Principles of Microeconomics Exam 2 - Custom Scholars
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# Principles of Microeconomics Exam 2

question
Elasticity
A measure of how much one economic variable responds to changes in another economic variable.
question
Price Elacticity
the responsiveness of quantity demanded to a change in price
question
perfectly inelastic demand
the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero
question
perfectly elastic demand
the case where the quantity demanded is infinitely responsive to price and the price elasticity of demand equals infinity
question
cross price elasticity
the percentage change in quantity demanded of one good divided by the price elasticity of demand
question
substitues
Exp>0
question
compliments
Exp<0
question
Unrelated
Exp=0
question
if you lower the price (compliment product)
it increases demand
question
income elasticity of demand
a measure of the responsiveness of the quantity demanded to changes in income, measured by the percentage change in the quantity demanded divided by the percentage change in income
question
Normal good
Ei >0
question
necessity (normal)
0<Ei<1
question
luxury (normal)
Ei>1
question
inferior good
Ei<0
question
Determinant of Price elasticity of demand (1)
availability of close substitutes
question
Determinant of Price elasticity of demand (2)
passage of time
question
Determinant of Price elasticity of demand (3)
luxuries vs. necessities
question
Determinant of Price elasticity of demand (4)
definition of market
question
Determinant of Price elasticity of demand (5)
share of good in consumers budget
question
If something is MORE elastic
small changes in price will cause large changes in quantity
question
is something is LESS elastic
large changes in price are needed to make large changes in quantity
question
Utility
the satisfaction people receive from consuming goods and services
question
Indifference curve
a curve that shows the consumption bundles that give the consumer the same utility
question
marginal utility
the change in total utility a person receives from consuming ONE additional unit of a good or service
question
Law of diminishing utility
the principle that consumers experience diminishing s=additional satisfaction as the consume more of a good or service during a given period of time
question
budget constraint
the limited amount of income available to consumers to spend on goods and services
question
if income changes
the budget constraint shifts parallel to the original one
question
if price of good changes
slope of the budget constraint changes
question
Technological change
A change in the ability of a firm to produce a given level of output with a given quantity of inputs.
question
Short run
The period of time during which at least one of a firm's inputs is fixed.
question
Long run
The period of time in which a firm can vary all its inputs, adopt new technology and increase or decrease the size of its physical plant.
question
Total Cost
The cost of all the inputs a firm uses in production.
question
Variable cost
Costs that change as output changes.
question
Fixed cost
Costs that remain constant as output changes.
question
Production function
The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.
question
Marginal product of labor
Additional output a firm produces as a result of hiring one more worker.
question
Law of diminishing returns
The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.
question
Average product of labor
The total output produced by a firm divided by the quantity of workers.
question
Marginal cost
the change in a firm's total cost from producing one more unit of a good or service.
question
Average variable cost
Variable cost divided by the quantity of output produced.
question
Constant returns to scale
The situation in which a firm's long-run average costs remain unchanged as it increases output.
question
Diseconomies of scale
The situation I which a firm's long-run average costs rise as the firm increases output.
question
Minimum efficient scale
The level of output at which all economies of scale are exhausted.
question
break even
fc/p-vc
question
TC
FC + VC
question
ATC
AFC + AVC
1 of 46
question
Elasticity
A measure of how much one economic variable responds to changes in another economic variable.
question
Price Elacticity
the responsiveness of quantity demanded to a change in price
question
perfectly inelastic demand
the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero
question
perfectly elastic demand
the case where the quantity demanded is infinitely responsive to price and the price elasticity of demand equals infinity
question
cross price elasticity
the percentage change in quantity demanded of one good divided by the price elasticity of demand
question
substitues
Exp>0
question
compliments
Exp<0
question
Unrelated
Exp=0
question
if you lower the price (compliment product)
it increases demand
question
income elasticity of demand
a measure of the responsiveness of the quantity demanded to changes in income, measured by the percentage change in the quantity demanded divided by the percentage change in income
question
Normal good
Ei >0
question
necessity (normal)
0<Ei<1
question
luxury (normal)
Ei>1
question
inferior good
Ei<0
question
Determinant of Price elasticity of demand (1)
availability of close substitutes
question
Determinant of Price elasticity of demand (2)
passage of time
question
Determinant of Price elasticity of demand (3)
luxuries vs. necessities
question
Determinant of Price elasticity of demand (4)
definition of market
question
Determinant of Price elasticity of demand (5)
share of good in consumers budget
question
If something is MORE elastic
small changes in price will cause large changes in quantity
question
is something is LESS elastic
large changes in price are needed to make large changes in quantity
question
Utility
the satisfaction people receive from consuming goods and services
question
Indifference curve
a curve that shows the consumption bundles that give the consumer the same utility
question
marginal utility
the change in total utility a person receives from consuming ONE additional unit of a good or service
question
Law of diminishing utility
the principle that consumers experience diminishing s=additional satisfaction as the consume more of a good or service during a given period of time
question
budget constraint
the limited amount of income available to consumers to spend on goods and services
question
if income changes
the budget constraint shifts parallel to the original one
question
if price of good changes
slope of the budget constraint changes
question
Technological change
A change in the ability of a firm to produce a given level of output with a given quantity of inputs.
question
Short run
The period of time during which at least one of a firm's inputs is fixed.
question
Long run
The period of time in which a firm can vary all its inputs, adopt new technology and increase or decrease the size of its physical plant.
question
Total Cost
The cost of all the inputs a firm uses in production.
question
Variable cost
Costs that change as output changes.
question
Fixed cost
Costs that remain constant as output changes.
question
Production function
The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs.
question
Marginal product of labor
Additional output a firm produces as a result of hiring one more worker.
question
Law of diminishing returns
The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.
question
Average product of labor
The total output produced by a firm divided by the quantity of workers.
question
Marginal cost
the change in a firm's total cost from producing one more unit of a good or service.
question
Average variable cost
Variable cost divided by the quantity of output produced.
question
Constant returns to scale
The situation in which a firm's long-run average costs remain unchanged as it increases output.
question
Diseconomies of scale
The situation I which a firm's long-run average costs rise as the firm increases output.
question
Minimum efficient scale
The level of output at which all economies of scale are exhausted.
question
break even
fc/p-vc
question
TC
FC + VC
question
ATC
AFC + AVC

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