Econ Chapter 7-11 - Assignment Essays

question

Budget line

answer

shows all combinations of the two goods that use up the
budget

question

What is the slope of the budget line?

answer

the opportunity cost of the good on the horizontal axis in terms of the good on the vertical axis

question

Budget set

answer

the set of affordable combinations of the two goods

question

Equimarginal rule

answer

Pick the combination of two goods where the marginal benefit per dollar of the first good equals the marginal benefit per dollar of the second good

question

The increase in the quantity demanded can be explained by:

answer

the substitution effect and the income effect

question

Substitution effect

answer

A decrease in the price of good one decreases the price of good one relative to good two, causing the consumer to substitute good one for good two

question

Income effect

answer

A decrease in price increases the consumers real income, increasing the quantity demanded of all normal goods

question

A decrease in the price of a good will ____ the goods marginal utility

answer

increase

question

Why do consumers make irrational decisions?

answer

The prefrontal cortex uses gut feelings, neuron activity in the insula, strength of gut feelings, cognitive weighting, glucose levels, present bias

question

Economic profit formula

answer

Economic profit = total revenue - economic costs

question

Total revenue formula

answer

total revenue = price per unit x quantity sold

question

Economic cost formula

answer

Economic cost = explicit cost + implicit cost

question

Explicit cost

answer

Actual monetary payments for inputs

question

Implicit cost

answer

Opportunity cost of the inputs that do not require monetary payments

question

Marginal product of labor

answer

Change in output from one additional unit of labor

question

Total product curve

answer

Shows the relationship between the quantity of labor and the quantity of output produced

question

Formula for short-run total cost

answer

Short-run total cost = fixed cost + variable cost

question

Fixed costs

answer

Do not vary with quantity produced

question

Variable costs

answer

Vary with quantity produced

question

Short-run average total cost formula

answer

Short-run average total cost = average fixed cost + average variable cost

question

Average fixed cost formula

answer

Average fixed cost = Fixed cost / quantity produced

question

Average variable cost formula

answer

Average variable cost = variable cost / quantity produced

question

The short-run average total-cost curve is ______ - shaped

answer

u - shaped

question

Short run marginal cost formula

answer

Short run marginal cost = change in total cost / change in output

question

If marginal costs are less than average costs, average costs are _____

answer

decreasing

question

If marginal costs are greater than average costs, average costs are _____

answer

increasing

question

If the marginal and average costs are equal, then the average cost is _____, this occurs only at ______________.

answer

neither rising nor falling; the minimum point on the average cost curve

question

Long run average cost formula

answer

Long run average cost = long run total cost / quantity produced

question

Constant returns to scale

answer

long-run total cost increases proportionately with output, so the long-run average cost is constant

question

Long-run marginal cost

answer

Change in long-run cost resulting from a one-unit increase in output

question

Indivisible inputs

answer

Inputs which cannot be scaled down to produce a smaller quantity of ouput

question

Economies of scale

answer

occur when production increases as the average cost of production decreases

question

Minimum efficient scale

answer

The output at which scale economies are exhausted. Beyond this point, a firm will not have lower per unit costs if it produces more

question

Diseconomies of scale

answer

occur when production increases as the average cost of production increases

question

Diseconomies of scale occur because of...

answer

Rising Input Demands and Cooperation Management

question

Long run average cost curves are ____ shaped

answer

L - shaped

question

Perfectly competitive markets

answer

have many buyers and sellers of a homogenous product ; no barriers to entry

question

Price taker

answer

A buyer or seller that takes the market price as given

question

Monopoly

answer

Single firm with a unique product serves the entire market ; large barriers to entry

question

Monopolistic competition

answer

Many firms sell a slightly differentiated product; no barriers to entry

question

Oligopoly

answer

the market consists of just a few firms selling a homogenous or differentiated product ; large barriers to entry

question

What are the four types of markets?

answer

Perfect competition, monopoly, monopolistic competition, oligopoly

question

What is the total approach to compute total revenue?

answer

Compute the economic profit at different quantities and then pick the quantity that generates the greatest profit

question

What is the marginal approach to compute total revenue?

answer

To maximize profit, produce the quantity where price equals marginal cost

question

Break even price

answer

The price at which economic profit is zero

question

Operate if ______ > ______

answer

total revenue ; variable cost

question

Shut down price

answer

The price at which the firm is indifferent between operating and shutting down

question

Sunk cost

answer

A cost the firm has already paid or committed to paying

question

Short-run supply curve

answer

Shows the relationship between the market price and the quantity supplied by the firm in the short run

question

Short run market supply curve

answer

Shows the relationship between the market price and the quantity supplied by firms as a whole in the short run

question

A market reaches equillibrium in the short run when two conditions are met:

answer

1. Quantity of output supplied = quantity of output demanded
2. each firm in the market maximizes its profit given the market price

question

A market reaches equillibrium in the long run when the short run conditions are met and:

answer

Each firm in the market earns zero economic profit, so no other firms enter the market

question

Long run market supply curve

answer

Shows the relationship between the market price and the quantity supplied by all firms in the long run

question

increasing cost industry

answer

the average cost of prodcution increases as total output increases.

