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price increase causes reduction in total expenditure
elasticity is greater then one, i.e.demand is elastic
short run supply curve(perfect competitive
is the portion of its marginal cost curve that lies above the point where it intersects the average variable cost curve
price ceiling
a maximum allowable price, specified by law
change in supply demand
a shift in the entire demand curve(if it moves to the right it is an increase demand left is an decrease)
average product of labor
what measures the productivity per unit of labor used, both new and old
variable costs
costs that vary with the q of output produced
Coase theorem
the argument of economist Ronald Coase that if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities.
Fixed Cost
expenses whose total does not change in proportion to the activity of a business
monopoly
market structure in which a single firm accounts for 100% of sales of a product that has no close substitutes
Tax Burden
the difference in price that a buyer pays or a seller receives before and after a tax
4
how many factors of production are there?
tastes and preferences
the demand shifter that deals with trends, quality of product, time of year, cultural factors, public opinion, and new research studies
surplus/shortage
one reason to study microeconomics: understand how to overcome a ____ or _____ of goods and services
average total cost
the cost per unit produced
investment for households
purchasing stocks and bonds
price discrimination
the practice of charging different buyers different prices for essentially the same good or service
increase
if the number of sellers increases, supply will _____
total profit
total sales revenue - total cost
average benefit
benefit per unit of activity
P > AVC so we have something left to pay part of the fixed cost
why should we produce with a loss if we can pay TVC?
labor, land, capital & entrepreneurial skill
the factors of production
price taker
a firm that sells its output at prices determined by forces beyond its control.(firms in perfectly competitive markets)
1%
elasticity is the percentage change in the quantity demanded of a good or service for a _____ change in the price
liabilities & net worth
who owns what a firm has (loans, owner's equity, and total)
higher
in a shortage, buyers will accept _____ prices
optimal combination of goods
the affordable combination that yields the highest total utility
inefficient point
any combination of goods where currently available resources allow an increase in one good without a reduction in the other
TR / Qsold
AR = ____
Production
the act of producing; creation; manufacture.
increases
are people better off when economic activity increases or decreases?
production possibility frontier (PPF)
a curve showing the maximum attainable combinations of two products
marginal revenue
the extra revenue that is earned when one additional unit is sold
factor of production
an input used in the production of a good or service
normative analysis
concerned with what SHOULD be
financial capital
what is required for the actual investment of acquiring more capital goods
production possibilities curve
graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good
intermediate goods
goods that businesses produce and then sell to other businesses to be used in fabricating final goods
private good
a good that is both rival and excludable
change in quantity supplied
what happens when the price changes from A to B on an existing supply curve
marginal cost
change in total cost that results from a one unit change in output
Cartel
a group of firms that collude by agreeing to restrict output to increase prices and profits.
don't produce with a loss
if we can't pay all of the variable cost
negative
what kind of slope does the demand curve have?
crowding problem
a _________ occurs if TP increases faster than TVC
law of supply
quantity supplied or offered for sale varies directly with price when prices goes up so will the quantity supplied,, when price goes down...
homogeneous
a _____ product is absolutely identical across all firms
change in TC / change in TP
MC = _________
total expenditure = total revenue
the dollar amount consumers spend is equal to the dollar amount sellers receive (formula)
Elasticity
A measure of how much one economic variable responds to changes in another economic variable
Price Elasticity of Demand
a measure of responsiveness of quantity demanded to changes in price
capital
the factor of production that involves things we make in order to produce goods & services (conveyor belts, machines, etc.)
increase
if the numbers of buyers increases, demand will _____
the principle of comparative advantage
total output is larges when each person concentrates on the activities for which their opportunity cost is lowest
total revenue
the total amount of funds received by a seller of a good or service, calculated by multiplying price per unit by the number of units sold.
TVC / TP
average variable cost = _________
average physical product of labor
the total production per unit of labor
fixed factor of production
an input whose quantity cannot be altered in the short run
Capital
the wealth, whether in money or property, owned or employed in business by an individual, firm, corporation, etc.
4 Assumptions
1.) People are rational 2.) People respond to incentives 3.) People face trade-offs 4.) Optimal decisions are made at the margin
fixed costs
costs that do not vary with the q of output produced
TFC + TVC
total cost = _________
the pitfall of ignoring opportunity costs
when performing a cost benefit analysis of an action it is important to account for the full opportunity cost
profit
the total revenue a firm receives from the sale of its product minus all costs incurred (implicit and explicit) producing it
assets
things a firm has that it can use for profit (cash, finished goods inventory, production plant book value, production plant book value minus depreciation, net plant, and total)
developed economies
these economies have high GDPs and standards of living, but they are often dependent upon others for goods & services
value of ending inventory
value of beginning inventory + value of TP - value of quantity sold = ________
d = AR = MR
what is price equal to on a demand graph of a homogeneous product?
inelastic
if the price elasticity of demand is less than one, the demand for a good is
income effect
the change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power.
