Econ Exam 4 - Custom Scholars
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# Econ Exam 4

question
Indifference Curve
shows all combinations of 2 goods which yield consumers equal amounts of satisfaction
question
Consumers have 1 budget
Indifference assumption #1
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Consumers are rational
Indifference assumption #2
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Consumers rank their preferences
Indifference assumption #3
question
Consumers are consisten
Indifference assumption #4
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Consumers are maximizers
Indifference assumption #5
question
Convex to origin
Characteristic of Indifference curve #2
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Has to have a downward slope because there's an opportunity cost
Characteristic of Indifference curve #1
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Curves cannot cross
Characteristic of Indifference curve #3
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Marginal Rate of Substitution
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
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?
change price or change budget
question
Maximization under Constraint
the consumer problem: how to maximize my utility given budget
question
Assumption of the cost of production
the primary goal of the firm is to maximize profits
question
Profit
Total revenue (P*Q) minus total cost
question
Total cost
total variable cost + total fixed cost
question
Variable costs
costs of production that change with changes in the level of output
question
Fixed costs
sunk costs. once they're incurred, there's nothing the firm can do to avoid them, even if shut down
question
Average cost
total/quantity; per unit cost for a given level of output
question
Marginal cost
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
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
Step two of total revenue test
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3) Total revenue is maximized at the unitary point
Step three of the total revenue test
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Demand Curve facing the Firm
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
Many Firms
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Assumption #2 of Perfect Competition
Homogenous product
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Assumption #3 of Perfect Competition
Economic Agents are rational
question
Assumption #4 of Perfect Competition
Economic agents have perfect mobility - resources are free to move from firm to firm
question
Assumption #5 of Perfect Competition
No artificial constraints on price
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Golden Rule
A firm will maximize their profits at the quantity in which MR = MC
question
Elasticity
designed to measure the responsiveness of a dependent variable to an independent variable
question
Elasticity equation
change in new dependent - change in old dependent/ change but plus OVER same but with independent
question
Price Elasticity of Demand
q and p; values matters
question
Relatively elastic
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
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
A percentage change in price will bring about an equal percentage change in quantity demanded
question
Total revenue test #1
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
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
Total revenue is maximized at unitary point
question
Cross Price Elasticity
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
subs
question
If final number is negative
complement
question
Income Elasticity of Demand
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
normal
question
If the final answer for IED is negative
inferior
question
Rule of Thumb for perfect competition #1
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
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
in the long run perfect competition, all firms have identical cost curves
question
Long Run Assumption #2
This industry is a constant cost industry
question
LR equilibrium
firms will earn normal profits only, which are incorporated into their costs ( as opportunity cost)
question
Conclusion #1 of Perfect Competition
Consumers receive the lowest price possible
question
Conclusion #2 of Perfect Competition
Firms are as technically efficient as possible; if Q is at lowest ATC
question
Conclusion 33 of Perfect Competition
The industry is allocatively efficient; P = MC
question
Condition #1 for Monopoly
This firm is the single seller of a product
question
Condition #2 for Monopoly
This product has no close substitutes
question
Monopoly DFF
The DFF is the Demand curve
question
Simple Monopoly
cannot in any way discriminate in prices; one price to everyone
question
Discriminating monopoly
can discriminate in pricing
1 of 58
question
Indifference Curve
shows all combinations of 2 goods which yield consumers equal amounts of satisfaction
question
Consumers have 1 budget
Indifference assumption #1
question
Consumers are rational
Indifference assumption #2
question
Consumers rank their preferences
Indifference assumption #3
question
Consumers are consisten
Indifference assumption #4
question
Consumers are maximizers
Indifference assumption #5
question
Convex to origin
Characteristic of Indifference curve #2
question
Has to have a downward slope because there's an opportunity cost
Characteristic of Indifference curve #1
question
Curves cannot cross
Characteristic of Indifference curve #3
question
Marginal Rate of Substitution
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
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?
change price or change budget
question
Maximization under Constraint
the consumer problem: how to maximize my utility given budget
question
Assumption of the cost of production
the primary goal of the firm is to maximize profits
question
Profit
Total revenue (P*Q) minus total cost
question
Total cost
total variable cost + total fixed cost
question
Variable costs
costs of production that change with changes in the level of output
question
Fixed costs
sunk costs. once they're incurred, there's nothing the firm can do to avoid them, even if shut down
question
Average cost
total/quantity; per unit cost for a given level of output
question
Marginal cost
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
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
Step two of total revenue test
question
3) Total revenue is maximized at the unitary point
Step three of the total revenue test
question
Demand Curve facing the Firm
the amount of its own product it can sell at all alternative prices, ceteris paribus NOT ABOUT MARKET
question
Assumption #1 of Perfect Competition
Many Firms
question
Assumption #2 of Perfect Competition
Homogenous product
question
Assumption #3 of Perfect Competition
Economic Agents are rational
question
Assumption #4 of Perfect Competition
Economic agents have perfect mobility - resources are free to move from firm to firm
question
Assumption #5 of Perfect Competition
No artificial constraints on price
question
Golden Rule
A firm will maximize their profits at the quantity in which MR = MC
question
Elasticity
designed to measure the responsiveness of a dependent variable to an independent variable
question
Elasticity equation
change in new dependent - change in old dependent/ change but plus OVER same but with independent
question
Price Elasticity of Demand
q and p; values matters
question
Relatively elastic
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
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
A percentage change in price will bring about an equal percentage change in quantity demanded
question
Total revenue test #1
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
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
Total revenue is maximized at unitary point
question
Cross Price Elasticity
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
subs
question
If final number is negative
complement
question
Income Elasticity of Demand
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
normal
question
If the final answer for IED is negative
inferior
question
Rule of Thumb for perfect competition #1
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
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
in the long run perfect competition, all firms have identical cost curves
question
Long Run Assumption #2
This industry is a constant cost industry
question
LR equilibrium
firms will earn normal profits only, which are incorporated into their costs ( as opportunity cost)
question
Conclusion #1 of Perfect Competition
Consumers receive the lowest price possible
question
Conclusion #2 of Perfect Competition
Firms are as technically efficient as possible; if Q is at lowest ATC
question
Conclusion 33 of Perfect Competition
The industry is allocatively efficient; P = MC
question
Condition #1 for Monopoly
This firm is the single seller of a product
question
Condition #2 for Monopoly
This product has no close substitutes
question
Monopoly DFF
The DFF is the Demand curve
question
Simple Monopoly
cannot in any way discriminate in prices; one price to everyone
question
Discriminating monopoly
can discriminate in pricing

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