Microeconomics 101 Final Professor Link UD

Q: If Demand is inelastic

Price increase / Revenue increase

question

Allocating Resources

answer

World is characterized by scarcity, so firms must produce efficiently / for societal needs

question

Inside the PPC

answer

Possible but inefficient

question

Opportunity Cost

answer

Spending more on 1 thing means you have less for something else

question

On the PPC

answer

Possible and efficient

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Law of Demand

answer

The higher the price, the lower the quantity demanded ($ and QD inversely related)

question

Inferior Goods

answer

Increase in income decreases demand

question

Change in QD

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Caused by a change in a good's own price

question

Demand is downward sloping because

answer

Lower prices lead to a higher QD

question

Income Effect

answer

Causes a movement along the demand curve, while a change in income shifts the DC

question

Which direction does Supply move when increased

answer

To the right

question

Supply

answer

Greater the supply and the lower the demand, price tends to fall (Price and Q are directly related)

question

Shortage

answer

Supply < Demand

question

Surplus

answer

Output > Demand

question

Normal Goods price changes

answer

QD falls as the Price rises

question

Non-price Determinants

answer

Factors other than price that can affect demand for a good or service

question

Necessities

answer

0 elasticity

question

In-Elastic =

Unit-Elastic =

Elastic =

answer

> 1

= 1

< 1

question

If Demand is inelastic

answer

Price increase / Revenue increase

question

If Demand is elastic

answer

Price increase / Revenue decrease

question

Cross-price elasticity of demand

answer

% (Good B) / % (Good A)

question

Normal Good

answer

When income increases, demand increases (+ #)

question

Inferior Good

answer

When income increases, demand decreases (- #)

question

When tax is placed on a good...

answer

Consumers pay more, but the price received by consumers decreases

question

Excise Tax

answer

Tax which depends on the # of units sold, not the price

question

(Equation) Tax Revenue =

answer

Quantity traded x tax

question

Consumer Surplus

answer

The difference between the highest price a consumer is willing to pay (max) for a good or service and the actual price the consumer pays

question

Producer Surplus

answer

The difference between the lowest price a firm would be willing to accept (min) for a good or service and the price it actually receives

question

Price Floor

answer

A legal minimum on the price at which a good can be sold

question

Binding Price Floor

answer

A minimum legal price that is set above the existing equilibrium price. The floor restricts trade, and consumer surplus will be always be less, so consumers lose

question

Market for Jobs (PF)

answer

Workers demand jobs, firms supply jobs

question

Market for Labor (PF)

answer

Households are supply, firms are demand

question

High prices are good for producers in...

answer

A market

question

Price Ceiling

answer

A maximum price that can be legally charged for a good or service

question

Shortages occur when

answer

Price is not allowed to adjust upward (incentive for QS to increase)

question

Surplus exists when

answer

Price is not allowed to adjust downward

question

Non-binding Price Ceiling

answer

Set above the equilibrium price, no affect on the market

question

Binding Price Ceiling

answer

A maximum legal price that is set below the existing equilibrium price. Because the market equilibrium price is greater than the price ceiling, the ceiling restricts trade and is said to be binding.

question

Economies of Scale

answer

The LRATC decreases as production increases

question

Constant Returns to scale

answer

The LRATC is constant as production increases

question

Diseconomies of Scale

answer

The LRATC increases as production increases

question

Explicit Costs

answer

Payments made for the use of others land, labor, capital

question

Implicit Costs

answer

Opportunity cost for using owned resources

question

Marginal Cost

answer

Additional cost of supplying another unit

question

Total Variable Cost =

answer

Variable cost per unit x quantity

question

Total Cost =

answer

FC + VC

question

Total Product

answer

The total amount of output produced with a given amount of resources

question

Short Run

answer

A period during which at least one of a firm's resources is fixed

question

Long Run

answer

The time period in which all inputs can be varied

question

Fixed Costs

answer

Costs that do not vary with production or sales level

question

Variable Costs

answer

Costs that change as output changes. Increase as production increases

question

Marginal Costs =

answer

Change in total costs / Change in quantity

AKA --> Extra Costs

question

Marginal Product

answer

Output produced as a result of an extra unit of resources

question

Average Product =

answer

TP / Q of labor

Average amount of output produced per unit

question

Increasing Marginal Returns

answer

the MP of a variable resource increases as each additional unit of the resource is put into action

question

Decreasing Marginal Returns

answer

When the MP of an additional worker is less than the marginal product of the previous worker

question

Average Total Costs =

answer

TC / Q or AFC + ATC

question

Average Fixed Costs =

answer

ATC - AVC

question

Average Variable Costs =

answer

TVC / Q

question

Average Costs Graph

answer

ATC > AVC > AFC

question

Price Takers

answer

Sellers must accept the price the market determines

question

4 steps of Perfect Competition

answer

1. Large # of sellers
2. Standardized Product
3. Price Takers
4. Easy entry / exit

question

Produce if

answer

Price is greater than AVC

question

Shut down if

answer

Price < AVC

question

Economic Profit

answer

Profit that accounts for both explicit costs and opportunity costs

question

Normal Profit

answer

When TR = TC

question

Loss

answer

When TR is less than TC

question

Profit =

answer

TR-TC or (P-ATC) x Q

question

Price Discrimination

answer

Selling the same good to different customers at different prices

question

First Degree Price Discrimination

answer

Charging consumers the price they're willing and able to pay (AKA --> Perfect Price Discrimination or Personal Pricing) (Best outcome for monopolies)

question

Second Degree Discrimination

answer

Charge a different price different group of costumers based some observable characteristic of the consumers (AKA --> Block Pricing)

question

Monopoly

answer

Complete control of a product or business by one person or group. No close substitutes, they are price makers.