question

Why do increasing cost industries occur:

answer

Increasing input prices, less productive inputs

question

Short run response to an increase in demand

answer

An increase in demand increases the market price. This causes marginal revenue to rise so firms in the industry will produce more and make a positive profit in the short-run

question

Long run response to an increase in demand

answer

Entry of new firms causes the price to decrease, up to the point where each firm makes zero economic profit, the new long-run equillibrium. This occurs at the point where the long-run supply curve intersects with the new demand curve

question

Constant cost industry

answer

An industry whose average cost is constant, it doesnt change much as the industry expands. The long run supply curve is horizontal

question

Market power

answer

The ability of a firm to affect the price of its products

question

Barrier to entry

answer

Something that prevents firms from entering profitable markets

question

Patent

answer

Exclusive right to sell a new good for some period

question

Network externality

answer

Exist when the value of a product to a consumer increases with the number of other consumers who use it

question

Natural monopoly

answer

A market in which the economies of scale in production are so large that only a single firm can earn a profit

question

Trade offs when a monopolist cuts its prices:

answer

good news: the firm sells more units
bad news: the firm does not recieve as high a price, losing revenue

question

Marginal revenue formula

answer

marginal revenue = new price + (slope of demand curve x old quantity)

question

Why do consumers lose in a monopoly?

answer

higher prices, lower quantities, and a loss of consumer surplus

question

Deadweight loss

answer

A measure of the innefficiency from monopoly equal to the decrease in consumer surplus

question

Rent seeking

answer

Process of using public policy to gain economic profit

question

Trade offs from patents

answer

The longer the life of the patent, the more products that will be developed but the greater the deadweight loss; if the product could be created with or without a patent there is no gain to society; it is difficult to determine if the costs of patents exceed their benefits because we do not know which products would have been developed without patents

question

Price discrimination

answer

The practice of selling a good at different prices to different consumers

question

Three conditions must be met for price discrimination:

answer

1. market power (the firm must have control over pricing)
2. different consumer groups must be identified
3. resale is impossible

question

Profits drop for three reasons:

answer

1. Market price drops
2. Quantity produced per firm decreases
3. Each firms average cost increases

question

Product differentiation

answer

Process used by firms to distinguish their products from the products of competing firms. Can be in terms of physical characteristics, location, services, aura/image

1 of 73

question

Budget line

answer

shows all combinations of the two goods that use up the
budget

question

What is the slope of the budget line?

answer

the opportunity cost of the good on the horizontal axis in terms of the good on the vertical axis

question

Budget set

answer

the set of affordable combinations of the two goods

question

Equimarginal rule

answer

Pick the combination of two goods where the marginal benefit per dollar of the first good equals the marginal benefit per dollar of the second good

question

The increase in the quantity demanded can be explained by:

answer

the substitution effect and the income effect

question

Substitution effect

answer

A decrease in the price of good one decreases the price of good one relative to good two, causing the consumer to substitute good one for good two

question

Income effect

answer

A decrease in price increases the consumers real income, increasing the quantity demanded of all normal goods

question

A decrease in the price of a good will ____ the goods marginal utility

answer

increase

question

Why do consumers make irrational decisions?

answer

The prefrontal cortex uses gut feelings, neuron activity in the insula, strength of gut feelings, cognitive weighting, glucose levels, present bias

question

Economic profit formula

answer

Economic profit = total revenue - economic costs

question

Total revenue formula

answer

total revenue = price per unit x quantity sold

question

Economic cost formula

answer

Economic cost = explicit cost + implicit cost

question

Explicit cost

answer

Actual monetary payments for inputs

question

Implicit cost

answer

Opportunity cost of the inputs that do not require monetary payments

question

Marginal product of labor

answer

Change in output from one additional unit of labor

question

Total product curve

answer

Shows the relationship between the quantity of labor and the quantity of output produced

question

Formula for short-run total cost

answer

Short-run total cost = fixed cost + variable cost

question

Fixed costs

answer

Do not vary with quantity produced

question

Variable costs

answer

Vary with quantity produced

question

Short-run average total cost formula

answer

Short-run average total cost = average fixed cost + average variable cost

question

Average fixed cost formula

answer

Average fixed cost = Fixed cost / quantity produced

question

Average variable cost formula

answer

Average variable cost = variable cost / quantity produced

question

The short-run average total-cost curve is ______ - shaped

answer

u - shaped

question

Short run marginal cost formula

answer

Short run marginal cost = change in total cost / change in output

question

If marginal costs are less than average costs, average costs are _____

answer

decreasing

question

If marginal costs are greater than average costs, average costs are _____

answer

increasing

question

If the marginal and average costs are equal, then the average cost is _____, this occurs only at ______________.

