Econ Exam 4

question

Indifference Curve

answer

shows all combinations of 2 goods which yield consumers equal amounts of satisfaction

question

Consumers have 1 budget

answer

Indifference assumption #1

question

Consumers are rational

answer

Indifference assumption #2

question

Consumers rank their preferences

answer

Indifference assumption #3

question

Consumers are consisten

answer

Indifference assumption #4

question

Consumers are maximizers

answer

Indifference assumption #5

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Convex to origin

answer

Characteristic of Indifference curve #2

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Has to have a downward slope because there's an opportunity cost

answer

Characteristic of Indifference curve #1

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Curves cannot cross

answer

Characteristic of Indifference curve #3

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Marginal Rate of Substitution

answer

the amount of one good that an individual is willing to give up to obtain an additional unit of another good and maintain equal total utility

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Budget Line

answer

shows all max combos of 2 goods that a consumer is able to select, given their income and the price of two goods

question

How to shift budget line?

answer

change price or change budget

question

Maximization under Constraint

answer

the consumer problem: how to maximize my utility given budget

question

Assumption of the cost of production

answer

the primary goal of the firm is to maximize profits

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Profit

answer

Total revenue (P*Q) minus total cost

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Total cost

answer

total variable cost + total fixed cost

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Variable costs

answer

costs of production that change with changes in the level of output

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Fixed costs

answer

sunk costs. once they're incurred, there's nothing the firm can do to avoid them, even if shut down

question

Average cost

answer

total/quantity; per unit cost for a given level of output

question

Marginal cost

answer

extra cost of adding once more unit of output; MC = change in TC/change in quantity

question

1) If the current price is in the elastic portion of the demand curve, total revenue is increased by lowering price

answer

Step one of total Revenue Test

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2) If the current price is in the inelastic portion of the demand curve, total revenue is increased by raising the price

answer

Step two of total revenue test

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3) Total revenue is maximized at the unitary point

answer

Step three of the total revenue test

question

Demand Curve facing the Firm

answer

the amount of its own product it can sell at all alternative prices, ceteris paribus NOT ABOUT MARKET

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Assumption #1 of Perfect Competition

answer

Many Firms

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Assumption #2 of Perfect Competition

answer

Homogenous product

question

Assumption #3 of Perfect Competition

answer

Economic Agents are rational

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Assumption #4 of Perfect Competition

answer

Economic agents have perfect mobility - resources are free to move from firm to firm

question

Assumption #5 of Perfect Competition

answer

No artificial constraints on price

question

Golden Rule

answer

A firm will maximize their profits at the quantity in which MR = MC

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Elasticity

answer

designed to measure the responsiveness of a dependent variable to an independent variable

question

Elasticity equation

answer

change in new dependent - change in old dependent/ change but plus OVER same but with independent

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Price Elasticity of Demand

answer

q and p; values matters

question

Relatively elastic

answer

a decrease (increase) in price will bring about a larger percentage increase (decrease) in the quantity demanded than the original change in price |Epd| >1

question

Relatively inelastic

answer

a decrease (increase) in price will bring about a smaller percentage increase (decrease) in the quantity demanded than the original change in price

question

Unitary elastic

answer

A percentage change in price will bring about an equal percentage change in quantity demanded

question

Total revenue test #1

answer

If the current price is in the elastic portion of the demand curve, total revenue is increased by lowering price

question

Total revenue Test #2

answer

If the current price is in the inelastic portion of the demand curve, total revenue is increased by raising the price

question

Total revenue test #3

answer

Total revenue is maximized at unitary point

question

Cross Price Elasticity

answer

Shows the responsiveness of the quantity demanded of good (x) to the price change of some other good CARE ABOUT SIGN (tring to decide if they're subs or complements)

question

If final number is positive theyre

answer

subs

question

If final number is negative

answer

complement

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Income Elasticity of Demand

answer

shows the responsiveness of consumers to change in income; determines inferior good or normal good; SUM not value

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if the final answer for IED is positive

answer

normal

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If the final answer for IED is negative

answer

inferior

question

Rule of Thumb for perfect competition #1

answer

At the profit-maximizing quantity, if the price is greater than the average total cost, the firm is earning a profit

question

Rule of Thumb for perfect competition #2

answer

At the profit-maximizing quantity, if the price is greater than the average variable cost, then the firm will stay open; TC = TFC + TVC; TVC = AVC * Q

question

Long Run Assumption #1

answer

in the long run perfect competition, all firms have identical cost curves

question

Long Run Assumption #2

answer

This industry is a constant cost industry

question

LR equilibrium

answer

firms will earn normal profits only, which are incorporated into their costs ( as opportunity cost)

question

Conclusion #1 of Perfect Competition

answer

Consumers receive the lowest price possible

question

Conclusion #2 of Perfect Competition

answer

Firms are as technically efficient as possible; if Q is at lowest ATC

question

Conclusion 33 of Perfect Competition

answer

The industry is allocatively efficient; P = MC

question

Condition #1 for Monopoly

answer

This firm is the single seller of a product

question

Condition #2 for Monopoly

answer

This product has no close substitutes

question

Monopoly DFF

answer

The DFF is the Demand curve

question

Simple Monopoly

answer

cannot in any way discriminate in prices; one price to everyone

question

Discriminating monopoly

answer

can discriminate in pricing

1 of 58

question

Indifference Curve

answer

shows all combinations of 2 goods which yield consumers equal amounts of satisfaction

