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Microeconomics final

Terms for microeconomics

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.
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
Created by: qweruiop



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