Microeconomics Acemoglu Chapter 1-6 Terms

question

economic agent

answer

individual or group that makes choices

question

Principles of economics

answer

1. ppl try to optimize (choose best option)
2. eco systems tend to be in equilibrium
3. use empiricism (analysis that uses data) to test theories and determine what is happening in the world

question

economics

answer

study of how agents choose to allocate scarce resources and how those choses affect society

question

scarce resources

answer

things ppl want where the quantity wanted exceeds the quantity available

question

scarcity

answer

situation of having unlimited wants in the world of limited resources

question

positive economics

answer

analysis that generates objective descriptions or predictions about the world that can be verified with date

question

normative economics

answer

analysis that prescribes what an individual or society ought to do

question

microeconomics

answer

study of how individuals, households, firms, and governments make choices, and how those choices affect prices, allocation of prices, and well being of other agents

question

macroeconomics

answer

study of the economy as a whole (study economy wide phenomena i.e. growth rate of a country's total economic output, inflation, etc.)

question

equilibrium

answer

special situation in which everything is simultaneously optimizing, so nobody can benefit from changing his or her behavior

question

empiricism

answer

analysis that uses data

question

trade-off

answer

when an agent needs to give up one thing for something else

question

budget constraint

answer

shows bundles of goods or services that a consumer can choose given her limited budget

question

opportunity cost

answer

best alternative use of a resource (cost of time)

question

cost-benefit analysis

answer

calculation that adds up costs and benefits

question

model

answer

simplified description, or presentation of the world

question

empirical evidence

answer

set of facts established by observation and measurement

question

hypotheses

answer

predictions that can be tested with data

question

variable

answer

factor that is likely to change

question

positive correlation

answer

two variables tend to move in the same direction

question

negative correlation

answer

two variables tend to move in opposite directions

question

omitted variable

answer

something left out of a study that if included would describe the correlation between the two variables

question

natural experiment

answer

empirical study in which some process has assigned subjects to control and treatment groups in a random way

question

independent variable

answer

variable whose value does not depend on another variable; manipulated by the experimenter

question

dependent variable

answer

depends on the other variable

question

two types of optimization

answer

1. optimization in levels
2. optimization in differences

question

optimization in levels

answer

calculates the total benefit of different alternatives, then chooses the best alternative

question

optimization in differences

answer

calculates the change in net benefits when the person changes from one alternative to the other and then uses marginal comparisons to choose the best alternative

question

behavioral economics

answer

jointly analyzes the economic and psychological factors that explain human behavior

question

optimum

answer

the best feasible choice

question

comparative statics

answer

comparison of economic outcomes before and after some economic variable changed

question

marginal analysis

answer

cost benefit calculation that studies differences between feasible alternative and the next feasible alternative

question

marginal cost

answer

extra cost generated by moving from one feasible alternative to the next feasible alternative

question

Principle Optimization at the Margin

answer

an optimal feasible alternative has the property that moving it makes you better off and moving away from it makes you worse off

question

market

answer

group of economic agents who are trading a good or service and the rules and arrangements for trading

question

perfectly competitive market

answer

1. sellers all sell an identical good or service
2. any individual buyer or seller is not powerful enough to affect the market price of the good or service

question

price-taker

answer

a buyer or seller who accepts the market price

question

quantity demanded

answer

the amount of a good that buyers are willing to purchase at a given price

question

"holding all else equal"

answer

implies that everything else in the economy is held constant

question

demand curve

answer

plots the quantity demand at different prices

question

Law of Demand

answer

In almost all cases, the quantity demand rise when prices fall

question

Willingness to pay

answer

the highest price a buyer is willing to pay for an extra unit of a good

question

aggregation

answer

the process of adding up individual behaviors

question

Diminishing marginal benefit

answer

as you consume more of a good, your willingness to pay for an additional unit declines

question

market demand curve

answer

the sum of the individual demand curves of all the potential buyers (plots the total quantity demanded and the market price)

question

normal good

answer

an increase in income causes the demand curve to shift to the right

question

inferior good

answer

an increase in income causes the demand curve to shift to the left

question

complements

answer

fall in price of one good leads to the fall in price in the other good

question

Demand curve shifts when these change

answer

1. tastes and preferecnes
2. income and wealth
3. availability and prices of related goods
4. number and scale of buyers
5. buyers' beliefs about the future

question

only reason for a movement along the demand curve

answer

change in the price of the good itself

question

quantity supplied

answer

amount of a good or service that sellers are willing to sell at a given price

question

supply schedule

answer

table that reports the quantity supplied at different prices

question

willingness to accept

answer

the lowest price that a seller is willing to get paid to sell an extra unit of a good