To increase prices... price increases, decrease amount produced

1 of 71

question

Allocating Resources

answer

World is characterized by scarcity, so firms must produce efficiently / for societal needs

question

Inside the PPC

answer

Possible but inefficient

question

Opportunity Cost

answer

Spending more on 1 thing means you have less for something else

question

On the PPC

answer

Possible and efficient

question

Law of Demand

answer

The higher the price, the lower the quantity demanded ($ and QD inversely related)

question

Inferior Goods

answer

Increase in income decreases demand

question

Change in QD

answer

Caused by a change in a good's own price

question

Demand is downward sloping because

answer

Lower prices lead to a higher QD

question

Income Effect

answer

Causes a movement along the demand curve, while a change in income shifts the DC

question

Which direction does Supply move when increased

answer

To the right

question

Supply

answer

Greater the supply and the lower the demand, price tends to fall (Price and Q are directly related)

question

Shortage

answer

Supply < Demand

question

Surplus

answer

Output > Demand

question

Normal Goods price changes

answer

QD falls as the Price rises

question

Non-price Determinants

answer

Factors other than price that can affect demand for a good or service

question

Necessities

answer

0 elasticity

question

In-Elastic =

Unit-Elastic =

Elastic =

answer

> 1

= 1

< 1

question

If Demand is inelastic

answer

Price increase / Revenue increase

question

If Demand is elastic

answer

Price increase / Revenue decrease

question

Cross-price elasticity of demand

answer

% (Good B) / % (Good A)

question

Normal Good

answer

When income increases, demand increases (+ #)

question

Inferior Good

answer

When income increases, demand decreases (- #)

question

When tax is placed on a good...

answer

Consumers pay more, but the price received by consumers decreases

question

Excise Tax

answer

Tax which depends on the # of units sold, not the price

question

(Equation) Tax Revenue =

answer

Quantity traded x tax

question

Consumer Surplus

answer

The difference between the highest price a consumer is willing to pay (max) for a good or service and the actual price the consumer pays

question

Producer Surplus

answer

The difference between the lowest price a firm would be willing to accept (min) for a good or service and the price it actually receives

question

Price Floor

answer

A legal minimum on the price at which a good can be sold

question

Binding Price Floor

answer

A minimum legal price that is set above the existing equilibrium price. The floor restricts trade, and consumer surplus will be always be less, so consumers lose

question

Market for Jobs (PF)

answer

Workers demand jobs, firms supply jobs

question

Market for Labor (PF)

answer

Households are supply, firms are demand

question

High prices are good for producers in...

answer

A market

question

Price Ceiling

answer

A maximum price that can be legally charged for a good or service

question

Shortages occur when

answer

Price is not allowed to adjust upward (incentive for QS to increase)

question

Surplus exists when

answer

Price is not allowed to adjust downward

question

Non-binding Price Ceiling

answer

Set above the equilibrium price, no affect on the market

question

Binding Price Ceiling

answer

A maximum legal price that is set below the existing equilibrium price. Because the market equilibrium price is greater than the price ceiling, the ceiling restricts trade and is said to be binding.

question

Economies of Scale

answer

The LRATC decreases as production increases

question

Constant Returns to scale

answer

The LRATC is constant as production increases

question

Diseconomies of Scale

answer

The LRATC increases as production increases

question

Explicit Costs

answer

Payments made for the use of others land, labor, capital

question

Implicit Costs

answer

Opportunity cost for using owned resources

question

Marginal Cost

answer

Additional cost of supplying another unit

question

Total Variable Cost =

answer

Variable cost per unit x quantity

question

Total Cost =

answer

FC + VC

question

Total Product

answer

The total amount of output produced with a given amount of resources

question

Short Run

answer

A period during which at least one of a firm's resources is fixed

question

Long Run

answer

The time period in which all inputs can be varied

question

Fixed Costs

answer

Costs that do not vary with production or sales level

question

Variable Costs

answer

Costs that change as output changes. Increase as production increases

question

Marginal Costs =

answer

Change in total costs / Change in quantity

AKA --> Extra Costs

question

Marginal Product

answer

Output produced as a result of an extra unit of resources

question

Average Product =

answer

TP / Q of labor

Average amount of output produced per unit

question

Increasing Marginal Returns

answer

the MP of a variable resource increases as each additional unit of the resource is put into action

question

Decreasing Marginal Returns

answer

When the MP of an additional worker is less than the marginal product of the previous worker

question

Average Total Costs =

answer

TC / Q or AFC + ATC

question

Average Fixed Costs =

answer

ATC - AVC

question

Average Variable Costs =

answer

TVC / Q

question

Average Costs Graph

answer

ATC > AVC > AFC

question

Price Takers

answer

Sellers must accept the price the market determines

question

4 steps of Perfect Competition

answer

1. Large # of sellers
2. Standardized Product
3. Price Takers
4. Easy entry / exit

question

Produce if

answer

Price is greater than AVC

question

Shut down if

answer

Price < AVC

question

Economic Profit

answer

Profit that accounts for both explicit costs and opportunity costs

question

Normal Profit

answer

When TR = TC

question

Loss

answer

When TR is less than TC

question

Profit =

answer

TR-TC or (P-ATC) x Q

question

Price Discrimination

answer

Selling the same good to different customers at different prices

question

First Degree Price Discrimination

answer

Charging consumers the price they're willing and able to pay (AKA --> Perfect Price Discrimination or Personal Pricing) (Best outcome for monopolies)

question

Second Degree Discrimination

answer

Charge a different price different group of costumers based some observable characteristic of the consumers (AKA --> Block Pricing)

question

Monopoly

answer

Complete control of a product or business by one person or group. No close substitutes, they are price makers.

To increase prices... price increases, decrease amount produced

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