Microecon
Terms
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- What is the definition of economics?
- the study of how individuals and society choose among alternative uses of scarce resources
- What are the objectives of government?
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1. Full Employment
2. Price Stability (<= 2% inflation)
3. Economic growth (GDP)
4. Optimal external balance (X>I) - What are the assumptions about consumers?
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1. Rational (prefer good)
2. Efficient (most for least cost)
3. Risk-adverse (no uncertain)
4. Forward-looking - Basic question of economics (3)?
- What, how, and for whom?
- What is RTS? What do increasing, decreasing, and constant Returns to Scale signify?
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The increase in output generated by a certain amount of increase in inputs.
Increasing RTS: Output increases at greater rate than input; costs decreasing
Decreasing RTS: Output increases at lesser rate than input; costs increasing - What are the factors of production?
- Land, labor, capital, entrepreneurship
- How does industry structure evolve?
- From the nature of the production process, which is reflected in the production function. If ^RTS, firms produce cheaper as they get bigger, so they produce more. Big firms that produce a lot = a concentrated industry- monopoly, oligopoly. If dRTS, more production means increasing costs, so they limit output. This enables more firms to enter industry- monopolistic, perfect comp.
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- Increasing RTS is related to what, and caused by what?
- Increasing RTS is tied to technology and manufacturing. Caused by learning by doing, specialization.
- What is the difference between the production function and the total product curve?
- PF maps output when ALL inputs can change while the TP maps output when 1 input only changes and all the others are fixed.
- What is the PPF?
- The graphical representation of all feasible combinations of goods and services that a society can produce if all resources are fully and efficiently employed.
- Anything that changes the production function will change the production possibilities frontier, including:
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1. Technology
2. Change in government law
3. Change in efficiency - labor
4. Change in efficiency - capital - Law of Diminishing Returns
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At some point the additions to output start to decline as you add additional variable inputs.
Some input must be fixed --> Differs from RTS. - Deriving the supply and demand curves
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Supply: Marginal Cost above the break even point (AVC) for perfect comp
Demand: From the production function; the slope of it is marginal product; multiplied times the wage (price) is marginal revenue product curve; point at which wage intersects MRP on downward sloping part. Demand curve is MRP to the right of that point. - Decision to hire labor depends on:
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1. Wage
2. Revenue worker generates
see MP/MRP graph