Explicit costs
input costs that require an outlay of money by the firm
invisible hand theory
a theory stating that under carefully specified circumstances, the actions of independent, self interested buyers and sellers will often result in the most efficient allocation of resources
diseconomies of scale
when added drawbacks outweigh added benefits of expansion
change in the number of buyers, changes in consumer income, changes in prices of goods related in consumption, changes in consumer tastes and preferences and altered expectations about future price changes
demand shifters
slope
the less reliable way of measuring buyer sensitivity
Producer Surplus
the amount a seller is paid minus the seller's cost
black market
a market in which buying and selling takes place at prices violate government price regulations.
left
if there's an increase in supply, the graph will shift to the _____
expectations about the good or service being studied for the future
the demand shifter that deals with how well economists are saying a good or service will do in the coming weeks/months/years
Capitalism
an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations
producer surplus
the economic gain of the sellers of a product as measured by the cumulative difference between the price received and their respective reservation prices
total fixed cost + total variable cost
total cost
income elasticity of demand
a measure of the responsiveness of the quantity demanded to changes in income, measured by the percentage change in quantity demanded divided by the percentage change in income.
elastic
if the price elasticity is greater than one, the demand for a good is
profit maximizing firm
a firm whose primary goal is to maximize the difference between its total revenues and total costs
skills and motivation
two examples of worker attributes
accounting profit
the profit that is calculated on your income statement; used to rank the firms in our market experiment
increase
to increase profit when MR > MC, ____ production
allocative efficiency
a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers is equal to the marginal cost of producing it
trade-off
producing more of one good or service means producing less of another good or service
common resources
a good that is rival but not excludable.
marginal cost
the extra cost that it takes to make the adjustment in production and sales away from the current volume
short run equilibrium
the market and firm are both in equilibrium, there is no surplus or shortage
Socialism
a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.
law of supply
The rule that, holding everything else constant, increases in price causes increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.
market economy
the type of economy that pretty much lets the individual make his/her own decisions
The principle of relevant costs
In considering wheter to produce or consume more of a good, what matters is the marginal cost
factors of production
the resources and inputs used by businesses to produce goods and services
sunk cost
a cost that has already been paid and that cannot be recovered
goods available for sale
beginning inventory (BI) + current period production (TP) = ________________
scarcity
the situation in which unlimited wants exceed the limited resources available to fulfill those wants
business sector
the group of business firms in the economy
economics
study of the choices people make to achieve their goals, given their scarce resources
total revenue
is equal to the price of its product multiplied by the quantity sold. TR = PxQ
total sales revenue
price x quantity sold
marginal product
the increase in total output caused by an increase of one unit in the variable factor of production, holding all else constant
specialization
this often times occurs in developed economies
formula for average cost
total cost of undertaking n units of activity / n
monopolistic competition
a market structure in which a large number of firms sell slightly differentiated products that are reasonably close substitutes for one another
efficient scale
the quantity of output that minimizes average total cost
capital
the factor of production that involves things we make in order to produce goods & services
implicit costs
all the firm's opportunity costs of the resources supplied by the firm's owners for which the owners do not make an explicit charge
unit-elastic demand
demand is unit-elastic when the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value.
laissez faire
is a French phrase meaning "let do"
four conditions of a perfectly competitive market
1. all firms sell the same standardized product 2. the market has many buyers and sellers, each of which buys or sells only a small fraction of the total quantity exchanged 3. productive resources are mobile 4. buyers and sellers are well informed
command and control approach
an approach that involves the government imposing quantitative limits on the amount of pollution firms are allowed to emit or requiring firms to install specific pollution control devices.
TP* - ATC
TC = _______
final goods
the goods and services purchased by members of households.
substitutes
goods and services that can be used for the same purpose.
capital goods
human made inputs that can be used repeatedly in the production of goods o services
intermediate good
a screw is an example of a(n) __________
law of supply
a direct relationship between the market price of a good and the quantity supplied by sellers
firm
an organization that combines factors of production to produce a good or service or some combination of goods and services
production planning periods
short run and long run
total economic surplus
the sum of all the individual economic supluses gained by buyers and sellers who participate in the market
market demand
the demand by all the consumers of a given good or service.
closed monopoly
monopoly that is protected by legal restrictions on competition
long run average cost
the lowest cost per unit that can be achieved for a given level of output when all factors of production, all costs, and the size of the firm are variable, but technology is constant
constant returns to scale
a situation in which long run average cost does not change as scale changes
law of supply
this states that when the price of a good increases, sellers will supply more of that good, and when the price decreases, they will supply less.
demand shifters
factors that create a change in the demand of an item are called ______ _________
profit maximizing level
MC=MR
Profit
Total revenue minus total cost
right
an increase in demand shifts the graph to the ____
market
one reason to study microeconomics: understand how consumers/producers affect the ______
MC = MR
profit maximizing production rule
factors of production
part of the circular flow model that goes from households to businesses
the slope and position of the production possibilities curve depend on...
an individual's productivity
positive economic analysis
how an economic system is expected to behave
price setter (or imperfectly competitive firm)
a firm with at least some latitude to set its own price
short run shutdown point
a firm's minimum average variable cost; if price drops below minimum average variable cost, the firm will minimize its losses by shutting down
free riding
benefiting from a good without paying for it
recession
a problem that arises when the flows are too low; generally characterized by unemployment, and a general slowdown in the production of goods and services
change in TR / change in Qsold
MR = _________
total variable cost
costs that must change in order to change the quantity produced
Communism
a theory or system of social organization based on the holding of all property in common, actual ownership being ascribed to the community as a whole or to the state.
understand how choices affect the character of goods & services, understand how consumers and producers affect the market, understand how to overcome/cope with scarcity, learn practical means of production, understand how to overcome a surplus or shortage, learn how to expand a business, learn how to make a profit, and to learn about the material well-being of a society
reasons to study microeconomics
specialization of both labor and management, mass production technology, and volume discounts on input & supplies
added benefits of expansion
allocative efficiency
when the last unit produced costs the same as the benefit recieved by consumers
specialization of labor and management and mass production technology
productivity factors that are added benefits of expansion
price
the independent variable for demand
increase
when there's a shortage, prices will ____
diseconomies of scale
a situation in which long run average cost increases as a firm's output increases
short run
a planning situation for the firm in which some of the inputs that might be used to adjust production rates are fixed, while others are variable
Price Floor
a legal minimum on a price that can be charged in the market
payoff matrix
a table that shows the payoffs that each firm earns from every combination of strategies by the firms
adam smith
who was the first person to realize that economic activity equaled the well-being of a community?
