2861027
Description
Flashcards by Natalia Djohari, updated more than 1 year ago
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Created by Natalia Djohari
over 9 years ago
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| Question | Answer |
| Market | set of all consumers and suppliers who wants to buy or sell a good/service |
| Market Equilibrium | When the price and quantity of a good is stable |
| Perfectly Competitive Markets | 1. Consumer and Supplier are Price-Takers 2. Homogeneous Good 3. No externality 4. Goods are excludable 5. Full Information 6. Free Entry and Exit |
| Marginal Benefit | Extra benefit of producing a unit of good |
| Marginal Benefit | Extra cost of producing a unit of good |
| Cost-Benefit Principle | Action is taken when MB >= MC |
| Economic Surplus | difference between MB and MC of taking an action |
| Quantity Supplied | Quantity of good or service that maximizes profit of supplier |
| Supply Curve | relation between the price of a good or service and the quantity supplied of the good or service |
| Law of Supply | producer offer more of a good or service when the price increases. |
| Horizontal Interpretation (of the Supply Curve) | Start from a certain price and find the associated quantity. That is the quantity the supplier will supply for that price |
| Vertical Interpretation (of the Supply Curve) | Start form a certain quantity and find the associated price. That is the minimum price the produce will accept |
| Producer Reservation Price | minimum amount of money the producer is willing to accept to offer a certain good or service |
| Sunk Cost | A cost that once paid cannot be recovered |
| Fixed Cost | cost associated with a fixed factor of production |
| Short Run | a period of time during which at least of one factor of production is fixed |
| Variable Cost | a cost associated with a variable factor of production |
| Long Run | Long Run denotes a period of time during which all factors of production are variable |
| Profit | difference between the total revenues (TR) and the total costs (TC) |
| Shut Down Condition (short run) | π (profit) production < −FC |
| Exit Condition (long run) | π (profit) production < 0 |
| Factors that shifts the supply curve | Technology Input Prices Expectations Changes in pricing for other products Number of suppliers |
| Price Elasticity of Supply | the percentage change in the quantity supplied re- sulting from a very small percentage change in price |
| Elasticity Formula for Two points | ElasticityA = (∆Q/Qa) / (∆P/Pa) |
| Elastic Supply | price elasticity of supply is greater than 1 |
| Unit Elastic Supply | price elasticity of supply is equal to 1 |
| Inelastic Supply | price elasticity of supply is less than 1 |
| Elasticity Formula for one point | ElasticityA = (Pa/Qa) × (1/slope) |
| Factors to increase supply price elasticity | 1. large availability of raw materials 2. more mobile the factors of production 3. larger the amount of inventories and excess capacity 4. Longer time horizon |
| Utility | satisfaction that an individual derives from consuming a given good or taking a certain action (measured in utils) |
| Decreasing Marginal Utility | consuming an extra unit of a given good decreases the amount of utils |
| Quantity Demanded | quantity of a given good or service that maximizes the utility experienced by the individual consuming it |
| Substitution Effect | change in the quantity demanded of a given good following a change in its relative price |
| Income Effect | changes in the quantity de- manded of a given good following the reduction in the consumer’s purchasing power |
| Law of Demand | demand curves tend to be downward sloping |
| Giffen Goods | an increase in price increases the quantity demanded |
| Demand Curve | the relationship between the price of a good or service and the quantity demanded of that good or service |
| Horizontal Interpretation (of the Demand Curve) | Start fromm a certain price and find associated quantity. This is how many units the consumer is willing to buy at that price. |
| Vertical Interpretation (of the Demand Curve) | Start form a certain quantity and find the associated price. This price is the maximum amount of money the consumer is willing to pay for the marginal unit. |
| Substitutes | Two goods are Substitutes when an increase in the price of one causes an increase in the quantity demanded of the other |
| Complements | Two goods are Complements when a decrease in the price of one causes an increase in the quantity demanded of the other |
| Factors that shift the demand curve right (Hint: 8 points) | 1. Successful marketing campaign 2. Decrease in the price of complements 3. An increase in the price of substitutes 4. An increase in income for a normal good 5. A decrease in income for an inferior good 6. A positive shift in consumers’ preferences towards a certain good 7. Expectations of an increase in future prices that push the buyers to try to purchase the goods early 8. Population growth |
| Price Elasticity of Demand | the percentage change in quantity demanded resulting from a very small percentage change in price |
| Elastic Demand | the price elasticity of demand is greater than 1 |
| Unit Elastic Demand | the price elasticity of demand is equal to 1 |
| Inelastic Demand | the price elasticity of demand is less than 1 |
| Factors to make demand curve more elastic | 1. large number of substitutes 2. a narrow definition 3. large share of income required to purchase a good (or service) 4. long time horizon |
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