Intermediate micro midterm

question

Factors that influence demand

answer

1. Price
2. Consumer income or wealth
3. Prices of other, related goods: substitutes and complements
4. Consumer preferences
5.number of consumers
QD(P , I , Ps , Pc , Pref, n )

question

Demand curve

answer

Price - Quantity
• Assumptions- no change in income, taste, prices of other goods.
• At $5, there is no demand of tomatoes. This is called Demand Choke price.

question

Factors that influence supply

answer

1. Price
2. Production costs: includes the processes used to make distribute and sell a good
3. Number of sellers
4. sellers outside options: price of good in other markets and prices of other related goods
QS( P , Costs , n )

question

Supply curve shifts

answer

Harvest faster-shift right
Drought- shift left

question

Elasticity equation

answer

%ΔQ/%ΔP or ΔQ/q/ΔP/p or 1/slope x p/q

question

Perfectly inelastic

answer

= %ΔQ/%ΔI or ΔQ/q/ΔI/i

question

Perfectly elastic

answer

Inferior: E = negative
Normal: E = positive
Luxury: E = greater than 1
Necessity: 0 to 1

question

Income elasticity of demand

answer

%ΔQx/%ΔPy or ΔQx/qx/ΔPy/py

question

Income elasticity for normal, inferior, luxury, and necessity good

answer

Complements: negative, consumption of good x decreases with increase of price of good y
Substitutes: positive, consumption of good x increases with increase of price of good y
Unrelated goods: 0

question

Cross price elasticity of demand

answer

1. Completeness and rankability.
2. For most goods, more is better than less (or at least more is no worse than less). All else equal.
3. Transitivity.
4. The more a consumer has of a particular good, the less she is willing to give up of something else to get even more of that good.

question

Cross price elasticity for complements and substitutes

answer

The additional utility a consumer receives from an additional unit of a good or service. ΔU(A,B)/ΔA

question

Draw demand and supply curve w pc pf dwl, etc

answer

Indifferent

question

4 Assumptions about consumer preferences

answer

indifference curve

question

Marginal utility and equation

answer

1.They can be drawn, and every bundle lies on an indifference curve. Completeness and rankability
2.Curves further from the origin represent higher utility
More is better
3.Curves never cross
Transitivity
4.Convex to the origin
Diminishing marginal utility

question

A consumer is________ between bundles when he or she derives the same utility level from two or more bundles.

answer

Marginal rate of substitution

question

An__________ plots out all of the consumption bundles that provide a consumer with the same level of utility or satisfaction.

answer

MRS= -ΔY/ΔX

question

Indifference curve characteristics

answer

Steeper curves imply the consumer is willing to give up a lot of Y to get one unit of
X, or could trade 1 unit of X for a lot of good Y.
Flatter curves imply the consumer would require a large increase in good X to give up one unit of the good Y, or could trade 1 unit of Y for a lot of good X.

question

Slope of indifference curve

answer

This consumer should be willing to trade one 12-oz tortilla for 4 3-oz tortilla no matter how much of each he or she has
• MRS is constant in this case

question

Marginal rate of substitution and equation

answer

Adding another right shoe while keeping left shoes constant does not increase the consumer's utility, so point B is on the same indifference curve as point A.

question

MRS and marginal utility

answer

is a curve that describes the entire set of consumption bundles a consumer can purchase when spending all of their income. It is generally plotted alongside indifference curves. Income = 𝑃x𝑄x + 𝑃y𝑄y

question

Perfect substitutes

answer

Slope of budget constraint = slope of indifference curve

question

Perfect complements

answer

Getting more utility per dollar from X so you should consume more of good X until the MUX decreases until the ratio is equal.

question

Budget constraint

answer

A curve traces the optimal bundle of goods chosen as income increases.

question

How to find optimal bundle

answer

1. One good becomes relatively more expensive, and the other relatively cheaper 2. The total purchasing power of a consumer's income changes

question

...

answer

refers to the change in consumption choices resulting from a change in relative prices.
Always negative; when the price of one good relative to another increases, consumption of the former falls, and vice versa

question

Income expansion path

answer

refers to the change in consumption choices resulting from a change in purchasing power. Can be negative or positive (inferior or normal goods). ΔQ/ΔI

question

When the price of a good changes relative to another, two things happen

answer

Inferior Good (|income effect| < substitution effect) • Giffen Good (|income effect| > substitution effect)

question

The substitution effect

answer

MPL=ΔQ/ΔL

question

The income effect

answer

APL=Q/L

question

Income effect and substitution effect with given good and inferior good

answer

describes the rate at which labor must be substituted for capital to hold the quantity produced constant. MRTS= MPL/MPK

question

Marginal product of labor equation

answer

Costs are minimized when the marginal product per dollar spent is equalized
across inputs.

question

Average product of labor equation

answer

More capital and less labor should be used in production.

question

𝑀𝑅𝑇𝑆

answer

More labor and less capital should be used in production.

question

Finding capital and labor with a firm

answer

Describes production for which changing all inputs by the same proportion changes output more than proportionally.

question

Firms cost minimizing

answer

Describes production for which changing all
inputs by the same proportion changes output less than proportionally.

question

The marginal product per dollar spent on capital is higher than the marginal product per dollar spent on labor.

answer

production increases proportionally with inputs

question

The marginal product per dollar spent on capital is less than the marginal product per dollar spent on labor.

answer

Increasing returns to scale
• Capacity constraint, resources constraint and difficulties in
coordination.

question

Increasing Returns to Scale

answer

ATC=MC

question

Decreasing Returns to Scale

answer

is the cost of producing an additional
unit of output when capital is fixed.

question

Constant Returns to Scale

answer

is the cost of producing an additional
unit of output when both capital and labor are variable.