capital goods
human made inputs that can be used repeatedly in the production of goods o services
price floor
a legally determined minimum price that sellers may receive
change in TP / change in L
MP = __________
law of diminishing returns
the term that explains how as more labor hours are used with a fixed plant, the less marginal product of labor occurs
Elastic demand
demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price, so the price elasticity is greater than 1 in absolute value.
non-price competition
advertising expenditures and product development budgets
consumer income
the demand shifter that deals with the difference between normal and inferior goods
economic loss
the situation in which a firm's total revenue is less than its total cost, including all implicit costs
Scarcity
insufficiency or shortness of supply; dearth.
profit
total sales revenue - total costs = ______
public good
a good that is both nonrivalrous and nonexcludable
shortage
a situation in which the quantity demanded is greater than the quantity supplied
labor
the factor of production that involves physical work by people
Average revenue
Total revenue divided by the quantity of the product sold.
law of diminishing marginal returns
beyond some point the marginal product of labor decreases as as successively more units of labor are employed
brand management
the actions of a firm intended to maintain the differentiation of a product over time
constant returns to scale
long-run average total cost stays the same as q of output changes
production function
relationship b/w q of inputs used and q of outputs
short run production function
what economic analysts use to summarize the relationship between units of the variable input and the resulting output
change in TC / change in TP
marginal cost
downward sloping
shape of the AFC curve
financial capital
what is required for the actual investment of acquiring more capital goods
capital
any durable inputs to the production process, such as tools, machinery, and buildings
variable cost
any cost that changes as the firm changes its output
physical flows
the flows of resources, goods and services between the sectors
Microeconomics
a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources, typically in markets where goods or services are being bought and sold.
positive economics
economic analysis that offers cause and effect explanations of economic relations, principles can be confirmed or refuted by data
economies of scale
when the added benefits of expansion outweigh the added drawbacks
positive
what kind of slope does a supply curve have?
price increase causes increase in total expenditure
elasticity is less than one, i.e. demand is inelastic
avoid the increase in atc tied to th corwding problem at high volume production levels
basic benefit of plant expansion
perfectly elastic demand
the case where the quantity demanded is infinitely responsive to price, and the price elasticity of demand equals infinity.
Opportunity Cost
one way to measure the cost of something
material
one reason to study microeconomics: to learn about the ______ well-being of a society
allocative function of price
directs resources away from overcrowded markets and towards markets that are underserved
Total revenue
amount a firm receives for sale of its output
relative
you have to adjust prices b the same _____ amount
business strategy
actions taken by a firm to achieve a goal, such as maximizing profits
total cost
ATCxQ
the pitfall of not ignoring sunk costs
sunk costs must be ignored in a cost benefit analysis
marginal utility
the additional utility gained from consuming an additional unit of a good
all inputs are variable
what characteristic of long run production sets it apart from short run?
entrepreneurial skill
the factor of production that involves risk-bearing activity, making investments, and management skills
shortage
what happens when there isn't enough of a good to satisfy the quantity demanded
price discrimination
the practice of charging different prices for various units of a single product when the price differences are not justified by differences in cost.(ex-difference in prices of adult and child tickets)
macroeconomics
the volume of the flows, or economics activity
one
how many reasons are there for ignoring the MR = MC rule?
Equity
the fairness of distribution of well-being among the members of society
marginal product
increase in output that arises from an additional unit of input
investment
the purchase or sale of capital goods
perfectly elastic
with respect to price if its price elasticity of demand is infinite, then demand is
market failure
a situation in which the market fails to produce the efficient level of outcome
excludability
the situation in which anyone who does not pay for a good cannot consume it.
the principle of increasing opportunity costs
in expanding production of a good, first employ those resources with the lowest opportunity cost. Only when all the lowest cost resources are emlyed is it sensible to use more expensive resources.
upward sloping
shape of the AVC curve
normal profit
the minimum acceptable profit for owners of the business
microeconomics
the branch of economic analysis devoted to the study of the composition of the flows between the sectors
Income
the monetary payment received for goods or services, or from other sources, as rents or investments.
economies of scale
when the added benefits of expansion outweigh the added drawbacks
macroeconomics
the maintaining of sufficient volume in the flow of goods and services from businesses to households and in the flow of factors of production from households to businesses
normative economics
economic statements that reflect subjective value and are based on ethical positions
formula for price elasticity
percentage change in quantity/percentage change in price
market equlibrium
a situation in which the quantity of a product demanded equals the quantity supplied
labor
the independent variable in the short run production function
marginal revenue
the increase in total revenue obtained by producing and selling one more unit of output
social cost
the total cost of producing a good or service, including both the private cost and any external cost.
long run
the production planning period where all inputs are variable
change in the number of sellers, change in the price of inputs, change in technology, change in government policy, and altered expectations about future price changes
supply shifters
market
group of buyer/sellers and the place/arrangement where they come to trade
character
one reason to study microeconomics: choices determine the ________ of goods and services
divesting
reducing a firm's stock of capital goods
average variable cost
the variable cost per unit produced
oligopoly
a market in which there are only a few rival sellers
marginal
extra or additional benefit (MB) or cost (MC) of a decision
long run production planning horizon
a planning situation for the firm in which all of the production inputs are variable
inferior good
a good for which the demand increases as income falls and decreases as income rises.
lower
in a surplus, sellers will accept _____ prices
economic surplus
the benefit of taking any action minus its cost
cross-price elasticity of demand
the percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
once
how many times can intermediate goods be used?
the highest price that still sells
what is the "best price"?
