AGR 110 Kibler Illinois State University Vocab & Equations

Q: Elasticity

quantity demanded changes relatively more than the price does > 1, more than 1

question

Competitive market

answer

a market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold

question

Elasticity

answer

Measures how much one variable changes in response to a change of another variable

question

Price elasticity of demand

answer

describes the change of quantity demanded following a change in price

question

Inelasticity

answer

quantity demanded changes relatively less than the price does
< 1, less than 1

question

Elasticity

answer

quantity demanded changes relatively more than the price does
> 1, more than 1

question

Unit Elastic

answer

the price elasticity of demand is exactly 1

question

Midpoint method

answer

a technique for calculating the percent change in which changes in a variable are compared with the average, or midpoint, of the starting and final values.

question

Perfectly inelastic

answer

when the quantity demanded does not respond at all to changes in price
*Demand curve is vertical

question

Perfectly elastic

answer

when any price increase will cause the quantity demanded to drop to 0
*Demand curve is horizontal

question

Total Revene

answer

The total amount of money by solely selling products. Costs not factored in.

question

Price Elasticity of demand depends on

answer

-Closeness of substitutes
-whether the good is a necessity of a luxury
-proportion of income spent on the good
-time

question

perfect substitutes

answer

products that are completely interchangeable

question

Cross price elasticity of demand

answer

percent change in the quantity demanded of one good divided by the perfect change in the other good's price

question

Cross-price elasticity of demand is negative

answer

complements

question

Cross-price elasticity of demand is positive

answer

substitutes

question

Income elasticity of demand

answer

Percent change in the quantity of a good demanded divided by the percent change in the consumers' income

question

Income elasticity of demand is positive

answer

normal good

question

income elasticity of demand is negative

answer

inferior good

question

Price elasticity of supply

answer

percent change in the quantity supplied divided by percent change in the price.

question

Price elasticity of supply depends on

answer

-Availability of inputs (how flexible are sellers to change of the good sold)
-time

question

Utility

answer

a measure of the satisfaction the consumer derives of goods and services

question

Util

answer

the unit of utility

question

Total Utility

answer

the total amount of satisfaction obtained from consumption of a good or service

question

Marginal Utility

answer

of a good or service is the change in total utility generated by consuming one additional unit of that good or service.

question

Principle of diminishing marginal utility

answer

Each successive unit of a good ro strive consumed adds less to total utility than the pervious unit

question

Budget constraint

answer

requires that the cost of a consumer's consumption bundle be no more than the consumer's total income

question

Consumption possibility

answer

is the set of all consumption bundles that can be consumed given the consumer's income and prevailing prices.

question

budget line

answer

shows the consumption bundles available to a consumer who spends all of his or her income

question

optimal consumption bundle

answer

the consumption bundle that maximizes a consumer's total utility

question

marginal utility per dollar

answer

spent on a good or service is the additional utility from spending one more dollar on that good or service

question

optimal consumption rule

answer

says that when a consumer maximizes utility, the marginal utility per dollar spent must be the same for all goods and services in the consumption bundle

question

substitution effects

answer

of a change in the price of a good

question

income effect

answer

of a change in the price of a good change in the quantity consumed of that good that results from a change in the consumer's purchasing power due to the change in the price of the good

question

Production Function

answer

Relationship between the quantity of input a firm uses and the quantity of output it produces

question

Fixed input

answer

an input whose quantity is fixed for a period of time and cannot be varied

question

Variable input

answer

an input whose quantity the firm can change relatively quickly

question

Long run

answer

the time period in which all inputs can be varied

question

Short run

answer

the time period in which at least one input is fixed

question

Total product curve

answer

shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed inputs

question

Marginal product

answer

of an input is the additional quantity of output that is produced by using one more unit of that input

question

diminishing returns to an input

answer

when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input

question

fixed cost

answer

is a cost that does not depend on the quantity of output produced. It is the cost of the fixed input.

question

Variable cost

answer

is a cost that depends on the quantity of output produced. It is the cost of the variable input.

question

Total cost

answer

fixed costs + variable costs

question

Marginal cost

answer

Change in total cost / change in quantity of output

question

Average total cost

answer

often referred to simply as average cost. Total cost / quantity of goods produced
ATC = AVC + AFC

question

Spreading effect

answer

the larger the output, the greater the quantity of output over which fixed cost is spread, leading to lower the average fixed cost.

question

diminishing returns effect

answer

the larger the output, the greater the amount of variable input required to produce additional units leading to higher average variable cost.

question

Minimum-cost output

answer

-the quantity of output at which average total cost is lowest
-bottom of the U shaped average total cost curve
-where average total cost is equal to marginal cost

question

Short run vs Long Run Costs

answer

in short run the fixed cost is completely outside the control of a firm, but inland run all inputs are variable

question

long run average total cost curve

answer

shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

question

increasing return to scale

answer

long-run average total cost declines as output increase

question

Constant return to scale

answer

long-run average total cost is constant as output increase

question

Decreasing return to scale

answer

long-run average total cost increase as output increase

question

price-taker producer (or consumer)

answer

is a producer ( consumer) whose actions have no effect on the market price of the good it (he/she) sells/buys

question

Perfectly competitive market

answer

is a market in which all market participants are price takers.

