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microeconomics > séance 1 > Flashcards

séance 1 Flashcards

1
Q

what is the definition of trade?

A

Trade is a voluntary act between two parties, each giving something to the other in exchange for something else in return

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2
Q

T or F: parties involved in a trade are always better off after the trade than before

A

yes because they have both agreed to it

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3
Q

what does utility represents?

A

Represents the satisfaction an individual derives from an activity – measure how better off (related to satisfaction)

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4
Q

what are the advantages of the notion of utility?

A
  • takes the context into account (rich vs poor)

- considers things other than just money

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5
Q

what are the drawbacks of the notion of utility?

A
  • difficult/impossible to measure

- subjective

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6
Q

what is the definition of buyer valuation (V)?

A

largest amount the buyer is willing to pay to obtain a given object

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7
Q

what is the alternative terminology of buyer’s valuation?

A

willingness to pay

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8
Q

what is the advantage of valuation?

A

it is measurable: it is monetary and measurable representation of utility

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9
Q

TF: valuation is an absolute notion

A

F: it is not an absolute notion: it is subjective and different for everyone

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10
Q

what is the definition of seller’s valuation? (C)

A

smallest amount the seller will accept to get rid of the object

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11
Q

what is seller’s valuation related to ?

A

it is related to the cost to the seller (cost of obtaining the object, opportunity cost, etc)

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12
Q

what is the alternative terminology of seller’s valuation?

A

willingness to accept or reservation price

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13
Q

what is the free trade condition?

A

C =< P =< V

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14
Q

TF: if P

A

F: the buyer refuses to buy if P>V

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15
Q

TF: if P

A

V

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16
Q

what can we say about the individuals concerned in a free trade?

A

neither agent can be forced to take part in the trade

17
Q

what are the gains from trade of the buyer? (surplus)

A

V-P

18
Q

what are the gains from trade of the seller? (surplus)

A

P-C

19
Q

what are the total gains from trade equal to?

A

V-C

20
Q

TF: total gains from trade are dependant of P

A

F: total gains from trade are independent from the price

21
Q

TF: the more 2 ppl differ from their valuation of a good, the more gains are made from the trade

A

T

22
Q

what is the definition a buyer’s total valuation? V(q)

A

it is the willingness to pay to obtain q units of the good

23
Q

what is the definition of a buyer’s marginal valuation? MV(q)

A

it is the willingness to pay to obtain one extra unit of the good (valuation of an additional unit)

24
Q

how to compute MV(q)?

A

MV(q) = V(q) - V(q-1)

25
Q

a buyer will buy units of a good as long as…

A

MV(q) > P

26
Q

we say that to know how many units are traded, we need to compare MV and P. what is called that kind of reasoning?

A

thinking at the margin

27
Q

what does the surface sous la courbe of MV represents?

A

it represents the valuatin

28
Q

what is the definition of seller’s marginal cost? (MC)

A

it is the willingness to accept in exchange of q units of the good: minimum amount necessary for the seller to sell one more unit of the good

29
Q

how to compute MC?

A

MC(q) = C(q) - C(q-1)

30
Q

a buyer will sell units of a good as long as…

A

MC(q) < P

31
Q

TF: as a seller, you want to maximize the nb of items sold

A

F: you want to maximize profit, not the nb of items sold

32
Q

TF: thinking at the margin always gives the result of a maximized profit (surplus)

A

yes

33
Q

how can we compute total gains from trade from the graph?

A

aire sous la courbe entre MV(q) et MC(q)

34
Q

what is the definition of an efficient situation (pareto)?

A

a situation is efficient if it is impossible to make someone better off without making someone else worse off

35
Q

what can we say about surplus at the efficient, optimal amount of goods traded?

A

profit (surplus) is maximized

36
Q

when the situation is efficient, the point of maximal surplus is …

A

goods must be traded until MV(q) = MC (q); which is the optimal amount of trade

37
Q

TF: efficiency is related to the price

A

F: efficiency is related to a qty traded, not a price

38
Q

what is the distinction between valuation and value

A
  • valuation: subjective, related to individual preferences and production possibilities
  • value: objective, resulting from a market process

microeconomics (11 decks)

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