ECON 2010: FINAL
72 Cards in this Set
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total product curve
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will become flatter as output increases, if there are diminishing returns to the variable input
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increase in output by hiring an additional worker
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= marginal product
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diminishing returns
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decrease in extra output due to the use of an additional unit of a variable input, when more and more of the variable input is used and all other things are held constant
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private goods
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excludable and congestible (rival)
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artificially scare resources
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excludable and congestible (rival)
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common resources
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non excludable; congestible/rivalrous
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public goods
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non excludable and non congestible/ rivalrous
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marginal social cost
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total cost to society as a whole for producing one further unit in an economy
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externality
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cost or benefit that affects a party who did not chose to incur that cost or benefit
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marginal abatements cost
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set of options available to an economy to reduce pollution
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public commodity
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non-congestible/excludable
everyone must consume every unit produced
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marginal benefit
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max. amount they are willing to pay to consume additional unit of good
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Pigovian tax
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applied to market activity that is generating negative externalities --> correct inefficiency by being set equal to negative externality
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the short run
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a period in which some inputs are considered to be fixed in quantity
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fixed input
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quantity cannot be changed in a particular time period
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relationship of variables in long run
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in long run all inputs are variable
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marginal product
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change in output resulting in one more unit of particular input
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marginal product of labor is the change in:
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total output divided by the change in the quantity of labor
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avg. variable costs equals:
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1. variable cost divided by output
2. total cost- fixed cost divided by output
3. avg. total cost minus avg. fixed cost
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the avg. total cost curve in the short run slopes upward due to
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diminishing returns
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when the marginal cost is rising
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both avg. variable cost and avg. total cost may be rising or falling
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a firm's marginal cost is:
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the ratio of the change in total cost to the change in the quantity of output
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avg. total cost is:
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total cost divided by output
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avg. variable cost is the ratio of:
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variable cost to the quantity of output
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if a firm experiences lower costs per unit as it increases production in the long run, this is an example of
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an increasing returns to scale
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the slope of a long-run avg. total cost curve exhibiting decreasing returns to scale is
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positive (and vice versa)
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if all firms in an industry are price-takers then:
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an individual firm cannot alter the market price even if it doubles its output
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Marginal revenue
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an individual firm cannot alter the market price even if it doubles its output
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a perfectly competitive firm is a:
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price-taker
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perfect competition is a model that assumes:
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1. large # of firms
2. many buyers
3. firms produce identical goods
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the marginal revenue received by a firm in a perfectly competitive market:
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is equal to its avg. revenue
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perfectly competitive firm will max. profits at which:
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marginal revenue equals marginal cost
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perfectly competitive firm will max. profits at which:
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the min. value of avg. total cost
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if a price is consistently below avg. variable cost then in the short run a perfectly competitive firm should
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shut down
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total revenue is a firm's:
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total output times the price at which it sells that output
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the marginal revenue received by a firm in a perfectly competitive market
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is the change in total revenue divided by the change in output
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the marginal revenue received by a firm in a perfectly competitive market
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it means that firms are doing as well as they could do in other markets
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perfect competition
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cannot make positive economic profits in long run
does not have market power
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monopoly:no close substitutes
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has market power
can make positive economic profits in long run
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a firm that experiences economies of scale
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over the entire range of outputs demanded is a natural monopoly
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the demand curve for a monopoly is
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industry demand curve
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b/c monopoly firms are price-setters
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can only sell more by lowering price
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ex.) of barrier to entry
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control of scare resources, economies of scale, gov. created barriers
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ex.) of barrier to entry
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less than price
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in a monopoly in the long run
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less than price
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price discrimination
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practice of selling the same product at different prices in different markets w/o corresponding differences in cost
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monopolist practices price discrimination to
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increase profits
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oligopoly
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small # of interdependent firms
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tacit collusion
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unwritten/spoken understandings through which firms collude to restrict competition
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price leadership occurs if
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smaller firms in an industry silently agree to charge the same price as the largest firm
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antitrust policy
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smaller firms in an industry silently agree to charge the same price as the largest firm
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in monopolistic competition each firm:
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has some ability to set the price of its differentiated good
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if a monopolistically competitive firm is in the long-run equilibrium then
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price equals avg. total cost
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Coase theorem states that in the presence of externalities a market economy will
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reach an efficient solution if transaction costs are sufficiently low
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externality is internalized when
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individuals take external costs and benefits into account in their decision making
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individual is more likely to free ride when a good is
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non excludable
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for a nonexcludablegood a market economy will
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underproduce the good
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isoquant
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contour line drawn through set of points at which the same quantity of output is produced while changing the quantities of two or more inputs
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Coase bargaining
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will lead to an efficient outcome regardless of the initial allocation of property
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marginal rate of transformation
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the rate at which one good must be sacrificed in order to produce a single extra unit of another good
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Santa Clause is an
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artificially scarce good
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what changes demand
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price of substitutes/complements
income
# of people
Tastes
Expectations
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comparative advantage
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lower opportunity cost
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absolute advantage
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can produce more of both goods @ same time --> higher #
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if price of substitute increases
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demand curve shifts right
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price of complement increases
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shift left
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cause of supply shifts
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prices of other goods
expectations of price change
supplier input price; # of producers
Technology, time, tastes, taxes
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consumer surplus
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paid less than what was willing to pay
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consequences of minimum wage
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increase in unemployment & not every worker benefits
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price floor
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above equilibrium affect demand
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price ceiling
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below equilibrium affect supplier
shortage --> certain consumers w/o good
Down producer surplus; increase consumer surplus
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price floor
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increase producer surplus; decrease consumer surplus
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ECON 2010: EXAM 1