question
Why do indifference curves slope downward?
answer
Buyers face trade-offs
question
Why are indifference curves convex to the origin?
answer
Buyers are more willing to give up goods they have in higher quantity
question
What does the slope at any point of the indifference curve represent?
answer
The marginal rate of substitution
question
What is constant along any indifference curve?
answer
Utility
question
What is consumer equilibrium?
answer
when utility is maximized. Point where indifference curve is tangent to budget constraint
question
Formula for Budget Line
answer
I = PxX + PyY
question
Formula for slope of budget constraint
answer
Px/Py
question
What does optimal point signify mathematically?
answer
MRSx,y = MUx/MUy = Px/Py
question
Bang for your buck equation
answer
MUx/Px = MUy/Py
question
What are the variables that influence consumer choice?
answer
Income & Price Changes
question
What does Income do to the budget constraint?
answer
parallel shift
question
What does price changes do to the budget constraint?
answer
Pivot, relative price changes for one good
question
What is the income effect?
answer
if the price goes down for a product, the purchasing power increases for consumers, allowing them to purchase more (shift of indifference curve)
question
What is the substitution effect?
answer
when consumers react to an increase in a good's price by consuming less of that good and more of a substitute good (shift along indifferent curve)
question
What is a normal good
answer
When substitution and income effect move in the same direction
question
What is an inferior good?
answer
Substitution and Income effect move in different directions but substitution>income
question
What is a Giffen good?
answer
Type of inferior good when income effect>substitution effect
question
Elasticity
answer
a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants
question
price elasticity of demand
answer
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
question
price elasticity of supply
answer
a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price
question
Mid point formula
answer
((Q1-Q2)/((Q1+Q2)/2)/((P1-P2)/(P1+P2)/2)
question
What does a flat demand curve mean?
answer
A greater price elasticity of demand
question
total revenue
answer
Price x Quantity
question
inelastic demand
answer
Price increase = total revenue increase
question
elastic demand
answer
price increase = total revenue decrease
question
cross-price elasticity of demand
answer
% change in quantity of A demanded / % change in price of B
question
substitute
answer
positive cross price elasticity
question
complements
answer
negative cross price elasticity
question
Four Properties of Indifference Curves
answer
1. Higher indifference curves are preferred to lower ones
2. Indifference curves are downward sloping
3. Indifference curves do not cross
4. Indifference curves are bowed inward
2. Indifference curves are downward sloping
3. Indifference curves do not cross
4. Indifference curves are bowed inward
question
relative price
answer
the rate at which the market is willing to trade one good for the other
question
diminishing marginal utility
answer
Decreasing satisfaction or usefulness as additional units of a product are acquired
question
total revenue (firm)
answer
the amount a firm receives for the sale of its output
question
total cost
answer
the market value of the inputs a firm uses in production
question
profit
answer
total revenue minus total cost
question
explicit costs
answer
input costs that require an outlay of money by the firm
question
implicit costs
answer
input costs that do not require an outlay of money by the firm
question
economic profit
answer
total revenue minus total cost, including both explicit and implicit costs
question
accounting profit
answer
total revenue minus total explicit cost
question
production function
answer
the relationship between quantity of inputs used to make a good and the quantity of output of that good
question
marginal product
answer
the increase in output that arises from an additional unit of input
question
diminishing marginal product
answer
the property whereby the marginal product of an input declines as the quantity of the input increases
question
fixed costs
answer
Costs that do not vary with the quantity of output produced
question
variable costs
answer
costs that vary with the quantity of output produced
question
average total cost
answer
total cost divided by the quantity of output
question
average fixed cost
answer
fixed cost divided by the quantity of output
question
average variable cost
answer
variable cost divided by the quantity of output
question
marginal cost
answer
the increase in total cost that arises from an extra unit of production
question
marginal cost equation
answer
change in total cost / change in quantity
question
Rising Marginal Cost
answer
when Q is high, marginal product of an extra unit of input is low and marginal cost is high
question
Average fixed cost characteristic
answer
always declines as output rises because the fixed cost is getting spread over a larger number of units
question
average variable cost characteristic
answer
usually rises as output increases because of diminishing marginal product
question
average total cost falls when
answer
marginal cost < average total cost
question
average total cost rises when
answer
marginal cost > average total cost
question
The MC curve crosses the ATC curve
answer
at the minimum
question
Properties of decisions behind supply
answer
MC eventually rises with the Q output, ATC curve is U-shaped, MC curve crosses the ATC curve at the minimum of ATC
question
ATC curve is U-shaped because
answer
Because it takes its shape from the AVC curve, with the upturn reflecting the onset of diminishing returns to the variable factor.
question
economies of scale
answer
the property whereby long-run average total cost falls as the quantity of output increases
question
diseconomies of scale
answer
the property whereby long-run average total cost rises as the quantity of output increases
question
constant returns to scale
answer
the property whereby long-run average total cost stays the same as the quantity of output changes
question
average product
answer
the average amount produced by each unit of a variable factor of production
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
