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What is 1 + 3?
A Beautiful Mind
The Nash equilibrium is used in this movie
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
All other things being equal or held constant
What happens if 1 more unit is produced? Changes: Cost, Revenue
Marginal change in cost
C(Q+1) - C(Q)
Downward sloping (Negative relationship)
Law of Demand
Quantity demanded increases and price decreases
Market Demand Curve
Aggregation of individual Demand curves
Law of Supply
Quantity supplied increases as price increases
2 variables move in the same directions
2 variables move in the opposite directions
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)
Party A and party B are Both better off (Student/College)
Each of us could produce everything for themselves
Additional benefit resulting from a small increase in activity
Additional cost resulting from a small increase in some activity
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
Price above market equilibrium
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 $.
What money can actually buy
Market supply curve
Price & Quantity supplied. Positively sloped
An increase in income increases demand. New clothes or Movies
An increase in income decreases demand. Homemade coffe or DVD's
2 goods in which an increase in $ of 1 increases demand of another. Taco $ goes up, switch to pizza instead
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.
Price elasticity > |1|. % change in quantity > % change in price. Relationship between price and total revenue is negative.
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
Max price set by government. Encourages consumers to buy more and producers to produce less.
Minimum price set by government. Encourages consumers to buy less and producers to produce more.
Deadweight loss from taxation
Difference between total burden of tax & the amount of revenue collected by the government.
Satisfaction experienced from consuming a good
One unit of utility
How happy you are.
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
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
A firm will not shut down in the short run as long as at the point where...
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
In a long-run equilibrium for a competitive firm, economic profits...
Will be zero
A constant cost industry is one in which...
Input prices do not change as output changes in the long-run
Not a characteristic of a monopoly..
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
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
Many firms, differential product type, Elastic demand curve, nor barriers to entry, Ex. Toothbrush
Many firms, Homogenous product type, perfectly elastic demand curve, no barriers to entry, Ex. Corn
Few firms, Homogenous or different product type, more elastic than monopoly demand curve, Barrier to entry (Gov. Limit), Ex. Air Travel
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
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.
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
A buyer or seller that takes the market price as given
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
Outcome of a game in which each player is doing the best he or she can, given the action of the other player