economies of scale
property whereby long-run average total cost falls as quantity of output increases
Money
any circulating medium of exchange, including coins, paper money, and demand deposits.
efficiency
one reason to study microeconomics: how to improve ______
basic benefit package
the impact of expansion that will help postpone the crowding problem
minimum efficient quantity
the smallest quantity of output that will achieve minimum long run average cost
producer surplus
the difference between the lowest price a firm would be willing to accept and the price it actually receives
unit elastic
if its price elasticity of demand is equal to one, the demand for a good is
elasticity
the percentage change in the market quantity demanded relative to the percent change in the market average price
nominal price
absolute price of a good in dollar terms
normal
goods that we demand more of as our income increases are ______ goods
infant industries
these industries are often the recipients of government subsidies
monopolists profit maximizing decision rule
profit is masimized at the level of output for which marginal revenue precisely equals marginal cost
change in supply
what happens when a change in selling behavior is caused by a supply shifter (a new curve)
long run production planning horizon
a planning situation for the firm in which all of the production inputs are variable
TR / Qsold
AR = _________
economic growth
the ability of the economy to produce increasing quantities of goods and services
Market
all the activities necessary for a firm to sell a product to a consumer
perfectly competitive market
a market in which no individual supplier has significant influence on the market price of the product
market economic systems
a type of economic system where everybody does what they want, basically, and it winds up working better.
change in TP /change in L
MP(L) = ____________
arc elasticity of demand
elasticity calculated between the endpoints of a segment of a demand curve
variable factor of production
an input whose quantity can be altered in the short run
Marginal revenue
Change in total revenue from selling one more unit of a product
gross domestic product
the dollar value of all goods and services produced during the year
TFC / TP
average fixed cost = ________
quantity supplied
the amount of a good or service that a firm is willing and able to supply at a given price
rational person
someone with well defined goals who tries to fulfill those goals as best as he or she can
economies of scale
the situation when a firm's long-run average costs fall as it increase output.
vice president of production
this person is mainly concerned with minimizing the total cost of production
point elasticity of demand
elasticity demanded at a certain point on a demand curve
normal profit
the minimum acceptable profit for owners of the business
constant economies of scale
what happens when added benefits of plant expansion are about as strong added drawbacks
long-run competitive equilibrium
the situation in which the entry and exit of firms has resulted in the typical firm breaking even.
income effect
the quantity demanded changes because a change in the price of the good changes the real income of the demander
perfectly discriminating economist
a firm that charges each buyer exactly his or her reservation price
deadweight loss
the reduction in economic surplus that results from adoption of a policy
many
how many times can capital be used?
positive analysis
concerned with what IS
attainable point
any combination of godds that can be produced using currently available resources
standard of living
the material well-being of members of our community
number of sellers
the supply shifter that deals with monopolies; if this increases, the quantity supplied will decrease
changes in expected future price
this supply shifter is also a demand shifter, however when it decreases, the quantity supplied will increase whereas quantity demanded will decrease
the division and specialization of labor and management
an added benefit of expansion that involves allowing employees to stick to one job/category
economic profit
a firm's revenues minus all of its costs, implicit and explicit
price leadership
a form of implicit collusion where one firm in an oligopoly announces a price change, which is matched by the other firms in the industry
average cost
cost per unit of activity
dominant strategy
a strategy that is best for a firm, no matter what strategies other firms use
change in quantity demanded
what happens when there is a change in the price of the good whose market is the subject of study
macroeconomics
the study of the performance of national economies and the policies that governments use to try and improve that performance
Antitrust
opposing or intended to restrain trusts, monopolies, or other large combinations of business and capital.
perfectly elastic supply curve
a supply curve whose elasticity with respect to price is infinite
divesting
reducing a firm's stock of capital goods
advanced production double oral auction
also known as haggling, a form of advanced production
competitive market equilibrium
a market equilibrium with many buyers and many sellers
vice president of marketing
this person is mainly concerned with maximizing total sales revenue
expand
one reason to study microeconomics: how to ______ a business
elasticity
the more reliable way of measuring buyer sensitivity
choose the best price, choose the best production level, and find labor hours
how to determine profit maximizing behavior
equity
fair distribution of economic benefits
economic loss
an economic profit that is less than zero
accounting profit
total revenue - total explicit cost
Externality
A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service
people
what is a microeconomists number one concern?
indivisible cost
the cost of an indivisible factor of production
scarcity
one reason to study microeconomics: understand how to overcome/cope with _______
consumer surplus
the economic gain of the buyers of a product, as measured by the cumulative reservation prices and the price they actually paid
yes / increase
for the AVC equation, does TVC change? if yes, does it increase or decrease?
market price
the independent variable of the demand curve
land
the factor of production that involves natural resources, things we find in nature that can be used to produce goods & services
normal profit
the opportunity cost of the resources supplied by the firm's owners
formula for average variable cost
total variable cost / quantity
marginal cost
increase in total cost that arises from extra unit of production
product loyalty
the propensity of customers to return and purchase from a firm over and over, in a dependable way
market structure
the key traits of a market, including the number and size of firms, the extent to which the products of various firms are different or similiar, ease of entry and exit, and availability of information
1>
inelastic= increase prices
quantity supplied equals quantity demanded
why will price stop changing when we reach a market equilibrium?
real price
dollar price of a good relative to the average dollar price of all other goods and services
variable cost
a cost that varies with the level of activity
marginal cost
the added cost it takes to produce one more unit of output
The law of demand
other things remaining equal, people will purchase a smaller quantity of the goods or services they want as the cost of purchasing one more unit of them increases
opportunity cost
value of the next best alternative
marginal analysis
comparing MC and MB
production function
a technological relationship between inputs and outputs
total fixed cost
these costs don't have to change when production changes in the short run
Distribution
an act or instance of distributing.
