Unit 2 Flashcards
Scarcity of a good ___ price, ___ marginal utility, and ___ total utility.
raises; raises; reduces
The ___ is the point that maximizes both total net utility and quantity of a good.
Optimal Purchase Quantity
___ x ___ = Total Revenue
Price and Quantity
Utility is ___, meaning one thing is preferred to another, but not ___, which means it can not be explicitly measured.
Ordinal; Cardinal
___ is the usefulness of a good/product/activity or the satisfaction from consuming a good/getting a service/partaking in an activity
Utility
In an elastic model, what effect would a small increase in price have on quantity demanded and total revenue?
Large decrease for each
What would the demand curve for a perfectly inelastic good look like?
Vertical line; Quantity demanded stays the same regardless of Price.
Which of the following items are likely to be normal goods? Which are likely to be inferior goods?
A. Expensive perfume
B. Paper plates
C. Secondhand clothing
D. Overseas trips
- Normal: A, D
- Inferior: B, C
___ is the addition to total utility that you derive by consuming one more unit of X.
Marginal Utility
How is marginal revenue product calculated?
Marginal physical product x price of output
Consumers will select the most desired combination of goods obtainable for their money. How can this combination be found?
It is the point on the budget line at which the budget line is tangent to an indifference curve.
What does the slope of the indifference curve represent?
The terms on which the consumer is willing - according to his own preference - to trade one good for the other. (slope = # of units of good M he would give up for one unit of good N)
How can we use slopes to determine the point where the budget line is tangent to an indifference curve?
The slopes of the budget line and the indifference curve will be equal at the tangency point
In an inelastic model, what effect would a large increase in price have on quantity demanded and total revenue?
Small decrease for quantity demanded; Increase for total revenue
The slope of a(n) ___, referred to as the marginal rate of substitution (MRS) between the commodities, represents the maximum amount of one commodity that the consumer is willing to give up in exchange for one more unit of another commodity.
indifference curve
What is the formula for Average Costs? (In terms of fixed and variable costs)
Average Fixed Costs + Average Variable Costs
The ___ is a period of time at which point all of the firm’s current commitments have come to an end.
Long run
___ is the largest sum of money that a particular consumer will volunatrily give up in exchange for a particular bundle of goods.
Total Monetary Utility
As a rule, as a person acquires more of a commodity, total utility ___ and marginal utility from that good ___, all other things being equal.
increase; decreases
An output level can maximize total profit only if marginal profit is ___ zero.
equal to
___ is the ratio of the percentage change in quantity demanded to the percentage change in price that brings about the change in quantity demanded.
Elasticity
The ___ says that an increase in the amount of any one input, holding the amounts of all others constant, ultimately leads to lower marginal returns to the expanding input.
Law of Diminishing Marginal Returns
If demand for a product is exactly unit-elastic, what effect would a price increase have on total revenue?
No effect
The ___ shows the relationship between price and quantity demanded in the markey as a whole.
Market Demand Curve
What would the demand curve for a perfectly elastic product look like?
Horizontal line; Price stays constant regardless of quantity demanded or else quantity demanded falls to zero.
Suppose that a firm’s management will be pleased to increase its share of the market, but if it expands its production, the price of its product will fall. Will its profits fall as well?
Not necessarily
