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Microeconomics
for bus5000
| Term | Definition |
|---|---|
| microeconomics can be considered a (blank) science | normative |
| Suppose the minimum wage is raised. Microeconomics would suggest that fast food outlets may hire (blank) people to serve at the counters. | fewer |
| Since it is difficult to replicate tests, economists make several assumptions such as | infinite sellers and buyers, perfect knowledge, homogeneous goods and services, and static relationships to arrive at solutions. |
| This school of thought believes in developing measurable hypotheses related to economic events, and subjecting the hypotheses to empirical testing to determine which of the hypotheses work best | general equilibrium theory and partial equilibrium theory |
| The Austrian school of thought | acknowledges imperfections and heterogeneity and proposes that markets exist precisely because people have incomplete knowledge, differing preferences, and other imperfections. |
| Scarcity is due to | limited resources that could not satisfy our unlimited wants. |
| Choice refers to | people having to choose which of their desires they will satisfy and which they will leave unsatisfied. |
| Efficiency is when | society gets the most from its scarce resources. |
| Equality is when | prosperity is distributed uniformly among society’s members. |
| problem with a progressive tax system | reduces incentive to work |
| The opportunity cost of any item is | whatever must be given up to obtain it. It is the cost associated with the next best alternative only. |
| Rational people do the following: | Systematically and purposefully do the best they can to achieve their objectives, compare the marginal benefit (MB) and the marginal cost (MC) of a proposed action, rational and take action if, and only if, MB > MC. |
| Because rational people make decisions by comparing costs and benefits, they respond to | incentives |
| In a perfectly competitive market: | All goods are homogeneous (exactly the same). Buyers and sellers are so numerous that no one can affect market price, so each participant is called a price taker. |
| The quantity demanded (QD) of any good is | the amount of the good that buyers are willing and able to purchase at a given price. |
| Law of demand is | the claim that there is a negative or inverse relationship between quantity demanded and price (P), other things equal. |
| Quantity demanded (blank) as price falls, other things constant | rises |
| Demand schedule: | a table that shows the relationship between the price of a good and the quantity demanded. |
| (Blank) in the number of buyers increases quantity demanded at each price, shifts D curve to the right. | Increase (↑) |
| (Blank) in the number of buyers decreases quantity demanded at each price, shifts D curve to the left. | Decrease (↓) |
| Demand for a normal good is (blank) related to income. | directly or positively |
| Demand for an inferior good is (blank) related to income. | inversely or negatively |
| Two goods are substitutes if | an increase in the price of one good causes an increase in demand for the other good. The opposite case applies as well. |
| An increase in the price of pizza increases demand for hamburgers, shifting hamburger demand curve (blank) | to the right. |
| Two goods are complements if | an increase in the price of one causes a fall in demand for the other. |
| Anything that causes a shift in tastes toward a good will | increase demand for that good and shift its D curve to the right and vice versa |
| If people expect prices to rise in the future, their demand may (blank) now. The opposite case applies as well. | increase |
| If people expect their incomes to (blank), their demand for meals at expensive restaurants may increase now. The opposite case applies as well. | rise |
| The only determinant of quantity demanded that causes a movement along the curve is (blank) | price |
| If the variable causing demand to change is measured on one of the axes, (blank) If the variable that’s causing demand to change is NOT measured on either axis, (blank) | you move along the curve, then the curve shifts |
| An increase (↑) in QD refers to (blank) along a fixed D curve as P decreases (↓). | downward movement |
| A decrease (↓) in QD refers to (blank) along a fixed D curve as P increases (↑). | upward movement |
| A change in demand refers to a shift in the D curve which occurs when | a non-price determinant of demand changes (like income or number of buyers). |
| what happens to the curve shift if the price of CDs falls | The curve does not shift (though there may be a movement along the curve) |
| The quantity supplied (QS) of any good is | the amount that sellers are willing and able to sell at a given price. |
| Supply schedule: | A table that shows the relationship between the price of a product and the quantity supplied. |
| The supply curve shows how price affects(blank) ,other things being equal. | quantity supplied |
| (blank) makes production more profitable at each output price, so firms supply a larger quantity at each price, and the S curve shifts to the right. | A fall in input prices |
| Increase (↑) in the number of sellers increases quantity demanded supplied at each price, | shifts S curve to the right. |
| (blank) refers to a shift in the S curve which occurs when a non-price determinant of supply changes (like input costs or # of sellers) | A change in supply |
| Facing a surplus, sellers try to increase sales by (blank). This causes QD to rise and QS to fall, which reduces the surplus. | cutting price |
| law of demand | the claim that there is a negative or inverse relationship between quantity demanded and price, other things equal |
| law of supply | the claim that there is a positive or direct relationship between quantity supplied and price, other things equal |
| Equilibrium price: | the price that equates quantity supplied with quantity demanded. |
| Equilibrium quantity: | the quantity supplied and quantity demanded at the equilibrium price. |
| Changes in non-price determinants of supply (i.e., things that determine sellers’ supply of a good, other than the good’s price) will shift the S curve | to the left or to the right. |
