question
excise tax
answer
Pconsumer = Pproducer + tax
question
excise subsidy
answer
Pconsumer + subsidy = Pproducer
question
Who bears the burden of a tax?
answer
the curve that is most inelastic will bear most of burden
ex: inelastic demand, elastic supply; buyers bear more because least responsive
ex: inelastic demand, elastic supply; buyers bear more because least responsive
question
Bang for the Buck Condition
answer
MPL/w = MPK/r
question
How do you get MPL/MPK?
answer
By deriving the production function in relation to each variable, and keeping the other as a constant.
question
Total Cost
answer
Lw + Kr
question
Definition of Marginal Cost (MC)
answer
Derivative of total cost in relation to quantity.
question
Definition of Average Total Cost
answer
Total Cost (in quantity, Q)/ Quantity
question
Definition of Average Variable Cost
answer
Variable Cost (in quantity, Q)/ Quantity
question
In long-run perfect competition...
answer
MC = P
question
Cost is minimized when...
answer
MC = ATC
question
When do firms shut down in long-run?
answer
When there are no profits (when P < ATC)
question
When do firms shut down in short-run?
answer
When P < AVC
question
Economies of scale
answer
MC < ATC
question
Diseconomies of scale
answer
MC > ATC
question
The industry supply curve is...
answer
The sum of all the individual supply curves in a market (Remember to isolate Q)
question
The short-run supply curve is equal to...
answer
MC
question
Budget Constraint
answer
PaQa + PbQb= I
question
MRSa,b
answer
= ^b/^a (^ is delta) = MUa/MUb = Pa/Pb
question
For consumers who consume a good
answer
MB = P
question
The slope of a production possibilities frontier
answer
MRT
question
MRTa,b
answer
| MCa/MCb | = | ^b/^a |
question
What is MRT?
answer
MRT is the number of units or amount of a good that must be forgone to create
or attain one unit of another good.
or attain one unit of another good.
question
What is a Pareto improvement?
answer
A Pareto Improvement is a change that makes nobody worse off and at least
one person better off.
one person better off.
question
What is Pareto efficiency?
answer
Pareto efficiency is when no Pareto improvements can
be made.
be made.
question
At Pareto Efficiency...
answer
In an edgeworth box, the indifference
curves will be tangent to each other, i.e. the MRS of each will be the same.
MRSa = MRSb
curves will be tangent to each other, i.e. the MRS of each will be the same.
MRSa = MRSb
question
Mathematically, that is, for a given Utility function U(A, B, C)
answer
∂A U(A, B, C) > 0
∂
∂B U(A, B, C) > 0
∂
∂C U(A, B, C) > 0
∂
∂
∂B U(A, B, C) > 0
∂
∂C U(A, B, C) > 0
∂
question
What do utility functions satisfy?
answer
Utility functions satisfy diminishing marginal utility. That is, the second derivative is negative.
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