Econ Vocab chapters 4-5 - Assignment Essays

question

Individual demand curve

answer

A curve that relates the price of Good X to the quantity of Good X that a consumer will buy holding all other factors constant.

question

price consumption curve

answer

Curve tracing the utility maximizing combinations of two goods as the price of one good changes.

question

substitution effect

answer

The change in the amount of a good consumed when there is a change in relative prices with utility held constant.

question

Income effect

answer

The change in the amount of a good consumed when there is a change in a consumer's purchasing power due to a change in price.

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Compensated Budget Line

answer

A budget line that compensates for a new price by changing the level of income such that the original level of utility can still be achieved by the consumer under the new set of prices.

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Griffen Good

answer

Good whose demand curve slopes upward because the income effect is in the opposite direction of the substitution effect and is larger than the substitution effect. Must be an inferior good, and the size of the income effect must overwhelm the size of the substitution effect.

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Cash transfer

answer

An increase in money which can be used to purchase either good.

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In-kind transfer

answer

a quantity of goods given

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Voucher

answer

a lump of money which can be spent on one specific good

question

Horizontal summation

answer

A process which adds the quantities demanded by individuals for a given price (q) to get the market quantity (Q) for that price

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Consumer Surplus

answer

Difference between what a consumer is willing to pay for a good and the amount actually paid.

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production technology

answer

Method by which inputs (factors of production) are turned into outputs

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production function

answer

Function showing the highest output that a firm can produce for every specified combination of inputs. q= F(L,K)

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Short run

answer

Period of time where one input is considered to be fixed. Typically, capital is considered fixed since it is easier to change the number of workers (or the amount of hours worked) than it is to change the size of a factory.

question

Law of Marginal Diminishing Returns

answer

The principle that as the use of an input increases, with other inputs fixed, the resulting additions to outputs will eventually decrease.

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Long Run

answer

Period of time where all inputs can be changed

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Marginal Product of Labor

answer

the change in output that is the result of increasing the amount of labor used by 1 unit.

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Marginal product of Capital

answer

The change in output that is the result of increasing the amount of capital used by 1 unit.

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Average Product of Labor

answer

The average amount of output produced by workers

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Increasing Returns to Scale

answer

doubling input more than doubles output

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constant returns to scale

answer

doubling input doubles output

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decreasing returns to scale

answer

doubling input less than doubles output

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Isoquant

answer

A curve showing all possible combinations of input that yield a given amount of output

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Marginal Rate of Technical Substitution

answer

The amount by which one input can be reduced when one extra unit of another input is used

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Fixed-Proportions Production Function

answer

Also called Leontief Production Function. A production function with L-shaped isoquants so that only one combination of labor and capital can be used.

question

Perfect Substitutes Production Function

answer

A production function where the MRTS is constant at all points. Isoquants are straight lines.

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Explicit cost

answer

also called accounting cost. cost where one has to give up a sum of money

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implicit cost

answer

cost where one has to give up something of value that is not necessarily denominated in dollars

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opportunity cost

answer

the highest valued foregone alternative

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Accounting Profits

answer

total revene minus total explicit cost

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economic profits

answer

total revenue minus total explicit cost and implicit cost

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sunk cost

answer

Retrospective (past) costs that have already been incurred and cannot be recovered. Once a cost is sunk, only prospective (future) costs are relevant to a decision.

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fixed cost

answer

A cost that is the same regardless of output.

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Variable cost

answer

A cost that changes as output changes.

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total cost

answer

the sum of all the costs for a given level of output

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Marginal cost

answer

the amount that an additional unit adds to total cost

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average total cost

answer

the total variable cost divided by the output. AVC=(VC)/q

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Long run

answer

Period of time where all inputs can be changed. In the long run, all c𝜕𝜕osts are variable. There are no fixed costs.

question

Input Prices

answer

The price paid by a firm for the factors of production. Total cost can be expressed as a function of the prices and quantities of inputs: TC = wL + rK

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Wage (w)

answer

The input price for hiring labor

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Rental Rate (r)

answer

The input price for renting a unit of capital

question

Increasing Marginal Cost

answer

The principle that marginal cost eventually rise as quantity of output increases. This phenomenon can be caused by the law of diminishing marginal returns

question

Isocost line

answer

All the different combinations of Capital and Labor that end up costing the same amount in total.

question

cost minimization

answer

The process by which a firm chooses the quantities of inputs that result in the lowest total cost of producing a given level of output. The cost minimizing amounts of inputs will be associated with the optimization MRTS= w/r

question

corner solution

answer

When your optimization condition cannot be true in the non-negative range of inputs amounts, then the firm will choose to only use one type of input or the other.

question

Expansion Path

answer

The combinations of Labor and Capital that minimize the firm's costs (given a set of input prices) as the firm expands production.

question

Diseconomy of Scale

answer

Long run average costs rise as output (q) increases.

