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Microeconomics final
Terms for microeconomics
| Term | Definition |
|---|---|
| World price | Price of a good that prevails in the world market for a good |
| Tariff | A tax on goods produced abroad and domesticall |
| Total cost | Sellers cost of providing; the are under the supply cure up until the last unit produced. Sum of all costs for a given level of output. |
| Fixed cost | A cost that is the same regardless of output |
| Variable cost | A cost that changes as output changes |
| Sunk cost | Retrospective (past) costs that have already been incurred and can not be recovered. Once a cost is sunk only prospective (future) costs are relevent to the decision |
| Marginal cost | the amount that an additional unit adds to total cost |
| Average cost | Total cost divided by the output ATC total cost/ output |
| Diminishing marginal returns | Increase in output from additional units gets lower and lower |
| Increasing marginal cost | As more of a good is produced the cost of an additional unit of the good increases |
| Economies of scale | Exist when long run average costs decline as output rises. |
| Diseconomies of scale | Occurs in the range where long run average costs rise with inrease in output. |
| Requirements of competition | 1. Manay buyers and sellers 2. Homogenous product 3. Perfect information 4. Free entry and exit |
| Barriers to entry | With fewer firms there is less pressure to drive prices down, thus firms begin making higher than usual profits |
| Price takers | firms (or buyers) take the market price as given and make their selling (buying) decisions accordingly |
| Marginal revenue | the increase in total revenue a firm receives by selling one more good |
| Profit maximization | The process of identifying the most efficient way to get the highest of return. Occurs when mariginal return = marginal cost |
| Monopoly | Single seller |
| Price searcher | Firms that can affect price and thus look for price that max's their profit. |
| Opportunity cost | The value of the next best alternative that must be given up in order to engage in any economic activity. Opportunity cost equals best opportunity lost. |
| Scarcity | Small and inadequate amount |
| Willingness to pay | Maxinmum you would be willing to pay for a good. In principle, you would be willing to pay up to but no more than use value |
| Use value | The monetary value placed on a good by an individual |
| Decreasing marginal utility | |
| Law of demand | As price falls quantity demanded raises cetirus paribus |
| Quantity demanded | The amount of a good consumers want to purchase at a specified price over a specified time period |
| Changes in demand | Occurs when a change in something other than the price of the good causes you to move to another demand curve. |
| Complements | Two goods (such as cars and gas) whre an increase in the price of one good decreases the demand for the other |
| Substitutes | Two goods are substitues when an increase in the price of one good causes an increase in demand for another |
| Normal good | Goods consumed in larger quantities as a consumer becomes richer, and in lesser quantities as a consumer becomes poorer |
| Inferior good | Goods consumed in larger quantities as a consumer becomes poorer and in lesser quantities as a consumer becomes richer |
| Willingness to sell | Minimum you would have to recieve in order to sell somethin; it must cost at least as much as opportunity cost |
| Marginal cost | refers on to the cost of the nth unit |
| Increasing marginal costs | When marginal costs increase as output increases |
| Law of supply | As price rises quantity supplied rises ceteris paribus |
| Quantity supplied | The amount of a good suppliers want to produce at a given price over a specified time period |
| Changes in supply | Occurs when a change in something other than the price of the good causes you to move to another supply curve |
| Market clearing price | the price of goods or a service at which quantity supplied is equal to quantity demanded, also called the equilibrium price |
| Equilibrium | Point of stability in a market |
| Shortage | When quantity supplied is less than quantity demanded |
| Surplus | When quantity supplied is greater than quantity demanded |
| Own-Price elasticity of demand | A measure of responsiveness of quantity demanded of good x to a change in price of good x. |
| Cross-Price elasticity of demand | measures the rate of response of quantity demanded of one good, due to a price change of another good. |
| Income elasticity | measures how quantity demanded responds to changes in price. |
| Elasticity of supply | Positive number implies that as price goes up quantity supplied goes up |
| Perfectly elastic | a tiny change in price will bring about an infinite change in quantity demanded |
| Elastic | a percentage change in price has brought about a larger percent change in quantity |
| Unit elastic | a percentage change of price brought about an equal percent change in quantity |
| Inelastic | Less than 1.0 the percentage change in quantity is smaller than the percentage change in price |
| Perfectly inelastic | e= 0.0 change in price has no effect on quantity demanded or supplied |
| Price floor | The minimum price a seller can legally charge |
| Price ceiling | The maximum price any seller can legally charge |
| Consumer surplus | The amount a buyer is willing to pay for a good minus what one buyer actually pays for it |
| Producer surplus | the amount a seller is paid for a good minus the sellers cost of producing it |
| Total surplus | Consumer surplus plus producer surplus |
| Dead weight loss | Inefficiency created in the market, typically due to demand and surplus issues that have a negative impact on a society. |
| Taxes | |
| Comparative advantage | has a lower opportunity cost gives up the least to produce |
| Absolute advantage | able to produce more using the same amount of inputs |
| Property rights | the ability to own a good, use a good, sell it to others or prevent others from using it |
| Excludable | people can be prevented from using this resource. |
| Non exludable | Will be used as long as people benefit from it |
| Rival | One persons use of this resource reduces the amount of this resource available to others |
| Public choice | branch of economics that uses economic incentives to analze government behavior |
| Public good | any product or service which is non rival and non exludable |
| Interest group theory | a small group is more easily organized and splits the benefits among fewer parties so each individual has a large incentive |
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qweruiop
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