputs are variable
Definition
Long-run average cost (LRAC) curve
shows the lowest possible average cost of production, allowing all the inputs to production to vary so that the firm is choosing it’s production technology
Definition
Marginal cost
the additional cost of producing one more unit; mathematically, MC=Change in TC/Change in ??
Definition
Marginal product
change in a firm’s output when it employees more labor; mathematically, MP=Change in TP/ Change in L
Definition
pricate enterprise
the ownership of businesses by private individuals
Definition
Production
the process of combining inputs to produce outputs, ideally of a value greater than the value of the inputs
Definition
Production function
mathematical equation that tells how much output a firm can produce with given amounts of the inputs
Definition
production technologies
alternative methods of combining inputs to produce output
Definition
revenue
income from selling a firm’s product; defined as price times quantity sold (also known as total revenue).
Definition
short run
period of times furing which at least one or more of the firm’s inputs is fixed
Definition
short-run average cost (SRAC) curve
the average total cost curve in the short term; shows the total of the average fixed costs and the average variable costs
Definition
total cost
the sum of fixed and variable costs of production (a.k.a. :costs, costs of production)
Definition
total product
synonym for a firm’s output (a.k.a. Quantity, total amount produced)
Definition
Variable cost
cost of production that increases with the quantity produced; the cost of the variable inputs
Definition
Variable inputs
factors of production that a firm can easily increase or decrease in short period of time
BIG time FORMULA
Accounting Profit:
Total revenue minus Explicit Cost
BIG time FORMULA
Economic Profit
Total Revenue minus Explicit Cost minus Implicit Cost
BIG time FORMULA
Profit
Total Revenue minus Total Cost
BIG time FORMULA
Total Revenue
Price multiplied by Quantity
BIG time FORMULA
Total Cost
Fixed + Variable Cost
Which best describes the availability of substitutes in a monopoly?
There are no substitutes.
Wellness Pharmaceuticals has released a new antidepressant, Lexabuzac. Which type of monopoly does the company most likely have on this medication?
technological monopoly
The market for which item generally involves pure competition?
corn
Which best describes how the government enables government monopolies to exist?
by creating and running a monopoly
Who sets the price in a monopolistic competition?
producers and consumers
The lack of competition within a monopoly means that
monopolists set their own price
Why is competition limited in an oligopoly?
High entry costs prevent new producers from entering the market.
Which is an example of a government monopoly in the United States?
the US Postal Service
When an oligopoly exists, how many producers dominate the market?
a few
Perfect Competition
▪ Many buyers and sellers
▪ Homogeneous (standardized or identical) products
▪ Each firm has small market share
▪ Equal access to information
▪ No barriers to market entry or exit
▪ No long-run economic profits
▪ No control over price
Monopolistic Competition
▪ Many buyers and sellers
▪ Each supplier has a small market share
▪ Differentiated products (not identical)
▪ Possible restrictions on information
▪ No barriers to market entry or exit
▪ No long-run economic profits
▪ Some control over price
Oligopoly
▪ Fewer- Firms (such as the cell phone companies)
▪ Some firms can have large market shares
▪ Homogeneous or differentiated products
▪ Mutually interdependent decisions
▪ Possible restrictions on information
▪ Substantial barriers to market entry
▪ Potential for long-run economic profits
▪ Shared market power and considerable control over price