question

market supply curve

answer

the sum of the individual supply curves of all the potential sellers

question

input

answer

a good or service used to produce another good or service

question

supply curve shifts when these factors change

answer

1. prices of inputs used to produce the good
2. technology used to produce the good
3. number and scale of sellers
4. sellers' beliefs about the future

question

only reason for a movement along the supply curve

answer

a change in the price of a good itself

question

competitive equilibrium

answer

the crossing point of the supply and demand curve

question

competitive equilibrium price

answer

equates quantity supplied and demanded

question

excess supply

answer

when the market is above competitive equilibrium price and the quantity supplied exceeds the quantity demanded

question

excess demand

answer

when the market is below the competitive equilibrium price and the quantity demanded exceeds the quantity supplied

question

Buyer's problem

answer

1. what you like
2. prices of goods and service
3. how much money you have to spend

question

budget set

answer

set of all possible bundles of goods and services that can be purchased with a consumer's income

question

marginal benefit equation of two goods

answer

MB1/P1=MB2/P2

question

consumer surplus

answer

the difference between the willingness to pay and the price paid for the good

question

price elasticity of demand

answer

the percentage change in the quantity demanded of a good due to a percentage change in its price
(percent change in Q demanded/ percent change in price)

question

elastic demand

answer

have a price elasticity greater than 1

question

perfectly elastic demand

answer

a very small increase in price causes consumers to stop using goods

question

unit elastic demand

answer

have a price elasticity demand of 1

question

inelastic demand

answer

have a price elasticity of demand less than 1

question

perfectly inelastic demand

answer

quantity demanded is unaffected by price of goods

question

cross-price elasticity of demand

answer

percentage change in quantity demanded of a good due to a percentage change in another good's price
(percent cahnge in quantity of demanded of good x/percent change in price of good y)

question

indifference curve

answer

set of bundles that provide an equal level of satisfaction for the consumer

question

utility

answer

a measure of satisfaction or happiness that comes from consuming a good or service

question

income effect

answer

a consumption change that results when a price change moves the consumer to a lower or higher curve

question

substitution effect

answer

a consumption change that results when a price change moves the consumer along a given indifference curve

question

perfectly competitive market

answer

1. no buyer or seller is big enough to influence the market price
2. sellers in the market produce identical goods
3. there is free entry and exit in the market

question

firm

answer

any business or entity that produces and sells goods or services

question

production

answer

process by which the transformation of inputs to outputs occur

question

short run

answer

a period of time when only some of a firm's inputs can varied

question

long run

answer

period of time when all of a firm's inputs can be varied

question

physical capital

answer

any good including machines and buildings used for production

question

fixed factor of production

answer

an input that cannot be changed in short run

question

variable factor of production

answer

and input that can be changed in the short run

question

marginal product

answer

change in the total output associated with using one more unit of output

question

specialization

answer

the result of workers developing a certain skill set in order to increase total productivity

question

Law of Diminishing Returns

answer

states that successiveness increases in inputs eventually leads to less additional output

question

Total Cost

answer

variable cost + fixed cost

question

variable cost

answer

cost of variable factors of production which change along with a firm's output

question

fixed cost

answer

cost of fixed factors of production which a firm must pay even if it produces zero output

question

Avg total cost

answer

total cost/total output

question

Avg variable cost

answer

total variable cost/ total output

question

Avg fixed cost

answer

total fixed cost/ total output

question

Marginal cost

answer

the change in total cost associated with producing one more unit of output
(change in total cost/change in output)

question

revenue

answer

amount of money the firm brings in from sale of outputs

question

Marginal revenue

answer

the change in total revenue associated with producing one more unit of output

question

profits

answer

revenue - cost

question

accounting profits

answer

total revenue - explicit costs

question

economic profits

answer

total revenue - explicit and implicit costs

question

price elasticity of supply

answer

measure of how responsive quantity supplied is to price changes
(percent change in quantity/ percent change in price)

question

shutdown

answer

a short run decision to not produce anything during a specific period

question

sunk costs

answer

once committed, can never be recovered and should not affect current and future production decisions

question

producer surplus

answer

difference between the market price and the marginal cost curve

question

Economies of scale

answer

occur when ATC falls as the quantity produced increases

question

constant returns to scale

answer

exist when ATC does not change as the quantity produced changes

question

Diseconomies of scale

answer

occur when ATC rises as a quantity produced increases

question

exit

answer

a long run decision to leave the market

question

free entry

answer

entry that is unfettered by any special legal or technical barriers

question

free exit

answer

exit that is unfettered by any special legal or technical barriers

1 of 109

question

economic agent

answer

individual or group that makes choices

question

Principles of economics

answer

1. ppl try to optimize (choose best option)
2. eco systems tend to be in equilibrium
3. use empiricism (analysis that uses data) to test theories and determine what is happening in the world