TR - TC
total profit = ______
game theory
the study of how people make decisions in situations in which attaining their goals depends on their interactions with others, in economics, the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms
ending inventory
goods available for sale - quantity sole = _________
positive economic analysis
how an economic system is expected to behave
comparative advantage
when one's opportunity cost of performing a task is lower than the other person's opportunity cost
deadweight loss
the reduction in economic surplus resulting from a market not being in competitive equilibrium.
complement good
a dvd player would be a ______ ______ for a flat-screen tv
buyers
buyers or sellers: who has the problem when there's a shortage?
homogeneous products
all products are almost identical
Demand schedule
A table showing the relationship between the price of a product and the quantity of the product demanded
fixed cost
a cost that does not vary with the level of activity
economic profit
accounting profit that exceeds normal profit
Unemployment
the state of being unemployed
normative economic analysis
what focuses on the welfare of the people in our community
hurdle method of price discrimination
the practice by which a seller offers a discount to all buyers who overcome some obstacle
decrease
to increase profit when MC > MR, _____ production
economic or excess profit
the difference between a firm's total revenue and the sum of its explicit and implicit costs
social benefit
the total benefit received by a good or service, including both the private benefit and any external benefit
P * Qsold
TR = ________
marginal sals revenue
the added sales revenue we et when we sell one more unit
technological change
a positive or negative change in the ability of a firm to produce a given level of output with a give quality or inputs.
Product
a thing produced by labor
microeconomics
the study of the character of the flows
TP / L
AP = __________
produce with a loss
if we can pay for all of the variable cost
mixed economy
economy where most economic decisions are made by buyer/sellers, but the government playes a significant role too
supply shifters
factors that create a change in the supply of an item are called ______ _________
short run
a period of time sufficiently short that at least one of the firm's factors of production cannot be varied
productivity
units of output per hour divided by units of input per hour
market economy
economy where the decisions of households and firms interacting in markets allocate economic resources
open monopoly
An open monopoly is an industry in which a single firm becomes the sole supplier of a product but has no special protection against competition
Efficiency
the property of a resource allocation of maximizing total surplus received by all members of society
microeconomics
the study of individual choice under scarcity and its implications for the behaviour of prices and quantities
nash equilibrium
a situation in which each firm chooses the best strategy, given the strategies chosen by other firms
market equilibrium
a situation in which quantity demanded equals quantity supplied
voluntary exchange
when both the buyer and seller are made better off by the transaction
allocative efficiency
In the absence of market failure, a perfectly competitive industry will allocate the "correct" amount of resources to the production of its product. Each firm produces at an output level where marginal cost is equal to price
changes in input prices
the supply shifter that deals with the cost of resources: ie, if wages increase, then profits will decrease, and if that happens suppliers want to supply fewer goods
population
a demand shifter that deals with the amount of people in an area
stable equilibrium
what happens when both the firm and market are in equilibrium, and there is no incentive for new firms to enter or existing firms to leave
change in demand
what happens when the entire demand curve is redrawn to reflect the fact that the quantity buyers will want has changed for every possible price
no
for the AFC equation, does TFC change? if yes, does it increase or decrease?
TP* - AR
TR = _______
centrally planned economy
economy where the government decides how economic resources will be allocated
Monopoly
exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices
aggregating market supply
the term used to describe what happens when all TP* from individual markets are added to create 1 price
marginal revenue
the increase in total revenue obtained by producing and selling one more unit of output
economics
the study of how economies work, when to expect them to perform well, when to expect them to do poorly, and what to do about it
Perfectly competitive market
A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.
formula for normal profit
accounting profit - economic profit
rationing function of price
distributes scarce goods to those consumers who value them most highly
average product
total output divided by units of the variable factor of production
price increase causes no change in total expenditure
elasticity is equal to one, i.e unit elastic
eonomic model
a simplified version of reality used to analyze real world economic situations
marginal product of labor
the additional otput that can be produced when an additional labor hour is used at your plant
diseconomies of scale
long-run average total cost rises as q of output increases
demographics
the characteristics of a population with respect to age, race, and gender.
constant economies of scale
what happens when added benefits of plant expansion are about as strong added drawbacks
perfect hurdle
segregates buyers whose reservation prices lie above some threshold from others whose reservation prices lie below it, imposing no cost on those who jump the hurdle
Long-run supply curve
a curve that shows the relationship in the long run between market price and the quantity supplied
market institutions
accepted rules of engagement between buyers and sellers
law of demand
the rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of the product rises, the quantity demaded of the product will decrease
barrier to entry
anything that keeps new firms from entering an industry in which firms are earning economic profits
Pigovian taxes and subsidies
government taxes and subsidies intended to bring about an efficient level of output in the presence of externalities
investment for businesses
purchasing capital goods
marginal cost
the additional cost to a firm of producing one more unit of a good or service
demand curve
a curve that shows the relationship between the price of a product and the quantity of the product demanded.
Normal good
A good for which the demand increases as income rises and decreases as income falls.
it depends on whether TVC or TP is increasing more
what does AVC do as TVC increases?
total variable cost
these costs must change when production changes in the short run
cooperative equilibrium
an equilibrium in a game in which players cooperate to increase their mutual payoff
inferior
goods that we demand more of as our income decreases are __________ goods
supply schedule
A table that shows the relationship betwee the price of a product and the quantity of the product supplied
average revenue
the revenue received on average for each unit sold
the rational spending rule for two goods
(MUc/Pc) = (MUs/Ps)
plant size, technology used, wrking conditions, worker characteristics, the degree of quality control, & time period
production function shifters
price reduction causes no change in total expenditure
elasticity is equal to one, i.e unit elastic
implicit costs
input costs that do not require an outlay of money by the firm
direct
inverse or direct: the law of supply
demand
the desire, ability and willingness to by a product
can we pay for all variable costs?
what question do you ask when confronted with a loss?
spreading fixed costs
________ is the term used to describe how each unit sold only assumes a small amount of the fixed cost
Tariff
a tax imposed on goods produced abroad and sold dometically
TFC / TP
average fixed cost
law of demand
this states that when the price of a good falls, buyers will buy more of that good, and when the price increases, they will buy less.
perfectly inelastic demand
the case where the quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero.
