# econ exam 2

 The flashcards below were created by user wsrdpc on FreezingBlue Flashcards. consumer surplus - definition amount by which total benefits to consumers from consuming a good exceed total expenditures on the good net benefit - application total benefit of activity minus opportunity cost; the triangle of marginal benefit (negative slope showing the change in benefit of each item for each extra item) and the marginal cost (positive slope showing the benefit of item given up for each item of using the other item)eg. for each hour of study in economics you get a total benefit of 0, 14, 24, 30, 32, 32 which is the marginal benefit of 14, 10, 6, 2, 0 at a cost of studying something else at a total cost of 0, 2, 8, 18, 32, 50, which gives a marginal cost of 2, 6, 10, 14, 18 MU/P - application 5 questions marginal utility per dollar of each good purchasedalso referred to as consumer equilibruimMU/P of product 1 = MU/P of product 2 = MU/P of any product subtitution effect - definitional change in a consumers consumption of a good in response to an relative price change income effect - defininational change in the amount consumed of a good due to change in buying power, ability to purchase, due to price change of the good law of diminishing marginal utility - definitional this tendency of marginal utility to decline beyond some level of consuption during period (where you no longer value the wanted item due to enough consumstion total utility - 2 application the amount of pleasure given by 1 or more items consumed 0 items give 0TU 1 item gives 36TU 2 items give 64 TU change in TU/change in item gives marginal utility between 0 & 1 MU is 36 between 1 and 2 gives 28 MU average fixed cost - definitional AFC is total fixed cost divided by total output or quantityAFC = TTC/Q average variable costs - definitional total variable cost divided by total outputAVC = TVC/Q economies of scale - definitional the decrease in per unit costs as the quanitity of production increases and all resources are variable average total cost - 1 application total cost of production / total quantity of output produced marginal cost - 1 application change in total cost / change in quantity marginal product - 2 applications change in quantity / change in variable factor (like labor) economies of scale - 1 application decline of LRAC as level of production increases economic profits - 2 definitional difference between TR and TC (total revenue and total cost) and is maximized when marginal revenue equals marginal costIs found by multiplying economic profit per unit & # of units producedincludes total cost includes opportunity cost economic profit per unit - definintional difference between price & average total cost includes opportunity cost in total cost accounting profits - application difference between total cost and total revenue when total cost includes only the explicit costs (change that must be paid for in the factors of production and includes estimated depreciation, does not include opportunity cost perfect competition examples - definitional model of the market based on the assumption that a large number of firms produce identical goods consumed by a large number of buyers perfect competition characteristics - 4 definintional all goods are identicallarge # of buyers and sellerscase of entry & exitcomplete information of buyers and sellers marginal revenue - application the increase in total revenue frone a one unit increase in quantity; includes slope of total revenue curveAR = TR/Q = (P)(Q) / Q = P = MR Price = marginal cost - definitional Price = marginal costbasically when the price = marginal cost then you are at the breakeven pointthe point at which economic profit = zero (ATC) oligopoly examples - definitional a market structure characterized by few firms, either standardized or differentiated products, & difficult entry (price maker) concentration ratio - 3 application % of output accounted for by the largest firms in the industryhigher the concentration the more the firms account rival's behavoirlower the concentration the more industry reflects characteristics of monopolistic competors or perfect competition HHI (Herfindahl-Hirschaman Index) sum of the square of the % share of each firm in an insutry product differentiation products are differernt enough that the producing firms exercise "mini monopoly over their product monopolistically competivitve examples - definintational large # of firmsproducts produced are differentiated in different firms entry & exit occur easily oligopoly characteristics - defininational each firm can affect the market by each firm's choices that are dependent on the choices of other firms (interdependent) Monopolistic Competitive vs. oligopoly - comparision both have differentiated products but oliopoly has few firms & difficult entry while mc has many firms and easy entry brand name makes demand less elastic and enable firms to earn higher profits price discrimination - definitional situation in which a firm charges different prices for the same good or service to different consumers, even though there is no difference in cost to the firm of suppling these consumers monopoly m. r. - definitional the marginal revenue curve of a monopoly is downward sloping and lying below the regular demand curveas firms enter the mr curve shifts to the left until mr is less than economic profit and earning a loss imperfect competition market structure with more than one firm in an industry in which at least 1 firm is the price setter kinked demand - definitional The demand curve if competitors follow the price decrease creating a new demand curve that is "kinked" at the current price perfect competition - definitional model of the market based on the assumption that a large number of firms produce identical goods consumed by a large number of buyers monopoly - definitional a firm that is the only producer of a good or service for which there are no close subsitutes and for which entry by potential rivals is prohibitively difficult PC vs. monopoly - market comparision PC has large # of sellers & buyers producing homogenouse goods and easy entrymonopoly has large # of buyers but only 1 seller, entry blocked PC vs. monopoly - demand & marginal revenue curves comparision PC is horizontal line at market pricemonopoly has market demand curve but mr is below makret demand PC vs. monopoly - price comparision PC is price takers and equals marginal costmonopoly is price setter and price is greater than mc PC vs. monopoly - profit maximization comparision PC - produces where MC = MRmonopoly - produces where MC = MR & charge corresponding price on demand curve PC vs. monopoly - profit comparision PC - entry forces economic profit to zero in long runmonopoly - can sustain economic profit in long run PC vs. monopoly - efficiency comparision PC - equilibrium solution is efficient because P = MCmonopoly - equilibrium solution is inefficient because P > MC Authorwsrdpc ID48302 Card Setecon exam 2 Descriptionecon exam 2 Updated2010-11-15T19:59:31Z Show Answers