question
Income Effect
answer
change in choices resulting from a change in purchasing power
question
Substitution Effect
answer
change in choices resulting from a change in relative prices
question
Total Effect
answer
combination of both income effect and substitution effect
question
Giffen Good
answer
A good which is inferior and for which price changes will generate a very large income effect (one which offsets the substitution effect=> demand goes up, breaks law of demand
question
Perfect Competition
answer
homogenous good, many firms
question
Monopolistic Competition
answer
differentiated good, many firms
question
oligopoly
answer
small number of firms
question
monopoly
answer
one firm
question
Marginal Product of Labor (MPL)
answer
additional output produced when the quantity of labor is increased by 1 unit (MPL= delta F(L)/ delta L)
question
Marginal Revenue Product of Labor (MRPL)
answer
additional revenue generated when quantity of labor is increased (MRPL= pMPL= p(delta F(L)/ delta L))
question
Isoquant Curve
answer
a curve representing the combinations of inputs (capital and labor) that allow a firm to produce a particular quantity of output
question
Marginal Product of Labor in a two input case
answer
additional production for a marginal increase in labor (MPL= delta F(K, L)/ delta L)
question
Marginal Product of Capital in a two input case
answer
additional production for a marginal increase in capital (MPK= delta F(K, L)/ delta K)
question
Marginal Rate of Technical Substitution
answer
exchange of input required to keep production constant, slope of the isoquant curve is the (negative of the) ratio of Marginal Products (delta K/ delta L= -MPL/MPK)
question
Isocost Line
answer
shows all the input combinations that yield the same cost (C=rK+wL => K= c/r - w/r(L))
question
Cost Minimization Requirement
answer
MPL/MPK=w/r or MPL/w=MPL/r
question
Total Cost
answer
TC=wL+rK
question
Constant Return to Scale (CRS)
answer
Production increases proportionally with inputs (2x inputs => 2x outputs)
question
Increasing Return to Scale (IRS)
answer
Changing all inputs by the same proportion changes outputs more than proportionally (2x input => >2x output)
question
Decreasing Return to Scale (DRS)
answer
Changing all inputs by the same proportion changes outputs less than proportionally (2x input => <2x output)
question
Marginal Cost Curve
answer
MC= delta TC/ delta Q
question
Fixed Costs
answer
costs of those inputs which do not change depending on the quantity of the firm's output. If a firm actually shuts down, they can recover some fixed costs
question
Variable Costs
answer
costs of the inputs which DO change depending on the quantity of the firm's output
question
Total Cost
answer
TC= FC+VC
question
Sunk Costs
answer
costs that can never be recouped, non-recoverable costs
question
Average Cost
answer
average cost of producing Q
question
Average Total Cost
answer
ATC= TC/Q
question
Average Fixed Cost
answer
AFC= FC/Q
question
Average Variable Cost
answer
AVC= VC/Q
question
Accounting costs
answer
direct costs of operating a business
question
economic costs
answer
sum of accounting costs and opportunity cost (relevant to decision-making of firm)
question
Accounting profits
answer
revenue - accounting costs
question
Economic profit
answer
revenue - total costs
question
If MC>AC
answer
AC is increasing
question
If MC<AC
answer
AC is decreasing
question
If MC=AC
answer
AC is at a minimum
question
Pareto Dominance
answer
Allocation A Pareto dominates allocation B if no one is worse off and at least one person is better off
question
Allocation of resources
answer
what firms produce, how they produce these products, who consumes what
question
Pareto Frontier
answer
connects all points which have no allocation that Pareto dominates them
question
Pareto Efficient
answer
an allocation is Pareto efficient if no feasible allocation Pareto dominates it
question
Pareto Inefficient
answer
not Pareto efficient, captures a notion of wasted potential benefit
question
First Welfare Theorem of Economics
answer
the allocation of resources in a perfectly competitive equilibrium is Pareto efficient
1. exchange efficiency: no pareto-improving trade between consumers
2. input efficiency: no pareto-improving mix of inputs that should be used to produce these
3. output efficiency: no pareto-improving mix of goods that should be produced
1. exchange efficiency: no pareto-improving trade between consumers
2. input efficiency: no pareto-improving mix of inputs that should be used to produce these
3. output efficiency: no pareto-improving mix of goods that should be produced
question
Second Welfare Theorem of Economics
answer
Any given Pareto efficient allocation in a perfectly competitive market is a general equilibrium outcome for some initial allocation of resources. For any Pareto efficient outcome, we can achieve it by shuffling around/redistributing initial allocations.
question
Market Power
answer
A firm with control over price has market power. If firm increases price, it can still sell some quantity. The most extreme form of market power is a monopoly in which there is only one seller.
question
Extreme scale economies
answer
very high fixed costs and very low variable costs lead to a "natural monopoly"
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