answer

neither rising nor falling; the minimum point on the average cost curve

question

Long run average cost formula

answer

Long run average cost = long run total cost / quantity produced

question

Constant returns to scale

answer

long-run total cost increases proportionately with output, so the long-run average cost is constant

question

Long-run marginal cost

answer

Change in long-run cost resulting from a one-unit increase in output

question

Indivisible inputs

answer

Inputs which cannot be scaled down to produce a smaller quantity of ouput

question

Economies of scale

answer

occur when production increases as the average cost of production decreases

question

Minimum efficient scale

answer

The output at which scale economies are exhausted. Beyond this point, a firm will not have lower per unit costs if it produces more

question

Diseconomies of scale

answer

occur when production increases as the average cost of production increases

question

Diseconomies of scale occur because of...

answer

Rising Input Demands and Cooperation Management

question

Long run average cost curves are ____ shaped

answer

L - shaped

question

Perfectly competitive markets

answer

have many buyers and sellers of a homogenous product ; no barriers to entry

question

Price taker

answer

A buyer or seller that takes the market price as given

question

Monopoly

answer

Single firm with a unique product serves the entire market ; large barriers to entry

question

Monopolistic competition

answer

Many firms sell a slightly differentiated product; no barriers to entry

question

Oligopoly

answer

the market consists of just a few firms selling a homogenous or differentiated product ; large barriers to entry

question

What are the four types of markets?

answer

Perfect competition, monopoly, monopolistic competition, oligopoly

question

What is the total approach to compute total revenue?

answer

Compute the economic profit at different quantities and then pick the quantity that generates the greatest profit

question

What is the marginal approach to compute total revenue?

answer

To maximize profit, produce the quantity where price equals marginal cost

question

Break even price

answer

The price at which economic profit is zero

question

Operate if ______ > ______

answer

total revenue ; variable cost

question

Shut down price

answer

The price at which the firm is indifferent between operating and shutting down

question

Sunk cost

answer

A cost the firm has already paid or committed to paying

question

Short-run supply curve

answer

Shows the relationship between the market price and the quantity supplied by the firm in the short run

question

Short run market supply curve

answer

Shows the relationship between the market price and the quantity supplied by firms as a whole in the short run

question

A market reaches equillibrium in the short run when two conditions are met:

answer

1. Quantity of output supplied = quantity of output demanded
2. each firm in the market maximizes its profit given the market price

question

A market reaches equillibrium in the long run when the short run conditions are met and:

answer

Each firm in the market earns zero economic profit, so no other firms enter the market

question

Long run market supply curve

answer

Shows the relationship between the market price and the quantity supplied by all firms in the long run

question

increasing cost industry

answer

the average cost of prodcution increases as total output increases.

question

Why do increasing cost industries occur:

answer

Increasing input prices, less productive inputs

question

Short run response to an increase in demand

answer

An increase in demand increases the market price. This causes marginal revenue to rise so firms in the industry will produce more and make a positive profit in the short-run

question

Long run response to an increase in demand

answer

question

Constant cost industry

answer

An industry whose average cost is constant, it doesnt change much as the industry expands. The long run supply curve is horizontal

question

Market power

answer

The ability of a firm to affect the price of its products

question

Barrier to entry

answer

Something that prevents firms from entering profitable markets

question

Patent

answer

Exclusive right to sell a new good for some period

question

Network externality

answer

Exist when the value of a product to a consumer increases with the number of other consumers who use it

question

Natural monopoly

answer

A market in which the economies of scale in production are so large that only a single firm can earn a profit

question

Trade offs when a monopolist cuts its prices:

answer

good news: the firm sells more units
bad news: the firm does not recieve as high a price, losing revenue

question

Marginal revenue formula

answer

marginal revenue = new price + (slope of demand curve x old quantity)

question

Why do consumers lose in a monopoly?

answer

higher prices, lower quantities, and a loss of consumer surplus

question

Deadweight loss

answer

A measure of the innefficiency from monopoly equal to the decrease in consumer surplus

question

Rent seeking

answer

Process of using public policy to gain economic profit

question

Trade offs from patents

answer

question

Price discrimination

answer

The practice of selling a good at different prices to different consumers

question

Three conditions must be met for price discrimination:

answer

1. market power (the firm must have control over pricing)
2. different consumer groups must be identified
3. resale is impossible

question

Profits drop for three reasons:

answer

1. Market price drops
2. Quantity produced per firm decreases
3. Each firms average cost increases

question

Product differentiation

answer

Process used by firms to distinguish their products from the products of competing firms. Can be in terms of physical characteristics, location, services, aura/image

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