question

economics

answer

study of how agents choose to allocate scarce resources and how those choses affect society

question

scarce resources

answer

things ppl want where the quantity wanted exceeds the quantity available

question

scarcity

answer

situation of having unlimited wants in the world of limited resources

question

positive economics

answer

analysis that generates objective descriptions or predictions about the world that can be verified with date

question

normative economics

answer

analysis that prescribes what an individual or society ought to do

question

microeconomics

answer

study of how individuals, households, firms, and governments make choices, and how those choices affect prices, allocation of prices, and well being of other agents

question

macroeconomics

answer

study of the economy as a whole (study economy wide phenomena i.e. growth rate of a country's total economic output, inflation, etc.)

question

equilibrium

answer

special situation in which everything is simultaneously optimizing, so nobody can benefit from changing his or her behavior

question

empiricism

answer

analysis that uses data

question

trade-off

answer

when an agent needs to give up one thing for something else

question

budget constraint

answer

shows bundles of goods or services that a consumer can choose given her limited budget

question

opportunity cost

answer

best alternative use of a resource (cost of time)

question

cost-benefit analysis

answer

calculation that adds up costs and benefits

question

model

answer

simplified description, or presentation of the world

question

empirical evidence

answer

set of facts established by observation and measurement

question

hypotheses

answer

predictions that can be tested with data

question

variable

answer

factor that is likely to change

question

positive correlation

answer

two variables tend to move in the same direction

question

negative correlation

answer

two variables tend to move in opposite directions

question

omitted variable

answer

something left out of a study that if included would describe the correlation between the two variables

question

natural experiment

answer

empirical study in which some process has assigned subjects to control and treatment groups in a random way

question

independent variable

answer

variable whose value does not depend on another variable; manipulated by the experimenter

question

dependent variable

answer

depends on the other variable

question

two types of optimization

answer

1. optimization in levels
2. optimization in differences

question

optimization in levels

answer

calculates the total benefit of different alternatives, then chooses the best alternative

question

optimization in differences

answer

calculates the change in net benefits when the person changes from one alternative to the other and then uses marginal comparisons to choose the best alternative

question

behavioral economics

answer

jointly analyzes the economic and psychological factors that explain human behavior

question

optimum

answer

the best feasible choice

question

comparative statics

answer

comparison of economic outcomes before and after some economic variable changed

question

marginal analysis

answer

cost benefit calculation that studies differences between feasible alternative and the next feasible alternative

question

marginal cost

answer

extra cost generated by moving from one feasible alternative to the next feasible alternative

question

Principle Optimization at the Margin

answer

an optimal feasible alternative has the property that moving it makes you better off and moving away from it makes you worse off

question

market

answer

group of economic agents who are trading a good or service and the rules and arrangements for trading

question

perfectly competitive market

answer

1. sellers all sell an identical good or service
2. any individual buyer or seller is not powerful enough to affect the market price of the good or service

question

price-taker

answer

a buyer or seller who accepts the market price

question

quantity demanded

answer

the amount of a good that buyers are willing to purchase at a given price

question

"holding all else equal"

answer

implies that everything else in the economy is held constant

question

demand curve

answer

plots the quantity demand at different prices

question

Law of Demand

answer

In almost all cases, the quantity demand rise when prices fall

question

Willingness to pay

answer

the highest price a buyer is willing to pay for an extra unit of a good

question

aggregation

answer

the process of adding up individual behaviors

question

Diminishing marginal benefit

answer

as you consume more of a good, your willingness to pay for an additional unit declines

question

market demand curve

answer

the sum of the individual demand curves of all the potential buyers (plots the total quantity demanded and the market price)

question

normal good

answer

an increase in income causes the demand curve to shift to the right

question

inferior good

answer

an increase in income causes the demand curve to shift to the left

question

complements

answer

fall in price of one good leads to the fall in price in the other good

question

Demand curve shifts when these change

answer

1. tastes and preferecnes
2. income and wealth
3. availability and prices of related goods
4. number and scale of buyers
5. buyers' beliefs about the future

question

only reason for a movement along the demand curve

answer

change in the price of the good itself

question

quantity supplied

answer

amount of a good or service that sellers are willing to sell at a given price

question

supply schedule

answer

table that reports the quantity supplied at different prices

question

willingness to accept

answer

the lowest price that a seller is willing to get paid to sell an extra unit of a good

