Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
47 Cards in this Set
- Front
- Back
Reasons for Instituting Barriers to trade
|
1) protection of infant industires
2) anti-dumping (if proven) 3) defense 4) protection of domestic jobs |
|
utility
|
the satisfaction derived from consuption of a good measured in units called utils
|
|
proxy
|
variable substituted in; here it is price, ie the maxiumum willingness to pay
|
|
Marginal utility formula
|
change in total utility/change in quantity
|
|
Reasons for a Monopoly
|
1) by law
2) by patent if you've created some technology 3) control of a scarce resource 4) a natural monopoly-- it alone can provide a good more efficiently 5) technical superiority 6) very large sunk costs |
|
optimal decision
|
most efficient decision, best decision under the cirucmstances
|
|
factors of production
|
1) land
2) capital-- K 3) Labor (L) Entrepreneurship |
|
Returns of each factor of production
|
Land-- Rent
Labor-- W + S Capital-- Interest Entrepreneurship-- Profit |
|
Draw a spectrum of market organization
|
goes from centrally planned to market driven economy
|
|
productive efficiency
|
are you proare you producing at the lowest possible cost?
|
|
allocative efficiency
|
when reouces are being put towards different goods and services, do they represent consujmer prefernces
|
|
Three realistic assumptions of economists
|
1) people are rational
2) people respond to incentives 3) the optimal decision is made at the margin |
|
margin
|
the cost or the benefit from consuming or producing one extra unit of the item
|
|
ceteris paribus
|
holding all else constant
|
|
Types of demand shifters
|
1) tastes and fashions
2) related goods 3) income 4) demographic changes 5) expectations |
|
Income as a demand shifter
+ shifts ? - shifts ? |
+ shifts demand curve right because people's purchasing power increases with normal goods. With inferior goods, it shifts left.
|
|
The law of supply
|
As price goes up, quantity goes up. As price goes down, quanity goes down.
|
|
Supply Shifters
|
1) Input costs (costs of production)
2) Technology 3) Number of sellers |
|
For a price ceiling to be effective, it must be
|
below the equilibrium
|
|
For a price floor to be effective, it must be
|
above the equilibrium
|
|
Identify consumer and producer surplus on a graph.
|
Consumer surplus is the area above equilibrium under the demand curve. Producer surplus is the area below equilibrium over the surplus curve.
|
|
As a tax increases, dead weight loss
|
increases continuously.
|
|
Elasticity
|
responsiveness of one variable to the change in the other
|
|
Price elasticity of demand
|
measures how much quantity demanded responds when you change price; elasticity of demand with respect to price
|
|
inelastic
|
not much responsive to a price change
|
|
TPP
|
Total production
|
|
MPP
|
change in total production over change in input
|
|
Law of diminishing marginal returns
|
given that the facility stays the same size, the more you put in there, the less output over time you will end up receiving
|
|
MRP
|
Marginal revenue product; for each additional worker, how much revenue are they giving you?
MRP=MPP*Price at quantity |
|
Cross Price Elasticity of Demand
|
when you change the price of one good, how does it change the quantity demanded of another good?
|
|
cross price elasticity of demand is ___ for complements and _____ for substitutes
|
- for Complements (raise the price of X, and the price of Y falls)
+ for Substitutes (raise the price of X, and the price of Y rises) |
|
Summary of elasticity with respect to price
|
o |ED,P | < 1 Relatively inelastic
o |ED,P | = 1 Unit Elastic o |ED,P | > 1 Relatively elastic |
|
Summary of elasticity with respect to income
|
o ED,Y > 0 Good is normal
o ED,Y < 0 Good is inferior |
|
Summary of elasticity with respect to another good
|
o EDx, Py >0 Substitutes
o EDx, Py <0 Complements |
|
If demand is more inelastic than supply, the _______ eats the tax.
|
Consumer
|
|
If demand is more elastic than supply, the _______ eats the tax.
|
Producer
|
|
Comparative advantage
|
one country is more efficient at producing a good or service
|
|
Optimal rule when consuming one good
|
1) MU=P; NMU-P=0
2) NTU is maximized 3) Where the price line intersects the demand curve (that is MU) |
|
NMU means
|
the consumer surplus for that one unit; the summation of the NMU is the total consumer surplus.
|
|
indifference curve
|
takes all the bundles where an individual is equally satisfied by and then plots them on a graph; in terms of utility, ever bundle on the curve is equal
|
|
Properties of Indifference Curves
|
1) Downward Sloping
2) Bowed inward 3) Higher ICs better than Lower ICs 4) ICs cannot cross; they are parallel to each other |
|
Budget Constraint
|
every possible bundle she can afford; the points form a straight line
|
|
Rule for maximizing budget constraints
|
the indifference curve must be tangent to the budget constraint
|
|
Two equations for optimizing conditions of an indifference curve and BC
|
|MRS|=|Px/Py|
Px*X + Py*Y=I |
|
Advantages of International Trade
|
Consumers-- wider variety of goods and lower prices
Producers-- cheaper inputs or factors of production; can get more customers because they have access to a wider market; can concentrate on producing one good more efficiently |
|
welfare means
|
consumer or producer surplus
|
|
The key assumption is that after trade, prices
|
equalize
|