| Elasticity is | a numerical measure of the responsiveness of quantity demanded (QD) or quantity supplied (QS) to one of its determinants. |
| The midpoint is | the number halfway between the start and end values; that is, the average of those values. |
| PEod = | %change in QD/(P1-P2)/(P1+P2/2) |
| demand curve rule of thumb | The flatter the curve, the more elastic the response to price. |
| if PEoD > 1, Price elasticity is higher in the long run than the short run | the demand is elastic |
| Price elasticity is (blank) when close substitutes are available. | higher |
| Price elasticity is (blank) for narrowly defined goods than broadly defined ones | higher |
| Price elasticity is (blank) for luxuries than for necessities | higher |
| Price elasticity is (blank) in the long run than the short run | higher |
| revenue = | P x Q |
| if demand is elastic, price and total revenue will move in | the opposite direction |
| the steeper the supply curve, the (blank) the elasticity | smaller |
| Price elasticity of supply = | % change in QS / % change in P |
| Income Elasticity of Demand = | % Change in QD / % Change in Income |
| For inferior goods, income elasticity | < 0. |
| Cross-price elasticity of demand = | % Change in QD for good 1 / % Change in P of good 2 |
| For substitutes, cross-price elasticity | > 0 (e.g., an increase in price of beef causes an increase in demand for chicken). |
| For complements, cross-price elasticity | < 0 (e.g., an increase in price of computers causes decrease in demand for software). |
| elasticity | is a numerical measure of the responsiveness of quantity demanded (QD) or quantity supplied (QS) to one of its determinants. |
| Accounting profit is the difference between | total revenue and explicit costs. |
| Economic profit is the difference between | total revenue and total costs (explicit and implicit). |
| Again, after a certain stage, the total output itself begins to decline. At this stage, the concept of | diminishing absolute returns operates |
| After a certain point, the additional unit of output that can be obtained with an additional unit of labor starts to decline – that is, the law of | diminishing marginal returns begins to operate. |
| negative marginal productivity | each additional unit of input now decreases the output. |
| Marginal Rate of Technical Substitution (MRTS) | the rate at which we can exchange one input for another without affecting the total level of output. |
| Isoquant | the various combinations of inputs that would result in a given level of output. |
| production | is a process of transforming various factors including material, people, technology, land, equipment, money into goods and services. |
| marginal product of labor | is the additional output that may result from an additional unit of labor, all other inputs remaining the same. |
| average product | as the total output divided by the quantity of the output. |
| Marginal Rate of Technical Substitution (MRTS) is an important metric use with | isoquants |
| the price elasticity of demand refers to the extent to which the quantity demanded changes as a result of change in | price |
| if, for a certain good, the percent change in the quantity demanded is less than the percent change in price that caused the change is considered | inelastic |
| suppose the demand is perfectly elastic. the implication would be that the smallest possible change in price would result in | a virtually infinite change in quantity |
| suppose the demand is perfectly inelastic. the implication would be that the smallest change in price would result in | no change in quantity |
| consider two goods. if the cross elasticity of demand between the two goods is 1.75, we can infer that | the two goods are substitutes |
| economies of scale occurs when the average total cost of production (blank) as output (blank) | decreases, increases |
| typically, a production function | represents a technical relationship between the factors of production and the output |
| suppose the marginal product of labor is 8 and the product of capital is 2. if the wage rate is 4 and the price of capital is 2, then in order to minimize costs the firm should use | more labor and less capital |
| the diminishing marginal product of labor exists when the last worker hires produces | less output than the previous worker |
| what of the following statements best summarizes the law of diminishing marginal returns | in the short run, as more labor is hired, output increases at a diminishing rate |
| the shift in the demand curve denotes | a change in demand |
| potatoes are used in the production of potato chips. suppose the price of potatoes falls. then | it is likely an outward shift in the supply curve of potato chips |
| given that digital music players are used to play music downloaded from the internet, a fall in the price of digital music players will lead to | an increase in the demand for downloaded songs |
| for a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to | shift to the right |
| one cause for the lack of equilibrium is | an excess of quantity supplied over quantity demanded at a given price |
| something that induces a person to act, such as the prospect of a punishment or reward | incentives |
| because the resources immediately available for use are limited, | people must make choices about resource use |
| after much consideration, you have chosen cancun over fort lauderdale as your spring break destination this year. however, spring break is still months away, and you may reverse this decision. which of the following events would prompt you to reverse this | the marginal cost of going to ft lauderdale decreases |
| a tradeoff exists between a clean environment and a higher income level in that | laws that reduce pollution raise costs of production and reduce incomes |
| people respond to incentives | by calculating their individual costs and benefits and determining which is greater |
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bitchalaureateofscience
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