question

market supply curve

answer

the sum of the individual supply curves of all the potential sellers

question

input

answer

a good or service used to produce another good or service

question

supply curve shifts when these factors change

answer

1. prices of inputs used to produce the good
2. technology used to produce the good
3. number and scale of sellers
4. sellers' beliefs about the future

question

only reason for a movement along the supply curve

answer

a change in the price of a good itself

question

competitive equilibrium

answer

the crossing point of the supply and demand curve

question

competitive equilibrium price

answer

equates quantity supplied and demanded

question

excess supply

answer

when the market is above competitive equilibrium price and the quantity supplied exceeds the quantity demanded

question

excess demand

answer

when the market is below the competitive equilibrium price and the quantity demanded exceeds the quantity supplied

question

Buyer's problem

answer

1. what you like
2. prices of goods and service
3. how much money you have to spend

question

budget set

answer

set of all possible bundles of goods and services that can be purchased with a consumer's income

question

marginal benefit equation of two goods

answer

MB1/P1=MB2/P2

question

consumer surplus

answer

the difference between the willingness to pay and the price paid for the good

question

price elasticity of demand

answer

the percentage change in the quantity demanded of a good due to a percentage change in its price
(percent change in Q demanded/ percent change in price)

question

elastic demand

answer

have a price elasticity greater than 1

question

perfectly elastic demand

answer

a very small increase in price causes consumers to stop using goods

question

unit elastic demand

answer

have a price elasticity demand of 1

question

inelastic demand

answer

have a price elasticity of demand less than 1

question

perfectly inelastic demand

answer

quantity demanded is unaffected by price of goods

question

cross-price elasticity of demand

answer

percentage change in quantity demanded of a good due to a percentage change in another good's price
(percent cahnge in quantity of demanded of good x/percent change in price of good y)

question

indifference curve

answer

set of bundles that provide an equal level of satisfaction for the consumer

question

utility

answer

a measure of satisfaction or happiness that comes from consuming a good or service

question

income effect

answer

a consumption change that results when a price change moves the consumer to a lower or higher curve

question

substitution effect

answer

a consumption change that results when a price change moves the consumer along a given indifference curve

question

perfectly competitive market

answer

1. no buyer or seller is big enough to influence the market price
2. sellers in the market produce identical goods
3. there is free entry and exit in the market

question

firm

answer

any business or entity that produces and sells goods or services

question

production

answer

process by which the transformation of inputs to outputs occur

question

short run

answer

a period of time when only some of a firm's inputs can varied

question

long run

answer

period of time when all of a firm's inputs can be varied

question

physical capital

answer

any good including machines and buildings used for production

question

fixed factor of production

answer

an input that cannot be changed in short run

question

variable factor of production

answer

and input that can be changed in the short run

question

marginal product

answer

change in the total output associated with using one more unit of output

question

specialization

answer

the result of workers developing a certain skill set in order to increase total productivity

question

Law of Diminishing Returns

answer

states that successiveness increases in inputs eventually leads to less additional output

question

Total Cost

answer

variable cost + fixed cost

question

variable cost

answer

cost of variable factors of production which change along with a firm's output

question

fixed cost

answer

cost of fixed factors of production which a firm must pay even if it produces zero output

question

Avg total cost

answer

total cost/total output

question

Avg variable cost

answer

total variable cost/ total output

question

Avg fixed cost

answer

total fixed cost/ total output

question

Marginal cost

answer

the change in total cost associated with producing one more unit of output
(change in total cost/change in output)

question

revenue

answer

amount of money the firm brings in from sale of outputs

question

Marginal revenue

answer

the change in total revenue associated with producing one more unit of output

question

profits

answer

revenue - cost

question

accounting profits

answer

total revenue - explicit costs

question

economic profits

answer

total revenue - explicit and implicit costs

question

price elasticity of supply

answer

measure of how responsive quantity supplied is to price changes
(percent change in quantity/ percent change in price)

question

shutdown

answer

a short run decision to not produce anything during a specific period

question

sunk costs

answer

once committed, can never be recovered and should not affect current and future production decisions

question

producer surplus

answer

difference between the market price and the marginal cost curve

question

Economies of scale

answer

occur when ATC falls as the quantity produced increases

question

constant returns to scale

answer

exist when ATC does not change as the quantity produced changes

question

Diseconomies of scale

answer

occur when ATC rises as a quantity produced increases

question

exit

answer

a long run decision to leave the market

question

free entry

answer

entry that is unfettered by any special legal or technical barriers

question

free exit

answer

exit that is unfettered by any special legal or technical barriers

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