18 Cards in this Set
| Front | Back |
|---|---|
|
what are the characteristics of a perfectly competitive market?
|
equal access to info
homogeneous product
each individual is a price taker
market price is determined by aggregated actions
|
|
why is it that every consumer and every firm in a PERFECTLY COMPETITIVE MARKET is a "price taker" ?
|
market price is determined by aggregate actions
no one person has the market power to set the price
|
|
determines size of price elasticity of demand?
|
luxury or necessity?
how many subsidies?
what is the time frame?
how important is the price of good relative to wealth/income?
|
|
How do the determinants affect the size of price elasticity of demand ?
|
Changes in demand shift the demand curve ( cause by non priced factors) eg. luxury or necessity etc.
|
|
Substitutes or Complements?
|
If CPEoD > 0 then the two goods are SUBSTITUTES
if CPEoD =0 then they are independent ( no relationship)
if CPEoD < 0 then the two goods are complelments
|
|
is the burden of a tax on consumers greater when DEMAND is more elastic or inelastic? why?
|
when demand is more inelastic than supply
more inelastic an item is, more consumers are willing to pay no matter the amount or tax
|
|
what is the relationship between total cost, variable cost, and fix cost,
and their averages?
|
TC=FC+VC
VC-cost varies with quantity of output
FC- cost stays same regardless of output
AVGS
ATC= TC/Q
AVC=VC/Q
AFC=FC/Q
|
|
why is that when marginal product declines, marginal cost increases?
|
because of the diminishing marginal product
|
|
what do perfectly competitive firms make zero profit in the long run?
|
because if profit were being made, new firms would enter and the market price would decline, eliminating profit.
-if losses were being made, firms would exit and the market price would rise
|
|
how does a competitive market promote efficiency?
|
firms produce at lowest cost
has incentive to invest in more efficient production techniques that lower their cost structure
creativity and innovations are rewarded
|
|
if a workers wealth increase, what happens to their labor supply?
|
increase in wages, decrease in amount of labor demanded, and vise versa
|
|
what are the shifters of factor demand? how do they change factor demand?
|
output price
factor productivity
production technology change
capital intense vs labor intense
price of other factors
elasticity of substitution
low #, not easily replaced
|
|
easier to ask for a raise when elasticity of input substitutions is low or high?
|
low, if it is high for substitution you could easily be replaced by machine, therefore more valued for your labor better chance of getting raise
|
|
ask for a raise when price elasticity of output demand is elastic or inelastic?
|
inelastic, if demand for your product is elastic, total revenue may drop considerably hurting your firm. higher wage but fewer hours or layoffs may result
|
|
what are two characteristics of a public good?
|
excludability
rivalry in consumption
|
|
why cant the private market provide a public good?
|
non exclusive, no one can be excluded from benefiting from the good whether they pay or not
consumers will not pay for a good they will get for free
|
|
what is rent seeking?
|
when a company uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation
|
|
how can government make market participants "internalize the externality" in the case of a negative externality? and positive externality?
|
negative- impose taxes on goods that generate negative externalities
positive- give subsidies on goods that generate positive externalities
|
ECN 203: Final Exam