question

Why marginal cost decreases first and increases afterwards?

answer

In general, the long-run marginal cost curve will be flatter than the short-run marginal cost curve.

question

ATC is minimized when

answer

1. Number of Firms: In general, the more companies in a given market, the more competitive it is.
2. Differentiation of Products: In general, when products from different companies are more difficult to distinguish from one another, a market is more competitive.
3. Barriers to Entry: If new firms can enter the market easily, the market is more competitive.

question

Short-run marginal cost

answer

TR-TC
(PxQ) - (ATCxQ)

question

Long-run marginal cost

answer

undefined

question

What does this imply for the shape of the marginal cost curves?

answer

undefined

question

Market Structure

answer

undefined

question

Profit

answer

undefined

1 of 47

question

Factors that influence demand

answer

1. Price
2. Consumer income or wealth
3. Prices of other, related goods: substitutes and complements
4. Consumer preferences
5.number of consumers
QD(P , I , Ps , Pc , Pref, n )

question

Demand curve

answer

Price - Quantity
• Assumptions- no change in income, taste, prices of other goods.
• At $5, there is no demand of tomatoes. This is called Demand Choke price.

question

Factors that influence supply

answer

question

Supply curve shifts

answer

Harvest faster-shift right
Drought- shift left

question

Elasticity equation

answer

%ΔQ/%ΔP or ΔQ/q/ΔP/p or 1/slope x p/q

question

Perfectly inelastic

answer

= %ΔQ/%ΔI or ΔQ/q/ΔI/i

question

Perfectly elastic

answer

Inferior: E = negative
Normal: E = positive
Luxury: E = greater than 1
Necessity: 0 to 1

question

Income elasticity of demand

answer

%ΔQx/%ΔPy or ΔQx/qx/ΔPy/py

question

Income elasticity for normal, inferior, luxury, and necessity good

answer

Complements: negative, consumption of good x decreases with increase of price of good y
Substitutes: positive, consumption of good x increases with increase of price of good y
Unrelated goods: 0

question

Cross price elasticity of demand

answer

question

Cross price elasticity for complements and substitutes

answer

The additional utility a consumer receives from an additional unit of a good or service. ΔU(A,B)/ΔA

question

Draw demand and supply curve w pc pf dwl, etc

answer

Indifferent

question

4 Assumptions about consumer preferences

answer

indifference curve

question

Marginal utility and equation

answer

question

A consumer is________ between bundles when he or she derives the same utility level from two or more bundles.

answer

Marginal rate of substitution

question

An__________ plots out all of the consumption bundles that provide a consumer with the same level of utility or satisfaction.

answer

MRS= -ΔY/ΔX

question

Indifference curve characteristics

answer

question

Slope of indifference curve

answer

This consumer should be willing to trade one 12-oz tortilla for 4 3-oz tortilla no matter how much of each he or she has
• MRS is constant in this case

question

Marginal rate of substitution and equation

answer

Adding another right shoe while keeping left shoes constant does not increase the consumer's utility, so point B is on the same indifference curve as point A.

question

MRS and marginal utility

answer

question

Perfect substitutes

answer

Slope of budget constraint = slope of indifference curve

question

Perfect complements

answer

Getting more utility per dollar from X so you should consume more of good X until the MUX decreases until the ratio is equal.

question

Budget constraint

answer

A curve traces the optimal bundle of goods chosen as income increases.

question

How to find optimal bundle

answer

1. One good becomes relatively more expensive, and the other relatively cheaper 2. The total purchasing power of a consumer's income changes

question

...

answer

question

Income expansion path

answer

refers to the change in consumption choices resulting from a change in purchasing power. Can be negative or positive (inferior or normal goods). ΔQ/ΔI

question

When the price of a good changes relative to another, two things happen

answer

Inferior Good (|income effect| < substitution effect) • Giffen Good (|income effect| > substitution effect)

question

The substitution effect

answer

MPL=ΔQ/ΔL

question

The income effect

answer

APL=Q/L

question

Income effect and substitution effect with given good and inferior good

answer

describes the rate at which labor must be substituted for capital to hold the quantity produced constant. MRTS= MPL/MPK

question

Marginal product of labor equation

answer

Costs are minimized when the marginal product per dollar spent is equalized
across inputs.

question

Average product of labor equation

answer

More capital and less labor should be used in production.

question

𝑀𝑅𝑇𝑆

answer

More labor and less capital should be used in production.

question

Finding capital and labor with a firm

answer

Describes production for which changing all inputs by the same proportion changes output more than proportionally.

question

Firms cost minimizing

answer

Describes production for which changing all
inputs by the same proportion changes output less than proportionally.

question

The marginal product per dollar spent on capital is higher than the marginal product per dollar spent on labor.

answer

production increases proportionally with inputs

question

The marginal product per dollar spent on capital is less than the marginal product per dollar spent on labor.

answer

Increasing returns to scale
• Capacity constraint, resources constraint and difficulties in
coordination.

question

Increasing Returns to Scale

answer

ATC=MC

question

Decreasing Returns to Scale

answer

is the cost of producing an additional
unit of output when capital is fixed.

question

Constant Returns to Scale

answer

is the cost of producing an additional
unit of output when both capital and labor are variable.

question

Why marginal cost decreases first and increases afterwards?

answer

In general, the long-run marginal cost curve will be flatter than the short-run marginal cost curve.

question

ATC is minimized when

answer

question

Short-run marginal cost

answer

TR-TC
(PxQ) - (ATCxQ)

question

Long-run marginal cost

answer

undefined

question

What does this imply for the shape of the marginal cost curves?

answer

undefined

question

Market Structure

answer

undefined

question

Profit

answer

undefined

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Intermediate micro midterm

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