Income Elasticity of Demand
a measure of responsiveness of quantity demanded to changes in income
average fixed cost
fixed costs/ quantity of output
change in quantity of supply and demand
the quantity of product purchased in response to a change in price
[(Q2 - Q1)/(Q2 + Q1)/2]*100 / [(MAP2 - MAP1)/(MAP2 + MAP1/2)]*100
midpoints formula
economic efficiency
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
elastic supply
if price elasticity of supply is greater than one
short run equilibrium
the market and firm are both in equilibrium, there is no surplus or shortage
Price Ceiling
a legal maximum on a price that can be charged in the market
model
how people take a complex system and reduce it to something that is very easy to understand
government policy
the supply shifter that deals with taxes and subsidies
the production setting
the set of values for which the short run production function is defined at any given time; determined by production function shifters
transaction costs
the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services
decrease
a(n) ____ in the price of a substitute good will cause a decrease in demand
right
if there's an increase in demand, the graph will shift to the _____
demander's reservation price
the highest price a demander will offer in order to obtain a good or service
Cross Price Elasticity of Demand
a measure of responsiveness of quantity demanded of one product to changes in price of another product
the pitfall of using average instead of marginal costs and benefits
the cost benefit principle tell one to increase the level of an activity if and only if the marginal benefit exceeds the marginal cost
accounting profit
the profit that is calculated on your income statement; used to rank the firms in our market experiment
TVC / TP
average variable cost
substitute good
a movie theater would be considered a _______ _____ for a flat-screen tv
surplus
a situation in which quantity supplied is greater than the quantity demanded
price reduction causes reduction in total expenditure
elasticity is less than one, i.e. demand is inelastic
Welfare
financial or other assistance to an individual or family from a city, state, or national government
price elasticity of supply
the responsiveness of the quantity supplied to a change in price, measured by dividing the percentage change in the quantity supplied of a product by the percentage change in the product's price
price searcher
searches for the most profitable price-quantity combination on its demand curve.(monopolists)
normal profit per unit of capital x units of capital used
normal profit = _________
decrease
when there's a surplus, prices will ____
average revenue
is equal to total revenue divided by output.AR = TR/Q = P
quantity demanded
the dependent variable for demand
inelastic demand
demand is inelastic when when the percentage change in quantity demanded is less than the percentage change in price, so the price elasticity is less than 1 in absolute value.
oligopoly
a market structure in which a small number of interdependent firms compete
size of capital input, time period, worker attributes, physical attributes, technology, and quality of production
production function shifters
Economics
the science that deals with the production, distribution, and consumption of goods and services, or the material welfare of humankind.
formula for marginal cost
Change in total cost / change in quantity
natural monopoly
a monopoly that results from economies of scale
explicit costs
the actual payment a firm makes to its factors of production
average variable cost
variable costs/ quantity of output
price floor
a minimum allowable price, specified by law
dependent
the variable that reacts in response to another variable
income elasticity of demand
the percent change in the quantity of a good demanded in response to a one percent change in income
P < AVC, and you owe all of your costs
why shouldn't we produce with a loss if we can't pay TVC?
Recession
period of an economic contraction, sometimes limited in scope or duration.
goods & services
part of the circular flow model that goes from businesses to households
finding TP* on production table
how do you find good labor hours?
perfectly competitive market
a market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market
accounting profit
the difference between a firm's total revenue and its explicit costs
formula for income elasticity of demand
percentage change in quantity demanded / percentage change in income
short run production function
the relationship between total production and the number of units of labor used
market mechanism
the process by which markets get rid of surpluses and shortages, moving to market equilibrium
perfect competition
a market structure that is characterized by a large number of small firms, a homogeneous product,freedom of entry and exit,and equal access to information
Price taker
a buyer or seller that is unable to affect the market price
substitution effect
when a consumer's real income is constant, the quantity demanded of a good changes as the relative price of the good changes
profit
one reason to study microeconomics: how to make a _____
total fixed cost
costs that don't have to change as output adjusted
perfectly elastic demand
when price and average revenue may remain the same regardless of your sales volume
decrease
if input prices (costs of production) increase, supply will _____
Trade
the act or process of buying, selling, or exchanging commodities, at either wholesale or retail, within a country or between countries.
technical efficiency
In the long-run, perfectly competitive markets ensure that each good is produced at the lowest possible cost.
specialization gets boring, coordination problem (too many divisions groups ad to inorganization)
drawbacks of expansion
change in technology used in producing goods/services
a supply shifter that deals with advancements, modernization, redesigning something, etc.
failure to spread fixed costs
why is it inefficient to have really low TP?
upward sloping; intersects ATC
shape of the MC curve
unit elastic
| Emap | = 1
indivisible factor of production
a factor of production that must be available in some minimum amount if a productive activity, even of minimal size is to occur at all
economic profit
total revenue - total cost- including both explicit and implicit costs
change in quantity supplied
if there's a change in demand, will there be a change in supply or a change in the quantity supplied?
inventory carrying cost
[(BI + EI)/2].05 = ______________
market equilibrium
the place where prices gravitate to in both shortages and surpluses
circular flow model
the diagram that helps us understand an economy
entrepreneurial skill
the factor of production that involves risk-bearing activity, making investments, and management skills
rivalry
the situation that occurs when one person's consuming a unit of a good means no one else can consume it
private benefit
the benefit received by the consumer of a good or service
Consumer
a person or organization that uses a commodity or service.
diseconomies of scale
when added drawbacks outweigh added benefits of expansion
total sales revenue
the income received by sellers from selling their goods and services
economic surplus
the sum of consumer surplus and producer surplus
recession
lowering taxes and changing interest rates are both potential remedies for a _______.
