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47 terms

Micro Final

STUDY
PLAY
Opportunity Cost
To put more resources else where
Relationship of Variables
Direct and Indirect/Inverse Relationship
Direct Relationship
Price-Up Quantity-Up
Indirect/Inverse Relationship
Price-Up Quantity-Down
Invisible Hand
Football NFL-we can care about what we want and the system will work.
Wealth of Nations
Adam Smith
Demand & Supply Changers
Price!
Relationship between Price & Quantity Supplied
Direct Relationship
Income Effect
2 for 1's
A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price.
Changes of Demand
Taste and Prefences want--> don't want <--
# of Buys more--> less <--
Income
Buyers expectations of Price
Related Goods (Price) Substitute/Compliments
Demand Side Market Failures
When People are not willing to pay for all services....
Consumer Surplus
Story of Nicest Shirt ever, the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Consumer Surplus & Producers Surplus
On a graph Consumer surplus is at the top & producer surplus is on the bottom.
Producers Surplus
The difference between the lowest price a producer will accept and the actual price. Also called economic rent.
Private & Public Goods
Public goods: goods that are nonrival in consumptin and/ or their benefits are nonexludable
Private: rival in consumption (if i eat a hamburger, you can't eat it too) and their benefits are excludable
Marginal Utilies
Apples and Oranges.
Utility Maximization Rule
Money income should be allocated such that MU per dollar spent on each unit of the goods be the same:
MUa/Pa= MUb/Pb=MUc/Pc
Utility Maximization Rule Formula
MUa/Pa=MUb/Pb=MUc/Pc...
Framing Effect
Focusing on one item
Endowment Effect
It is worth more because you owned it, selling a house that you raised your kids in.
Implicit Cost
Unrealized expenses.
Long Run Adjustment
Changes to plant Size, in the long run there is always an equilibrium,
Fix Costs
Don't Change Output
Variable Cost
Changes Output, wages, people and utilities
Decreasing Cost Industry
Technology
Pure Competition
a market structure with many competitors selling virtually identical products. Barriers to entry are quite low.
Characteristics of Pure Competition
Extremely Efficient, Using the invisible hand, maximum consumer & producer surplus.
Price Taking
Pure Competition
Productive Efficiency
Price=Marginal Cost=Total Cost
Pure Competition-Long Run
Profit Maximization Assumptions:
Entry & Exit Only
Identical Cost
Constant Cost Industry
Creative Destruction
Process when new products replace old ones
Pure Monopoly Characteristic
Single Seller, No close substitutes, Price Maker-only with a downward slope, blocked entry, non-price competition, barriers of entry, not always the highest price, low efficiencies
Barries to Entry
Economies of Scale, legal barriers (patents, and licenses), ownership of essential resources, pricing and strategic carries (Rockafella, illegal)
Natural Monopoly
A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms
Queen Rule
Marginal Revenue=Marginal Costs
X-Ineffiency
Nepotism, paying family more, but they do less
Price Discrimination
Realize monopolistic power, market segmentation
-charging each what they are willing
-charging different prices of different units
-charging different price to different people
(textbooks, health care, airlines)
What makes most companies thrive!!
Monopost & Highest Price
False
Network Effect
iPhone, iPod, everything Apple.
Price Discrimination Legal?
False
Monopolist Competition
Competitive Market, Mono on Brand (iPad)
Monopolist Competition Characteristics
Relavitely large # of sellers, differentiated products, some control over price, easy entry & exit, advertising
Features of Oligopoly
Kinked-Demand Theory, Cartels & Collusion, Price Leadership
Four firm concentration Ratio80%-Oligopoly, 100%-Monopoly
Game Theory
The best results come when individuals do whats best for him & the group.
Can be used to predict that people always cheat to get ahead.
Kinked-Demand Theory
Impossiable to find price equilibrium
will start to hurt both companies
Economies of Scale
Simultaneous consumption-satelite radio, everyone can listen
Network effect
Herfindahl Index
Monoploy=10,000