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Economy of Scale

answer

Long run average costs fall as output (q) increases.

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Long Run Total Cost Curve

answer

A curve that shows the lowest cost isocost for each level of production when the firm can vary the levels of all inputs. In this case Total Cost will be expressed as a function of output, q, rather than as a function of the input prices. TC = f(q)

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question

Individual demand curve

answer

A curve that relates the price of Good X to the quantity of Good X that a consumer will buy holding all other factors constant.

question

price consumption curve

answer

Curve tracing the utility maximizing combinations of two goods as the price of one good changes.

question

substitution effect

answer

The change in the amount of a good consumed when there is a change in relative prices with utility held constant.

question

Income effect

answer

The change in the amount of a good consumed when there is a change in a consumer's purchasing power due to a change in price.

question

Compensated Budget Line

answer

A budget line that compensates for a new price by changing the level of income such that the original level of utility can still be achieved by the consumer under the new set of prices.

question

Griffen Good

answer

question

Cash transfer

answer

An increase in money which can be used to purchase either good.

question

In-kind transfer

answer

a quantity of goods given

question

Voucher

answer

a lump of money which can be spent on one specific good

question

Horizontal summation

answer

A process which adds the quantities demanded by individuals for a given price (q) to get the market quantity (Q) for that price

question

Consumer Surplus

answer

Difference between what a consumer is willing to pay for a good and the amount actually paid.

question

production technology

answer

Method by which inputs (factors of production) are turned into outputs

question

production function

answer

Function showing the highest output that a firm can produce for every specified combination of inputs. q= F(L,K)

question

Short run

answer

question

Law of Marginal Diminishing Returns

answer

The principle that as the use of an input increases, with other inputs fixed, the resulting additions to outputs will eventually decrease.

question

Long Run

answer

Period of time where all inputs can be changed

question

Marginal Product of Labor

answer

the change in output that is the result of increasing the amount of labor used by 1 unit.

question

Marginal product of Capital

answer

The change in output that is the result of increasing the amount of capital used by 1 unit.

question

Average Product of Labor

answer

The average amount of output produced by workers

question

Increasing Returns to Scale

answer

doubling input more than doubles output

question

constant returns to scale

answer

doubling input doubles output

question

decreasing returns to scale

answer

doubling input less than doubles output

question

Isoquant

answer

A curve showing all possible combinations of input that yield a given amount of output

question

Marginal Rate of Technical Substitution

answer

The amount by which one input can be reduced when one extra unit of another input is used

question

Fixed-Proportions Production Function

answer

Also called Leontief Production Function. A production function with L-shaped isoquants so that only one combination of labor and capital can be used.

question

Perfect Substitutes Production Function

answer

A production function where the MRTS is constant at all points. Isoquants are straight lines.

question

Explicit cost

answer

also called accounting cost. cost where one has to give up a sum of money

question

implicit cost

answer

cost where one has to give up something of value that is not necessarily denominated in dollars

question

opportunity cost

answer

the highest valued foregone alternative

question

Accounting Profits

answer

total revene minus total explicit cost

question

economic profits

answer

total revenue minus total explicit cost and implicit cost

question

sunk cost

answer

Retrospective (past) costs that have already been incurred and cannot be recovered. Once a cost is sunk, only prospective (future) costs are relevant to a decision.

question

fixed cost

answer

A cost that is the same regardless of output.

question

Variable cost

answer

A cost that changes as output changes.

question

total cost

answer

the sum of all the costs for a given level of output

question

Marginal cost

answer

the amount that an additional unit adds to total cost

question

average total cost

answer

the total variable cost divided by the output. AVC=(VC)/q

question

Long run

answer

Period of time where all inputs can be changed. In the long run, all c𝜕𝜕osts are variable. There are no fixed costs.

question

Input Prices

answer

The price paid by a firm for the factors of production. Total cost can be expressed as a function of the prices and quantities of inputs: TC = wL + rK

question

Wage (w)

answer

The input price for hiring labor

question

Rental Rate (r)

answer

The input price for renting a unit of capital

question

Increasing Marginal Cost

answer

The principle that marginal cost eventually rise as quantity of output increases. This phenomenon can be caused by the law of diminishing marginal returns

question

Isocost line

answer

All the different combinations of Capital and Labor that end up costing the same amount in total.

question

cost minimization

answer

question

corner solution

answer

When your optimization condition cannot be true in the non-negative range of inputs amounts, then the firm will choose to only use one type of input or the other.

question

Expansion Path

answer

The combinations of Labor and Capital that minimize the firm's costs (given a set of input prices) as the firm expands production.

question

Diseconomy of Scale

answer

Long run average costs rise as output (q) increases.

question

Economy of Scale

answer

Long run average costs fall as output (q) increases.

question

Long Run Total Cost Curve

answer

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