P
TR / Qsold = ________
price taker (perfectly competitive firm)
a firm that has no influence over the price at which it sells its product
Macroeconomical
a branch of economics that deals with the performance, structure, and behavior of the economy as a whole
economic variable *
something measurable that can have different values
market equilibrium
the point where quantity supplied equals quantity demanded
utility
the sense of well being, satisfaction, or pleasure a person derives from consuming a good or service
price elasticity of supply
the change in quantity supplied arising from a one percent change in price
patent
the exclusive right to a product for a period of 20 years from the date the product is invented
marginal cost
the added cost it requires to produce an additional unit of output
specialization gets boring, coordination problem (too many divisions groups ad to inorganization)
drawbacks of expansion
efficient (or Pareto efficient)
a situation where no change is possible that will help some people without harming others
substitution effect
the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to the other goods that are substitutes
consumer surplus
the difference between the highest price a consumer is willing to pay and the price the consumer actually pays
avoid the increase in atc tied to th corwding problem at high volume production levels
basic benefit of plant expansion
economies of scale
a situation in which long run average cost decreases as a firm's output increases
possibility of specialization of both labor and management, mass production technology, and volume discounts on inputs and supplies
added benefits of expansion
opportunity cost
the value of the next best alternative that must be sacrificed for an activity
Wealth
a great quantity or store of money, valuable possessions, property, or other riches
scale
the size of a firm relative to other possible sizes of firms serving a particular market
crowding problem
why is it inefficient to have really high TP?
law of demand
an inverse relationship between the market price for a good or service and the quantity demanded
sellers
buyers or sellers: who has the problem when there's a surplus?
decreases
if TP increases in the equation AFC = TFC / TP, then AFC as a whole ______ (increases/decreases)
formula for average benefit
total benefit of undertaking n units of activity / n
MC = MR rule
the _______ can help figure out what to do when confronted with a loss
invisible hand
the _________ _________ describes the phenomenon where when people take care of their own self-interests, it winds up being in the community's best interest, too.
supply
a schedule of quantities that would be offered for sale at all possible prices that could prevail in the market
increase
if technolgy increases, supply will _____
formula for cross price elasticity of demand for two goods
percentage change in quantity of good x / percentage change in quantity of good y
pure monopoly
a market in which there is only one supplier of a unique product with no close substitutes
Profit
pecuniary gain resulting from the employment of capital in any transaction.
TC / TP
average total cost = ___________
TC / TP
average total cost
change in TR / change in Qsold
MR = ____
supply curve
a curve that shows the relationship between the price of a product and the quantity of the product supplied.
complements
goods and services that are used together.
Ceteris paribus ("all else equal")
the requirement that when analyzing the relationship between two variables - such as price and quantity demanded - other variables must be held constant
law of demand
the demand for an economic product varies inversely with its price
elastic
| Emap | > 1
Price Elasticity of Supply
a measure of responsiveness of quantity supplied to changes in price
production
one reason to study microeconomics: learn practical means of ______
cross price elasticity of demand for two goods
the percentage change in the quantity demanded of one good in response to a one percent change in the price of a second good
decrease
if taxes increase, supply will _____
financial capital
the subgroup of capital that microeconomics doesn't look at; it includes money, stocks, and credit cards
average total cost
TC/Q
planned economic systems
a type of economic system that generally involves making a 5 year plan that takes into account the needs of the people. Basically, the higher ups control every detail of the public's life
marginal cost
the increase in total cost that results from one additional unit of activity
productive efficiency
when a good/service is produced at the lowest possible cost
shutdown point
the minimum point on a firm's average variable cost curve; if the price falls below this point, the firm shuts down production in the short run.
Consumer Surplus
a buyer's willingness to pay minus the amount the amount the buyer actually pays
prices of related goods in consumption
the demand shifter that deals with substitute and complement goods
parabola
shape of the ATC curve
marginal revenue
is the change in total revenue that results from a one-unit change in output
E(d)
[% change in Q(d)] / [% change in P]
market power
a firm's ability to raise the price of a good without losing all its sales
Price ceiling
A legally determined maximum price that sellers may charge
Economics
study of how people make choices under scarcity
normative economic analysis
what focuses on the welfare of the people in our community
the division and specialization of labor and management
an added benefit of expansion that involves allowing employees to stick to one job/category
Law of diminishing marginal utility
as consumption of a good increases beyond some point, the additional utility gained from an additional unit of the good tends to decline
Absolute advantage
when one takes fewer hours to perform a task than another
perfectly inelastic supply curve
a supply curve whose elasticity with respect to price is zero
average fixed cost
the fixed cost per unit produced
Labor
productive activity, esp. for the sake of economic gain.
