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# Intermediate micro midterm

question
Factors that influence demand
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
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
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
Harvest faster-shift right
Drought- shift left
question
Elasticity equation
%ΔQ/%ΔP or ΔQ/q/ΔP/p or 1/slope x p/q
question
Perfectly inelastic
= %ΔQ/%ΔI or ΔQ/q/ΔI/i
question
Perfectly elastic
Inferior: E = negative
Normal: E = positive
Luxury: E = greater than 1
Necessity: 0 to 1
question
Income elasticity of demand
%ΔQx/%ΔPy or ΔQx/qx/ΔPy/py
question
Income elasticity for normal, inferior, luxury, and necessity good
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
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
question
Draw demand and supply curve w pc pf dwl, etc
Indifferent
question
indifference curve
question
Marginal utility and equation
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.
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.
MRS= -ΔY/ΔX
question
Indifference curve characteristics
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
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
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
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
Slope of budget constraint = slope of indifference curve
question
Perfect complements
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
A curve traces the optimal bundle of goods chosen as income increases.
question
How to find optimal bundle
1. One good becomes relatively more expensive, and the other relatively cheaper 2. The total purchasing power of a consumer's income changes
question
...
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
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
Inferior Good (|income effect| < substitution effect) • Giffen Good (|income effect| > substitution effect)
question
The substitution effect
MPL=ΔQ/ΔL
question
The income effect
APL=Q/L
question
Income effect and substitution effect with given good and inferior good
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
Costs are minimized when the marginal product per dollar spent is equalized
across inputs.
question
Average product of labor equation
More capital and less labor should be used in production.
question
𝑀𝑅𝑇𝑆
More labor and less capital should be used in production.
question
Finding capital and labor with a firm
Describes production for which changing all inputs by the same proportion changes output more than proportionally.
question
Firms cost minimizing
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.
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.
Increasing returns to scale
• Capacity constraint, resources constraint and difficulties in
coordination.
question
Increasing Returns to Scale
ATC=MC
question
Decreasing Returns to Scale
is the cost of producing an additional
unit of output when capital is fixed.
question
Constant Returns to Scale
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?
In general, the long-run marginal cost curve will be flatter than the short-run marginal cost curve.
question
ATC is minimized when
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
TR-TC
(PxQ) - (ATCxQ)
question
Long-run marginal cost
undefined
question
What does this imply for the shape of the marginal cost curves?
undefined
question
Market Structure
undefined
question
Profit
undefined
1 of 47
question
Factors that influence demand
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
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
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
Harvest faster-shift right
Drought- shift left
question
Elasticity equation
%ΔQ/%ΔP or ΔQ/q/ΔP/p or 1/slope x p/q
question
Perfectly inelastic
= %ΔQ/%ΔI or ΔQ/q/ΔI/i
question
Perfectly elastic
Inferior: E = negative
Normal: E = positive
Luxury: E = greater than 1
Necessity: 0 to 1
question
Income elasticity of demand
%ΔQx/%ΔPy or ΔQx/qx/ΔPy/py
question
Income elasticity for normal, inferior, luxury, and necessity good
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
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
question
Draw demand and supply curve w pc pf dwl, etc
Indifferent
question
indifference curve
question
Marginal utility and equation
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.
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.
MRS= -ΔY/ΔX
question
Indifference curve characteristics
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
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
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
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
Slope of budget constraint = slope of indifference curve
question
Perfect complements
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
A curve traces the optimal bundle of goods chosen as income increases.
question
How to find optimal bundle
1. One good becomes relatively more expensive, and the other relatively cheaper 2. The total purchasing power of a consumer's income changes
question
...
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
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
Inferior Good (|income effect| < substitution effect) • Giffen Good (|income effect| > substitution effect)
question
The substitution effect
MPL=ΔQ/ΔL
question
The income effect
APL=Q/L
question
Income effect and substitution effect with given good and inferior good
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
Costs are minimized when the marginal product per dollar spent is equalized
across inputs.
question
Average product of labor equation
More capital and less labor should be used in production.
question
𝑀𝑅𝑇𝑆
More labor and less capital should be used in production.
question
Finding capital and labor with a firm
Describes production for which changing all inputs by the same proportion changes output more than proportionally.
question
Firms cost minimizing
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.
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.
Increasing returns to scale
• Capacity constraint, resources constraint and difficulties in
coordination.
question
Increasing Returns to Scale
ATC=MC
question
Decreasing Returns to Scale
is the cost of producing an additional
unit of output when capital is fixed.
question
Constant Returns to Scale
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?
In general, the long-run marginal cost curve will be flatter than the short-run marginal cost curve.
question
ATC is minimized when
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
TR-TC
(PxQ) - (ATCxQ)
question
Long-run marginal cost
undefined
question
What does this imply for the shape of the marginal cost curves?
undefined
question
Market Structure
undefined
question
Profit
undefined

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