Test 2 Flashcards

1
Q

linear demand curve

A

constant slope

elasticity varies

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2
Q

log linear demand curve

A

constant elasticity

slope varies

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3
Q

inelastic and total revenue

A

price increases, total revenue increases

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4
Q

elastic and total revenue

A

price increase, total revenue decreases

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5
Q

perfectly elastic chart

A

lots of substitutes

straight horizontal demand line

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6
Q

perfectly inelastic chart

A

not responsive to price change

straight vertical demand line

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7
Q

consumer preference order

A

completeness: can’t say “ i don’t know”
more is better
marginal rate of substitution: slope of indifference curve
transitivity

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8
Q

diminishing marginal rate of substitution

A

as you move down along the indifference curve, the amount of y you give up for x diminishes

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9
Q

market rate of subsititution

A

slope of budget line

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10
Q

consumer equilibrium

A

marginal rate of substitution and market rate of substitution are equal

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11
Q

3 different production functions

A

linear
leontief
cobb-douglas

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12
Q

marginal rate of technical substitution

A

slope of isoquant line

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13
Q

isoquant

A

combination of different levels of K and L to get same output

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14
Q

isocost

A

combinations of inputs that will cost the same amount

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15
Q

diseconomies of scales

A

LRAC increases as output increases

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16
Q

economies of scope

A

the cost of producing two types of output together is less than the total cost of producing each type seperately

17
Q

cost complementary

A

marginal cost of one good decreases when the production of another good increases
EX: donuts and donut holes

18
Q

transaction costs

A

searching costs
negotiation costs
specialized investment: site specificity, physical assets, human capital

19
Q

spot exchange

A

one time transaction
no protection against opportunism or hold ups
pros: firm gets to specialize
con: no protection

20
Q

contract

A

specific terms defined
reduces possibility of opportunism
pro: firm gets to specialize
con: costly to write, hard to cover all contingencies

21
Q

vertical integration

A

firm produces its own inputs
no longer specializes
pro: no loner relies on other firms
con: must make all inputs and deal with costs associated

22
Q

principal agent problem

A

solution: profit sharing
revenue sharing
piece rates
time clocks and spot checks

23
Q

Site specificity

A

EX: electric power plants locate close to coal mine

firms build close to one another to minimize transportation costs

24
Q

physical assets specificity

A

EX: specialized motor for lawn mower

equipment is specialized for a particular buyer and can not be adapted

25
dedicated assets
EX: computer manufacturer established new assembly line to produce for large government buyer if investment is profitable it is dedicated
26
human capital
workers learn specific skills, if skills are not transferable to other employees
27
profit sharing
compensation dependent upon profitability of firm
28
revenue sharing
compensation dependent upon revenues of firm, like tips and sales commission EX: waiters con: do not provide incentive to minimize costs
29
piece rates
based on the output EX: typist is paid by the page he produces con: quality control
30
time clocks and spot checks
time clocks: employee arrives on time, do not monitor effort spot checks: verifies workers are present and their effort pro: minimize cost of monitors
31
factors affecting own price elasticity
available subs: the more substitutes, the more elastic time:the longer the time, the more elastic expenditure share: the smaller the share of the budget a good has, the more inelastic