total cost
total sales revenue - total profit
president
this person is in mainly concerned with maximizing profit
long run
a period of time sufficient in length so that all the firm's factors of production are variable
decrease
if expected future price should increase, current supply will ____
price takers
firms that have no ability to control the market price, and instead must take the market price as the best they can hope for
left
an increase in supply shifts the curve to the ____
increase
if consumer income increases, demand for normal goods will ____
increase
a(n) _____ in the price of a complement good will cause a decrease in demand
economy
the exchanging of goods & services among households and businesses, subject to an established set of rules and conventions set up by law, and cultural traditions
investment
the purchase or sale of capital goods
sunk cost
a cost that is beyond recovery when a decision must be made
normal profit
the minimum acceptable profit for keeping the firm in business
economic profit
accounting profit that exceeds normal profit
insensitive buyers
buyers who aren't affected by price shifters
free entry and exit
firms just starting to produce can do so on an equal footing with existing firms, and firms face no legal barriers to leaving the market and are able to find buyers or other uses for their fixed inputs
economic rent
that part of the payment for a factor of production that exceeds the owners reservation price, the price below which the owner would not supply the factor
Cost-benefit principle
an individual (or society) will be better off taking an action if the extra benefits are greater than the extra cost
monetary flows
the type of flow that we don't study in microeconomics
monopolistic competition
a market structure in which barriers to entry are low and many firms compete by selling similar, but not identical products
time value of money
the fact that a given dollar amount today is equivalent to a larger dollar amount later in the future because it can be invested
Profit
total revenue- total cost
Price Elasticity of demand
the responsiveness of the quantity demanded to a change in price, measured by dividing the precentage change in quantity demanded of a product by the percentage change in the product's price
planned economies don't work as well as economic systems that allow for individuals to make their own choices
the great paradox of economics
inelastic
| Emap | < 1
barrier to entry
any force that prevents firms from entering a new market
quantity
the dependent variable of the demand curve
price reduction causes increase in total expenditure
elasticity is greater then one, i.e.demand is elastic
short run cost minimizing quantity of output
the quantity of output at which a factory reaches minimum average total cost
same
same or different: independent variables and dependent variables for supply vs. demand
noncooperative equilibrium
an equilibrium in a game in which players do not cooperate but pursue their own self-interest.
land
the factor of production that involves natural resources, things we find in nature that can be used to produce goods & services
surplus
what happens when there's more than enough of a good to satisfy the quantity demanded
gross domestic product
the dollar value of goods and services produced in one year
price elasticity of demand
the percentage change in the quantity demanded of a good that results from a one percent change in its price
marginal cost
the increase in total cost incurred by producing one more unit of output
decrease
if consumer income increases, demand for inferior goods will ____
tax incidence
the actual division of the burden of a tax between buyers and sellers in a market
collusion
n agreement among firms to charge the same price or otherwise not to compete
Free Market
an economic system in which prices and wages are determined by unrestricted competition between businesses, without government regulation or fear of monopolies.
circular flow model
what economists commonly use to summarize the major activity that is part of any economic system
unattainable point
any combination of goods that cannot be produced using currently available resources
government
households, businesses, government: which does not belong?
supply
a set of possible quantities that a specified group of sellers are willing and able to offer for sale at each individual price in a set of prices that might be possible over a given period of time, when other influences on seller behavior are held constant
increase
if the expected future price is set to increase, today's demand will ____
marginal benefit
the additional benefit to a consumer from consuming one more unit of a good or service.
MR = MC
where is the best production level?
Private cost
the cost borne by the producer of a good or service
increase
if subsidies increase, supply will ____
Market Failure
a term used to describe a situation in which markets do not
Total cost
market value of inputs a firm uses in production
Equilibrium
a state of rest or balance due to the equal action of opposing forces.
change in supply
if there's a change in quantity demanded, will there be a change in supply or a change in the quantity supplied?
World Price
the price of a good that prevails in the world market for the good
productive efficiency
the situation in which a good or service is produced at the lowest possible cost.
total production
the dependent variable in the short run production function
marginal benefit
the increase in total benefit that results from one additional unit of actvity
Five sources of market power
exclusive control of important inputs, patents and copyrights, licenses, economies of scale, network economies
false
microeconomics also deals with money (true/false)
developing economies
these economies have low GDPS and standards of living, but there is usually more subsistence agriculture, and therefore more self-reliance.
Scarcity Problem
the resources available to us are limited so we must choose
1<
elastic=decrease prices
tragedy of the commons
the tendency for a common resource to be overused
the rational spending rule
to maximize utility, spending must be allocated across goods so that the marginal utility per dollar is the same for each good
independent
the variable that causes the reaction
volume discounts on inputs & supplies
price minimization benefits of expansion
short run
the production planning period where some inputs are fixed and some are variable
household sector
the group of consumers in the economy
above
if P
elasticity
it measures the impact that a relatively small change in price has on quantity suppled or quantity demanded
labor
the factor of production that involves physical work by people
inverse
inverse or direct: law of demand
diminishing marginal product
the property whereby the marginal product of an input declines as the q of input increases
marketing
this division works on the advertising budget, product development budget, and determining price
possibility of specialization of both labor and management, mass production technology, and volume discounts on inputs and supplies
added benefits of expansion
supplier's reservation price
the lowest price a supplier will accept in return for providing a good or service
TP / L
AP(L) = _________
natural monopoly
is an industry in which long-run average cost is minimized if just one firm serves the entire market.
average total cost
total cost / quantity of output
inelastic supply
if price elasticity of supply is less than one
prisoners' dilemma
a game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off.
stable equilibrium
what happens when both the firm and market are in equilibrium, and there is no incentive for new firms to enter or existing firms to leave
planned economy
the type of economy that involes a plan for 5-10 year period, and those individuals in charge essentially call all the shots
production
this division focuses on labor hours and capital investment (aka plant size)
Finance
the management of revenues; the conduct or transaction of money matters generally, esp. those affecting the public, as in the fields of banking and investment.
marginal product of labor
the added production we get from adding one more unit of labor
Tax
a burdensome charge, obligation, duty, or demand.

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