question

Two Necessary Conditions for Perfect Competition

answer

- Many producers, none of whom have a large market share. Everyone is a price taker
- Standardized product (commodity): Consumers regard the products of all producers as equivalent. Perfect substitutes.

question

Free entry and exit

answer

into and from an industry when producers can easily enter into or leave that industry.

question

Marginal Revenue

answer

is the change in total revenue generated by an additional unit of output

question

Break-even price

answer

of a price-taking firm is the market price at which it earns zero profit

question

Shut down price

answer

of a price-taking firm is the market price at which it makes the same negative profit from staying open

question

Individual Supply curve

answer

The marginal cost curve above the shut down price is a price-taking firm's individual supply curve

question

Industry supply curve

answer

relationship between price of a good, and total output of the industry as a whole.

question

short-run market equilibrium

answer

Quantity supplied equals the quantity demanded, taking the number of producers as given

question

Long-run market equiliibrium

answer

Quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur

question

E: Price Elasticity of Demand

answer

% change in quantity demand / % change in price

question

E: Midpoint

answer

(B2 - B1 / (B2+B1) / 2 ) / (A2 - A1 / (A2+A1) / 2 )

question

E: Total Revenue

answer

Price x Quantity Sold

question

E: Profit

answer

Total Revenue - Total Cost

question

E: Cross-price elasticity of demand

answer

% Change in quantity of A demanded / % change in price of B

question

E: Income elasticity of demand

answer

% Change in quantity demanded / % change in income

question

E: Price elasticity of supply

answer

% Change in quantity supplied / % change in price

question

E: Marginal utility per dollar

answer

MU / P

question

E: Optimal consumption rule

answer

MUx / Px= MUy / Py

question

E: Marginal product of labor

answer

change in quantity of output / change in quantity of labor

question

E: Total Cost

answer

Fixed Cost + Variable Cost

question

E: Marginal Cost

answer

Change in total cost / change in quantity of output

question

E: Average Total Cost

answer

TC / Quantity of goods produced

question

E: Marginal Revenue

answer

change in Total revenue / change in quantity

question

E: Average Variable cost

answer

VC / output

question

E: AFC

answer

FV / output

question

E: ATC

answer

TC / output

1 of 82

question

Competitive market

answer

a market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold

question

Elasticity

answer

Measures how much one variable changes in response to a change of another variable

question

Price elasticity of demand

answer

describes the change of quantity demanded following a change in price

question

Inelasticity

answer

quantity demanded changes relatively less than the price does
< 1, less than 1

question

Elasticity

answer

quantity demanded changes relatively more than the price does
> 1, more than 1

question

Unit Elastic

answer

the price elasticity of demand is exactly 1

question

Midpoint method

answer

a technique for calculating the percent change in which changes in a variable are compared with the average, or midpoint, of the starting and final values.

question

Perfectly inelastic

answer

when the quantity demanded does not respond at all to changes in price
*Demand curve is vertical

question

Perfectly elastic

answer

when any price increase will cause the quantity demanded to drop to 0
*Demand curve is horizontal

question

Total Revene

answer

The total amount of money by solely selling products. Costs not factored in.

question

Price Elasticity of demand depends on

answer

-Closeness of substitutes
-whether the good is a necessity of a luxury
-proportion of income spent on the good
-time

question

perfect substitutes

answer

products that are completely interchangeable

question

Cross price elasticity of demand

answer

percent change in the quantity demanded of one good divided by the perfect change in the other good's price

question

Cross-price elasticity of demand is negative

answer

complements

question

Cross-price elasticity of demand is positive

answer

substitutes

question

Income elasticity of demand

answer

Percent change in the quantity of a good demanded divided by the percent change in the consumers' income

question

Income elasticity of demand is positive

answer

normal good

question

income elasticity of demand is negative

answer

inferior good

question

Price elasticity of supply

answer

percent change in the quantity supplied divided by percent change in the price.

question

Price elasticity of supply depends on

answer

-Availability of inputs (how flexible are sellers to change of the good sold)
-time

question

Utility

answer

a measure of the satisfaction the consumer derives of goods and services

question

Util

answer

the unit of utility

question

Total Utility

answer

the total amount of satisfaction obtained from consumption of a good or service

question

Marginal Utility

answer

of a good or service is the change in total utility generated by consuming one additional unit of that good or service.

question

Principle of diminishing marginal utility

answer

Each successive unit of a good ro strive consumed adds less to total utility than the pervious unit

question

Budget constraint

answer

requires that the cost of a consumer's consumption bundle be no more than the consumer's total income

question

Consumption possibility

answer

is the set of all consumption bundles that can be consumed given the consumer's income and prevailing prices.

