question
altruism
answer
when a person makes a sacrifice to benefit others without expecting anything in return, unselfish regard for the welfare of others
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present-aim standard of rationality
answer
- a person is rational is she pursues whatever goal she has
- must take some others tastes in but not all
- must take some others tastes in but not all
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self-interest standard
answer
- a person is rational if her motives are lined up with her narrow material interests (powerpoint)
- the idea that the best economic benefit for all can usually be accomplished when individuals act in their own self-interest. (google)
- independent of others tastes
- the idea that the best economic benefit for all can usually be accomplished when individuals act in their own self-interest. (google)
- independent of others tastes
question
strategic preference
answer
usefulness depends on how many others share the taste (in bio, taste for aggressiveness)
-hawk - aggressive
- dove- non aggressive
7, 8
-hawk - aggressive
- dove- non aggressive
7, 8
question
rational choice model
answer
regards the consumers tastes as given
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ecological models
answer
ask where those tastes come from
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prisoners dilemma
answer
prisoners would go free if the prisoners could develop an effective fool proof commitment device
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commitment problems
answer
games where the common feature is that people can do better if they can commit themselves to behave in a way that will later be inconsistent with their own material interests
- cooperate/defect math problem
- cooperate/defect math problem
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commitment device
answer
a device that commits a person to behave in a certain way in the future, even though he may wish to behave otherwise when the time comes
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Production function
answer
the relationship that describes how inputs like capital and labor are transformed into output
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Production function mathematically: Q, K, L
answer
Q = F (K,L)
K = Capital
L = Labor
K = Capital
L = Labor
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prod. function - long run
answer
the shortest period of time required to alter the amounts of all inputs used in a production process
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short run
answer
the longest period of time which at least one of the inputs used cannot be varied
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variable input
answer
an input that can be varied in the short run
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fixed input
answer
an input that cannot vary in the short run
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short run properties
answer
- It passes through the origin
- Initially, the addition of variable inputs increases output at an increasing rate
- Beyond some point, additional units of variable input give rise to smaller increments in output (outputs go down at a certain point)
- Initially, the addition of variable inputs increases output at an increasing rate
- Beyond some point, additional units of variable input give rise to smaller increments in output (outputs go down at a certain point)
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law of diminishing returns
answer
if other inputs are fixed, the increase in output from an increase in the variable input must eventually decline
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total product curve
answer
a curve showing the amount of output as a function of the amount of variable input
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marginal product
answer
change in total product due to a 1-unit change in the variable input
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MPL equation
answer
MPL = ΔQ/ΔL
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average product
answer
total output divided by the quantity of the variable input
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average product equation
answer
APL = Q/L
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When the marginal product curve lies above the average product curve then what?
answer
the average product curve must be rising
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When the marginal product curve lies below the average product curve then what?
answer
the average product curve must be falling
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The two curves intersect (MPC and APC) at what point?
answer
the maximum value of the average product cuve
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Isoquant
answer
The set of all input combinations that yield a given level of output
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diminishing returns
answer
occurs when only one input is changed and all others are fixed
- hiring more employees
- hiring more employees
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decreasing returns
answer
occurs when all inputs are increased by the same percentage
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TP, MP, AP
answer
TP - total product
MP - marginal product
AP - average product
MP - marginal product
AP - average product
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Fixed Cost (FC)
answer
cost that does not vary with level of output in the short run
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Variable Cost (VC)
answer
costs that varies with the level of output in the short run
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Total Cost (TC)
answer
all costs of production: the sum of variable cost and fixed cost
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Average Fixed Cost (AFC)
answer
FC/Q
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Average variable cost (AVC)
answer
VC/Q
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Average total cost (ATC)
answer
TC/Q
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Marginal Cost (MC)
answer
change in total cost because of a 1-unit change in output
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marginal cost curve
answer
shows how the cost of producing one more unit depends on the quantity that has already been produced
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Isocost line
answer
a set of input bundles each of which costs the same amount
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natural monopoly
answer
an industry whose market output is produced at the lowest cost when production is concentrated in the hands of a single firm
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Economic profit
answer
the difference between total revenue and total cost
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Economics assume what about the goal of firms?
answer
Economists assume that the goal of firms is to maximize economic profit
question
Four conditions for perfect competition
answer
1. Many buyers and sellers participate in the market (firms sells a standardized product)
2. Individual firms treat the market price of a product as a given (firms are price takers)
3. Buyers and sellers are well informed about products (firms and consumers have perfect information)
4. Sellers are able to enter and exit the market freely (free entry and exit)
2. Individual firms treat the market price of a product as a given (firms are price takers)
3. Buyers and sellers are well informed about products (firms and consumers have perfect information)
4. Sellers are able to enter and exit the market freely (free entry and exit)
question
profit maximization in the short-run
answer
To maximize profit the firm will choose the level of output for which the difference between total revenue and total cost is largest
question
marginal revenue
answer
the change in total revenue because of a 1-unit change in sales
question
Shutdown Condition
answer
if price falls below the minimum of average variable cost, the firm should shut down in the short run
question
short-run supply curve
answer
the rising portion of the short run marginal cost curve that lies above the minimum value of the average variable cost curve (red line in picture)
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breakeven point
answer
the point at which price equals the minimum of average total cost
- the lowest price at which the firm will not suffer negative profits in the short run
- the lowest price at which the firm will not suffer negative profits in the short run
question
allocative efficiency
answer
a condition in which all possible gains from exchange are realized
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producer surplus
answer
the dollar amount by which a firm benefits by producing a profit maximizing level of output
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As firms enter the industry what happens to the supply curve?
answer
It shifts right
question
the invisible hand
answer
a metaphor for the unseen forces that move the free market economy
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price elasticity of supply
answer
the % change in quantity supplied because of a 1 percent change in product price
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