# MicroEconomics

### 86 terms by triplett21

#### Study  only

Flashcards Flashcards

Scatter Scatter

Scatter Scatter

## Create a new folder

### A Beautiful Mind

The Nash equilibrium is used in this movie

### Normative Analysis

What should be. Should the government provide free prescription drugs to senior citizens.

How it is.

### Factors of Production

Natural resources, Labor, Physical Capital, Human Capital

### Ceteris Paribus

All other things being equal or held constant

### Marginalize

What happens if 1 more unit is produced? Changes: Cost, Revenue

C(Q+1) - C(Q)

### Demand curve

Downward sloping (Negative relationship)

### Law of Demand

Quantity demanded increases and price decreases

### Market Demand Curve

Aggregation of individual Demand curves

Upward sloping

### Law of Supply

Quantity supplied increases as price increases

### Positive Relationship

2 variables move in the same directions

### Negative Relationship

2 variables move in the opposite directions

### Opportunity Cost

Cost of going to college: includes wages you lose by going to school instead of working

### Law of increasing opportunity costs

As output increases for 1 good on production possibility curve, the opportunity cost of a additional units of other goods will be greater.

### Production possibilities curve

Shows the possible combinations of products that an economy can produce , given that is productive resources are fully employed and efficiently used. (Shaded areas are attainable)

### Voluntary exchange

Party A and party B are Both better off (Student/College)

### Self sufficiency

Each of us could produce everything for themselves

### Marginal Benefit

Additional benefit resulting from a small increase in activity

### Marginal Cost

Additional cost resulting from a small increase in some activity

### Marginal Principle

Increase level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which they equal each other.

### Price below market equilibrium

Excess demand/Shortage

### Price above market equilibrium

Excess supply/Surplus

### Principle of diminishing returns

Output is produced with 2 or more inputs, and we increase 1 input while holding the other inputs fixed

### Real nominal principle

What matters to people is the purchasing power of their money

Face value of \$.

### Market supply curve

Price & Quantity supplied. Positively sloped

### Normal good

An increase in income increases demand. New clothes or Movies

### Inferior good

An increase in income decreases demand. Homemade coffe or DVD's

### Substitutes

2 goods in which an increase in \$ of 1 increases demand of another. Taco \$ goes up, switch to pizza instead

### Complements

2 goods which a decrease in \$ of 1 increases demand of another. Pizza + Lemonade, Lemonade goes down, increase demand in pizza.

### Price elasticity of demand

Measure of the responsiveness of quantity demanded to changes in price.

### Elastic demand

Price elasticity > |1|. % change in quantity > % change in price. Relationship between price and total revenue is negative.

### Inelastic demand

Price elasticity < |1|. % change in quantity < % change in price. Relationship between price and total revenue is positive.

### Unit elastic demand

Price elasticity = 1. % change in quantity = % change in price. Total revenue does not vary with price.

### Perfectly elastic demand

Price elasticity of demand = infinite, demand drops to zero with an increase in price, demand curve is horizontal

### Perfectly inelastic demand

Price elasticity of demand = 0, demand does not change with change in price, demand curve is vertical

### Demand is relatively elastic if...

There are many substitutes, A long time passes, Fraction of the consumer budget is large, Product is a luxury

### Demand is relatively inelastic if...

There are few substitutes, A short time passes, Fraction of the consumer budget is small, Product is a necessity

### Perfectly inelastic supply

Price elasticity of supply = 0

### Price Ceiling

Max price set by government. Encourages consumers to buy more and producers to produce less.

### Price Floor

Minimum price set by government. Encourages consumers to buy less and producers to produce more.

Difference between total burden of tax & the amount of revenue collected by the government.

### Utility

Satisfaction experienced from consuming a good

### Util

One unit of utility

### Total Utility

How happy you are.

### Marginal Utility

Change in total utility from one additional unit of a good

### Law of Diminishing Marginal Utility

As the consumption of a particular good increase, marginal utility decreases

### Equimarginal Rule

Pick the combonation of the 2 where marginal benefit per dollar for the 1st activity = marginal benefit per dollar for the 2nd activity.

### If the firms fixed cost increases by \$3000 due to a new government regulation...

The average variable cost curve shifts upward

P>AVC

### A firms marginal cost curve above the average variable cost curve is also...

The firms short-run supply curve

### If the market demand decreases for a good sold in a perfectly competitive market, firms in the market...

Will receive a lower price for their product

Will be zero

### A constant cost industry is one in which...

Input prices do not change as output changes in the long-run

Price Taker

### What is an example of a barrier to entry?

The government grants licenses to taxicab drivers, without which it is illegal to operate a taxicab.

### Monopoly may arise due to..

A patent, network externalities and large economics of scale

### Government allows firms to engage in price discrimination unless it...

Drives rival firms out of business

### When a second firm enters a monopolistic market...

Market price will drop

### When there are just a few firms in the industry, the industry structure is most likely to be..

An oligopoly market

### Cartel

A group of firms that coordinate their pricing decisions

### In general, the quantity of output in an oligopoly market is..

Lower than in perfect competition

### A dominant strategy is one that...

Is the best choice under all conditions

### A low price guarantee on a car stereo leads to...

Higher prices for consumers

### Limit Pricing occurs when a firm sets price...

So low that other firms are prevented from entering the market

### Monopolistic competition

Many firms, differential product type, Elastic demand curve, nor barriers to entry, Ex. Toothbrush

### Perfect Competition

Many firms, Homogenous product type, perfectly elastic demand curve, no barriers to entry, Ex. Corn

### Oligopoly

Few firms, Homogenous or different product type, more elastic than monopoly demand curve, Barrier to entry (Gov. Limit), Ex. Air Travel

### Monopoly

One firm, Unique product type, Typically downward sloping demand curve, barriers to entry, Ex. Local Electric

### Marginal product of labor

Change in output from one additional unit of labor

### Explicit cost

Opportunity cost of resources employed by a firm that takes the form of cash payments

### Total product curve

Shows the relationship between the quantity of labor & the quantity of output produced. Ceterus Paribus

### Relationship between marginal cost and average cost

When marginal cost is less than the average cost, the average cost is falling and when marginal cost exceeds average cost, the average cost is rising.

### Indivisible input

Cannot scale down to produce a smaller quantity of output. Ex. Railroad tracks

### Economies of scale

Situation in which the long run average cost of production decreases as output increases

### Minimum efficient scale

Output at which scale economies are exhausted

### Diseconomies of scale

Long run average cost of production increases as output increases. 2 reasons why. 1. Coordination problems 2. Increasing input costs

### Price Taker

A buyer or seller that takes the market price as given

### Price Maker

Able to affect the price

### Firm specific demand curve

Curve showing relationship between price charged by specific firm & the quantity a firm can sell

### Shut down price

= Average Variable Cost

### Herfindahl-Hirschman Index (HHI)

Squaring the market share of each firm and then summing the resulting #'s

### Nash Equilibrium

Outcome of a game in which each player is doing the best he or she can, given the action of the other player

Example: