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56 Cards in this Set
- Front
- Back
Behavioral economics |
Study of situations where people make choices that don’t appear to be economically rational |
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Budget constraint |
Limited amt of income available for consumers to spend on goods/services |
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Endowment effect |
People place higher value on stuff they already own (need to be offered more than price paid) |
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Income effect |
Change in qty demanded resulting from change in price on consumer purchasing power |
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Law of diminishing marginal utility |
Consumers experience diminishing additional satisfaction from consuming more of a good/service |
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Marginal utility |
Change in total utility from consuming one additional unit of good/service |
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Network externality |
Usefulness of a product increases with number consumers that use it |
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Opportunity cost |
Highest-valued alternative given up to engage in an activity |
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Substitution effect |
Change in qty demanded resulting from change in price making good relatively more/less expensive |
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Sunk cost |
Cost already paid and cant be recovered |
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Utility |
Enjoyment/satisfaction people receive from consuming goods/services |
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AFC |
Fixed cost divided by qty of output produced |
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Long run |
Firm can vary all inputs/adopt new tech/increase or decrease size of plant |
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APL |
Total output produced by firm divided by qty workers |
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AVC |
Variable cost divided by qty output produced |
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Constant returns to scale |
Firm’s long run ATC remain unchanged if output increases |
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Diseconomies of scale |
Firm’s long run ATC rise as firm increases output |
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Economics of scale |
Firm’s long run ATC falls as qty output produced increases |
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Explicit cost |
Cost that involves spending money |
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Fixed costs |
Costs that remain constant as output changes |
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Implicity |
Nonmonetary opportunity cost |
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Law of diminishing returns |
At some point adding more variable input to fixed input cause MP of variable to decrease |
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Long-run average cost curve |
Shows lowest cost where firm can produce given qty output in long run with no fixed inputs |
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Marginal cost |
Change in firm’s total cost from producing one more unit good/service |
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MPL |
Additional output firm produces as a result of hiring one more worker |
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Minimum efficient scale |
Level output where all economics of scale exhausted |
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Production function |
Relationship b/w inputs employed by firm and max output can produce with inputs |
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Short run |
At least one of firm’s inputs fixed |
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Technological changes |
Change in ability of firm to produce given level of output with given qty inputs |
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Technology |
Processes firm uses to turn inputs into outputs of goods/services |
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Total cost |
Cost of all inputs firm uses in production |
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Allocative efficiency |
Produce where MR (MB) = MC |
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Average revenue |
Total revenue divided by qty product sold |
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Economic loss |
Firm’s total revenue less than total cost |
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Economic profit |
Firm’s revenues minus all costs (implicit and explicit) |
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Long-run competitive equilibrium |
Entry and exit of firms resulted in typical firm breaking even |
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Long-run supply curve |
Curve shows relationship in long run b/w market price and qty supplied |
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Marginal revenue |
Change in total revenue from selling one more unit of a product |
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Perfectly competitive market |
Many buyers/sellers, identical products, no barriers to exit/entry |
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Price taker |
Buyer/seller unable to affect market price |
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Productive efficiency |
Good/service produced at lowest possible ATC....demand = MC at min ATC? |
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Profit |
Total revenue minus total cost |
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Shutdown point |
Price below AVC |
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Brand management |
Actions of firm intended to maintain differentiation of product |
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Marketing |
All activities necessary for firm to sell product to consumer |
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Monopolistic competition |
Barriers to entry low, many firms compete by selling similar products |
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Antitrust laws |
Laws aimed at eliminating collusion and promoting competition among firms |
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Collusion |
Agreement among firms to charge same price or otherwise not compete |
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Copyright |
Gov’t-granted exclusive right to produce/sell creation |
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Horizontal merger |
Merger between firms in same industry |
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Market power |
Ability of firm to charge price greater than marginal cost |
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Monopoly |
Firm that’s only seller of good/service without a close substitute |
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Natural monopoly |
Economies of scale so large that one firm can supply entire market at lower ATC than two or more firms |
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Patent |
Exclusive right to a product for 20 years from date patent application filed w/gov’t |
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Public franchise |
Gov’t designation that firm is only legal provider of good/service |
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Vertical merger |
Merger b/w firms at different stages of production of a good |