Card Set Information
micro mid term
is concerned with individual economic units and specific markets.
study of the large aggregates of the economy or the economy as a whole.
the economizing problem is one of deciding how to make the best use of :
limited resources to satisfy virtually unlimited wants.
the four factors of production are:
land, labor, capital, and entrepreneurial ability.
the money payments made to owners of land, labor, capital, and entrepreneurial ability are:
rent, wages, interest, and profits respectively.
productive efficiency refers to:
the use of the least cost method of production.
allocative efficiency is concerned with:
producing the combination of good most desired by society.
the production possibilities curve:
is a frontier between all combos of two goods that can be produced and those combos that can't be produced.
In drawing the production possibilities curve we assume that:
technology is fixed.
the law of increasing opportunity costs states that:
if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so.
-# of buyers
-tastes and preferences
-change in the price of other goods
---substitutes ^P=^D and \/P=^D
---compliments ^P=\/D and \/P=^D
-change in income
---normal ^INC=^D and \/INC=\/D
---inferior ^INC=\/D and \/INC=^D
-# of producers
-governmental policies (regulations/subsidies/tax)
-change in resource prices (complimentary)
-change in other goods prices
producing at least possible cost.
producing what society wants.
What is true about a price floor?
The intention of government is to assist producers of the good.
Draw and circular flow chart.
check your work in notebook.
Draw a graph that shows a price ceiling and price floor and indicate the consumer surplus and the producer surplus.
A price floor is there because...
A price ceiling is there because...
Price floor= it from going lower.
price ceiling= it from going higher.
Cross-Price Elasticity Formula :
result means complimentary
% changePy =
result means substitute
Elasticity Income Formula :
% change Q
result means inferior
% change INC =
result means normal
Elasticity of Demand Formula:
% change Q |
|% change P |
> 1 = Elastic
= 1 = Unit Elastic
< 1 = Inelastic
Elasticity (price and TR)
Unit Elastic (price and TR)
Inelastic (price and TR)
-^P = \/ Total revenue
-\/P = ^ Total revenue
-if P increases or decreases the TR is the same
-\/P = \/ Total revenue
-^P = ^ Total Revenue
Elasticity of Supply Formula:
with no absolute signs
% change in Q
% change in P
The law of diminishing marginal utility states that:
beyond some point additional units of a product will yield less and less extra satisfaction to a consumer.
Utility Maximization Theory
*if MUA was > than MUB you would spend less of MUA and more of MUB to maximize utility.
Law of Diminishing Marginal Returns
As more units of a variable resource are added to a fixed resource, beyond some point, the extra product will begin to diminish.
Economic profits are calculated by subtracting...
explicit and implicit costs from total revenue.
to economists the main difference between the short run and the long run is that...
in the long run all resources are variable, while in the short run at least one resource is fixed.
fixed cost is...
any cost which doesn't change when the firm changes its output.
marginal cost is the...
change in total cost that results from producing one more unit of output.
Lump Sum will...
lower fixed cost but will not change production.
To maximize profits..
MC = MR
Regulation of Monopolies:
Where is socially optimal on the graph?
Where is fair return?
Marginal cost crosses demand.
1. As your income increases so does your tax.
2. Everyone pays the same tax. (realestate - flat tax)
3. As your income increases, your tax decreases.
A Lorenz Curve graphs ...
the distribution of income.
In the short run, a perfectly competitive firm should shut down whenever...
the firm cannot cover its total variable cost.
When a perfectly competitive firm sells additional units of output, its total revenue will...
increase at a constant rate.
economic profit in the long run is...
possible for apure monopoly , but not for a pure competitor.
Economic profit =
TR - TC