question

budget line

answer

shows the consumption bundles available to a consumer who spends all of his or her income

question

optimal consumption bundle

answer

the consumption bundle that maximizes a consumer's total utility

question

marginal utility per dollar

answer

spent on a good or service is the additional utility from spending one more dollar on that good or service

question

optimal consumption rule

answer

says that when a consumer maximizes utility, the marginal utility per dollar spent must be the same for all goods and services in the consumption bundle

question

substitution effects

answer

of a change in the price of a good

question

income effect

answer

of a change in the price of a good change in the quantity consumed of that good that results from a change in the consumer's purchasing power due to the change in the price of the good

question

Production Function

answer

Relationship between the quantity of input a firm uses and the quantity of output it produces

question

Fixed input

answer

an input whose quantity is fixed for a period of time and cannot be varied

question

Variable input

answer

an input whose quantity the firm can change relatively quickly

question

Long run

answer

the time period in which all inputs can be varied

question

Short run

answer

the time period in which at least one input is fixed

question

Total product curve

answer

shows how the quantity of output depends on the quantity of the variable input, for a given quantity of the fixed inputs

question

Marginal product

answer

of an input is the additional quantity of output that is produced by using one more unit of that input

question

diminishing returns to an input

answer

when an increase in the quantity of that input, holding the levels of all other inputs fixed, leads to a decline in the marginal product of that input

question

fixed cost

answer

is a cost that does not depend on the quantity of output produced. It is the cost of the fixed input.

question

Variable cost

answer

is a cost that depends on the quantity of output produced. It is the cost of the variable input.

question

Total cost

answer

fixed costs + variable costs

question

Marginal cost

answer

Change in total cost / change in quantity of output

question

Average total cost

answer

often referred to simply as average cost. Total cost / quantity of goods produced
ATC = AVC + AFC

question

Spreading effect

answer

the larger the output, the greater the quantity of output over which fixed cost is spread, leading to lower the average fixed cost.

question

diminishing returns effect

answer

the larger the output, the greater the amount of variable input required to produce additional units leading to higher average variable cost.

question

Minimum-cost output

answer

-the quantity of output at which average total cost is lowest
-bottom of the U shaped average total cost curve
-where average total cost is equal to marginal cost

question

Short run vs Long Run Costs

answer

in short run the fixed cost is completely outside the control of a firm, but inland run all inputs are variable

question

long run average total cost curve

answer

shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

question

increasing return to scale

answer

long-run average total cost declines as output increase

question

Constant return to scale

answer

long-run average total cost is constant as output increase

question

Decreasing return to scale

answer

long-run average total cost increase as output increase

question

price-taker producer (or consumer)

answer

is a producer ( consumer) whose actions have no effect on the market price of the good it (he/she) sells/buys

question

Perfectly competitive market

answer

is a market in which all market participants are price takers.

question

Two Necessary Conditions for Perfect Competition

answer

question

Free entry and exit

answer

into and from an industry when producers can easily enter into or leave that industry.

question

Marginal Revenue

answer

is the change in total revenue generated by an additional unit of output

question

Break-even price

answer

of a price-taking firm is the market price at which it earns zero profit

question

Shut down price

answer

of a price-taking firm is the market price at which it makes the same negative profit from staying open

question

Individual Supply curve

answer

The marginal cost curve above the shut down price is a price-taking firm's individual supply curve

question

Industry supply curve

answer

relationship between price of a good, and total output of the industry as a whole.

question

short-run market equilibrium

answer

Quantity supplied equals the quantity demanded, taking the number of producers as given

question

Long-run market equiliibrium

answer

Quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur

question

E: Price Elasticity of Demand

answer

% change in quantity demand / % change in price

question

E: Midpoint

answer

(B2 - B1 / (B2+B1) / 2 ) / (A2 - A1 / (A2+A1) / 2 )

question

E: Total Revenue

answer

Price x Quantity Sold

question

E: Profit

answer

Total Revenue - Total Cost

question

E: Cross-price elasticity of demand

answer

% Change in quantity of A demanded / % change in price of B

question

E: Income elasticity of demand

answer

% Change in quantity demanded / % change in income

question

E: Price elasticity of supply

answer

% Change in quantity supplied / % change in price

question

E: Marginal utility per dollar

answer

MU / P

question

E: Optimal consumption rule

answer

MUx / Px= MUy / Py

question

E: Marginal product of labor

answer

change in quantity of output / change in quantity of labor

question

E: Total Cost

answer

Fixed Cost + Variable Cost

question

E: Marginal Cost

answer

Change in total cost / change in quantity of output

question

E: Average Total Cost

answer

TC / Quantity of goods produced

question

E: Marginal Revenue

answer

change in Total revenue / change in quantity

question

E: Average Variable cost

answer

VC / output

question

E: AFC

answer

FV / output

question

E: ATC

answer

TC / output

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