question

Consumers have 1 budget

answer

Indifference assumption #1

question

Consumers are rational

answer

Indifference assumption #2

question

Consumers rank their preferences

answer

Indifference assumption #3

question

Consumers are consisten

answer

Indifference assumption #4

question

Consumers are maximizers

answer

Indifference assumption #5

question

Convex to origin

answer

Characteristic of Indifference curve #2

question

Has to have a downward slope because there's an opportunity cost

answer

Characteristic of Indifference curve #1

question

Curves cannot cross

answer

Characteristic of Indifference curve #3

question

Marginal Rate of Substitution

answer

the amount of one good that an individual is willing to give up to obtain an additional unit of another good and maintain equal total utility

question

Budget Line

answer

shows all max combos of 2 goods that a consumer is able to select, given their income and the price of two goods

question

How to shift budget line?

answer

change price or change budget

question

Maximization under Constraint

answer

the consumer problem: how to maximize my utility given budget

question

Assumption of the cost of production

answer

the primary goal of the firm is to maximize profits

question

Profit

answer

Total revenue (P*Q) minus total cost

question

Total cost

answer

total variable cost + total fixed cost

question

Variable costs

answer

costs of production that change with changes in the level of output

question

Fixed costs

answer

sunk costs. once they're incurred, there's nothing the firm can do to avoid them, even if shut down

question

Average cost

answer

total/quantity; per unit cost for a given level of output

question

Marginal cost

answer

extra cost of adding once more unit of output; MC = change in TC/change in quantity

question

1) If the current price is in the elastic portion of the demand curve, total revenue is increased by lowering price

answer

Step one of total Revenue Test

question

2) If the current price is in the inelastic portion of the demand curve, total revenue is increased by raising the price

answer

Step two of total revenue test

question

3) Total revenue is maximized at the unitary point

answer

Step three of the total revenue test

question

Demand Curve facing the Firm

answer

the amount of its own product it can sell at all alternative prices, ceteris paribus NOT ABOUT MARKET

question

Assumption #1 of Perfect Competition

answer

Many Firms

question

Assumption #2 of Perfect Competition

answer

Homogenous product

question

Assumption #3 of Perfect Competition

answer

Economic Agents are rational

question

Assumption #4 of Perfect Competition

answer

Economic agents have perfect mobility - resources are free to move from firm to firm

question

Assumption #5 of Perfect Competition

answer

No artificial constraints on price

question

Golden Rule

answer

A firm will maximize their profits at the quantity in which MR = MC

question

Elasticity

answer

designed to measure the responsiveness of a dependent variable to an independent variable

question

Elasticity equation

answer

change in new dependent - change in old dependent/ change but plus OVER same but with independent

question

Price Elasticity of Demand

answer

q and p; values matters

question

Relatively elastic

answer

a decrease (increase) in price will bring about a larger percentage increase (decrease) in the quantity demanded than the original change in price |Epd| >1

question

Relatively inelastic

answer

a decrease (increase) in price will bring about a smaller percentage increase (decrease) in the quantity demanded than the original change in price

question

Unitary elastic

answer

A percentage change in price will bring about an equal percentage change in quantity demanded

question

Total revenue test #1

answer

If the current price is in the elastic portion of the demand curve, total revenue is increased by lowering price

question

Total revenue Test #2

answer

If the current price is in the inelastic portion of the demand curve, total revenue is increased by raising the price

question

Total revenue test #3

answer

Total revenue is maximized at unitary point

question

Cross Price Elasticity

answer

Shows the responsiveness of the quantity demanded of good (x) to the price change of some other good CARE ABOUT SIGN (tring to decide if they're subs or complements)

question

If final number is positive theyre

answer

subs

question

If final number is negative

answer

complement

question

Income Elasticity of Demand

answer

shows the responsiveness of consumers to change in income; determines inferior good or normal good; SUM not value

question

if the final answer for IED is positive

answer

normal

question

If the final answer for IED is negative

answer

inferior

question

Rule of Thumb for perfect competition #1

answer

At the profit-maximizing quantity, if the price is greater than the average total cost, the firm is earning a profit

question

Rule of Thumb for perfect competition #2

answer

At the profit-maximizing quantity, if the price is greater than the average variable cost, then the firm will stay open; TC = TFC + TVC; TVC = AVC * Q

question

Long Run Assumption #1

answer

in the long run perfect competition, all firms have identical cost curves

question

Long Run Assumption #2

answer

This industry is a constant cost industry

question

LR equilibrium

answer

firms will earn normal profits only, which are incorporated into their costs ( as opportunity cost)

question

Conclusion #1 of Perfect Competition

answer

Consumers receive the lowest price possible

question

Conclusion #2 of Perfect Competition

answer

Firms are as technically efficient as possible; if Q is at lowest ATC

question

Conclusion 33 of Perfect Competition

answer

The industry is allocatively efficient; P = MC

question

Condition #1 for Monopoly

answer

This firm is the single seller of a product

question

Condition #2 for Monopoly

answer

This product has no close substitutes

question

Monopoly DFF

answer

The DFF is the Demand curve

question

Simple Monopoly

answer

cannot in any way discriminate in prices; one price to everyone

question

Discriminating monopoly

answer

can discriminate in pricing

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Econ Exam 4

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