Microeconomics
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Created by:
amandapaul18 on December 14, 2011
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46 terms
Terms | Definitions |
|---|---|
 Price Taker | will expand as long as marginal cost is less than the market price -small relative to the market -sell an identical product -in a market w many buyers and no barriers to exit or entry |
| How many things would a price taker sell above the market price? | 0 |
| Why do economists like competition? | -reduces costs -reduces prices -forces firms to become more efficient and innovate -shifts resources from unproductive areas to productive areas |
| Economics | the branch of social science that deals with the production and distribution and consumption of goods and services and their management |
| Scarcity | The concept that there is less of a good freely available from nature than people would like |
| Positive Economic Statements | testable |
| Normative Economic Statements | not testable |
| Ceteris Paribus Principle | everything else is held constant |
| Nirvana Fallacy | The logical error of comparing actual things with unrealistic, idealized alternatives. Tendency to assume that there is a perfect solution to a particular problem. |
| Fallacy of Composition | The belief that what is true for one is true for all |
| Middle Men | -reduces transaction costs -a person who buys or sells goods or arranges trade |
| Production Possibilities Curve (PPC) | bowed-out production possibilities curves illustrate increasing opportunity cost, whereas straight-line production possibilities curves illustrate constant opportunity cost |
| Efficient Points (PPC) | points on the curve, maximum productivity |
| Inefficient Points (PPC) | points within the curve, not producing at maximum productivity |
| Unattainable Points (PPC) | points outside the curve, not possible with current resources |
| Law of Comparative Advantage | The worker, firm, region, or country with the lowest opportunity cost of producing an output should specialize in that output |
| Capitalism | -better than socialism -market organization -an economic system based on private property and free enterprise |
| Socialism | a political theory advocating state ownership of industry |
| Consumer Surplus | 1/2bXh, area below the demand curve but above the price, the difference between the maximum consumers are willing to pay and what they will actually pay |
| Quantity Demanded or Supplied | Movement along the curve caused by change in the price of the good in question |
| Change in Demand or Supply | A change in anything that affects demand aside from the price of the good |
| Producer Surplus | 1/2bXh, area above the supply curve but below the price, the difference between the minimum producers are willing to acccept and what they actually accept |
| Average Total Cost (ATC) | TFC+TVC=TC / Q =ATC |
| Elastic | Changes in quantity are sensitive to changes in price (flatter) |
| Inelastic | Changes in quantity are not as sensitive to the change in price (steeper) |
| Labor Market | same as market for goods and services w a different name for price/quantity; Price=Wage, Quantity=Employment |
| Subsidies | Money the government pays to the buyer or seller when a good is purchased or sold |
| principal agent problem | a problem caused by an agent pursuing his own interests rather than the interests of the principal who hired him |
| Average Fixed Cost (AFC) | will always decrease as output expands |
| Economies of Scale | falling average total costs as you produce more output |
| What's the equation for a business to stay open? | MR=MC |
| Price elasticity (demand) is larger when...? | people spend a large share of their income on the product |
| Diseconomies of Scale | long run average total costs rise as you produce more output |
| Proprietorship | Business owned by a single individual who is fully liable for all debts |
| What distinguishes a competitive price searcher from a price taker market? | Firms in price-searcher produce differentiated prices |
| Price Searcher | marginal revenue curve will lie below its demand curve |
| Contestable Market | costs of exit and entry are low |
| Why do economists generally criticize high barriers to market entry? | the ability of consumers to discipline producers is weakened |
| What would reduce the likelihood of effective collusion among oligopolistic producers? | low entry barriers into the market |
| Physical Resource | resources made by man through his abilities and skill, would help man's daily activities become easy Ex:buildings, technology |
| What is the market demand of an item? | the sum of individual demands |
| All things equal, the price elasticity of supply | will be greater in the long run than short run |
| Why does the government sometimes provide public goods? | free-riders make it difficult for private markets to supply the efficient quantity |
| Law of Diminishing Returns | a firm will experience rising per unit costs in the short run |
| External Costs | overproduced |
| External Benefits | underproduced |
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