Principles Of Microeconomics Exam 2

Front 1

Explicit Cost

Back 1

cost that involves actual spending (outlaw) of money

*ex. tuition of additional year of school*

Front 2

Implicit Cost

Back 2

does not require outlay of money---
Measured by the value of the benefits given up (in $ terms)

*Ex. another year in school includes $ you would've earned at a job instead

Front 3

Accounting Profit

Back 3

includes explicit cost & depreciation [reduction in value]


*ex. kathy makes $100,000 w/ $60,000 in expenses.

100,000 (revenue)
-60,000 (explicit cost)
-5,000 (depreciation)

=35,000 (accounting profit)

Front 4

Economic Profit

Back 4

includes opportunity cost (can include implicit & explicit cost)

[usually less than accounting profit]

100,000 (revenue)
-60,000 (explicit cost)
-5,000 (depreciation)

=35,000 (accounting profit)
-3,000 (income could've earned using capital differently [implicit])
-34,000 (income could've earned as manager instead of owning own store [implicit])

= -2,000 (ECONOMIC PROFIT)

Front 5

Capital

Back 5

the value of a businesses assets

-tools, equipment, buildings

Front 6

Implicit Cost Of Capital

Back 6

opportunity cost of a capital used by business

(the income you could've gotten from teh capital if it was used in a different way)
***EX. Rent instead of Own***

Front 7

Marginal Analysis

Back 7

comparing the marginal benefit & the marginal cost

Front 8

Marginal Benefit

Back 8

the benefit of doing a little bit more of something

(the additional benefit associated with a 1 unit increase in the level of activity)

Front 9

Marginal Cost

Back 9

the cost of doing something a little bit more

(the increase in someone's cost when they do one more of something)

Front 10

Increasing Marginal Cost

Back 10

when each additional unit of activity costs more than the previous unit

(each additional lawn mowed costs more than the previous one)

Front 11

Marginal Cost Curve

Back 11

shows relationship between the marginal cost and the quantity of the activity already done

Front 12

Decreasing Marginal Benefit

Back 12

when each additional unit of activity produces less benefit than the previous unit

(the more lawns felix has already mowed, the smaller the marginal benefit from mowing one more)

Front 13

Marginal Benefit Curve

Back 13

shows how the benefit from one more unit of activity depends on quantity of that activity already done

Front 14

Optimal Quantity

Back 14

the quantity of an activity that generates the max possible net gain

(marginal benefit - marginal cost = net gain)

**on graph, where MB & MC curves intersect is optimal net gain, or optimal quantity.**

Front 15

Principle of Marginal Analysis

Back 15

the optimal quantity of an activity is the quantity that
Marginal Benefit = Marginal Cost

Front 16

Sunk Cost

Back 16

a cost that has already been incurred & can't be recovered
--Sunk Costs should be ignored in decisions about future actions

(EX. replace brake pads @ $250 then find the whole brake system needs to be replaced (including brake pads). $250 is a SUNK COST.
repair system = $1500
new car = $1600
*saying you should buy a new car bc total repairs cost $1750 is WRONG bc it takes Sunk Costs into consideration*. you should repair the car.)

Front 17

Interest Rate

Back 17

the price carged by the lender when you borrow money
(calculated as a % of the amt borrowed)

--allows people to factor out complications of time in the present-future value of $1

Front 18

Present Value

Back 18

the value to you today of $1 realized one year from now

$1/(1+r)
the amt of money you must lend out today in order to have $1 in one year

Front 19

Net Present Value

Back 19

the present value of current and future benefits minus the present value of current and future costs

(current benefits + future benefits)-
(current costs + future costs)
= Net Present Value

Front 20

Present Value Formula for
Multiple Years / Multiple Payments

Back 20

1/(1+r)^t

Front 21

utility

Back 21

measure of satisfaction a consumer derives from consumption of goods/services

Front 22

consumption bundle

Back 22

the set of all goods/services an individual consumes

Front 23

utility function

Back 23

relationship between a consumption bundle and the total amt of utility it generates

[personal matter-- different tastes = different utility functions]

*consumption produces utility*

Front 24

how do u measure utility?

Back 24

UTILS

[1 unit of utility]

Front 25

to maximize total utility focus on _____________

Back 25

marginal utility

Front 26

marginal utility

Back 26

change in total utility from consuming one more of something

Front 27

marginal utility curve

Back 27

shows how marginal utility depends on the quantity of goods / services consumed

*constructed by plotting points at the midpoint of unit intervals

*downward sloping (each additional unit adds less to total utility than the previous)

*if negative marginal utility ==== consuming it actually reduces total utility

Front 28

principle of diminishing marginal utility

Back 28

additional satisfaction consumer gets from additional unit of good/service declines as amt consumed rises

*eventually reach a point where additional unit adds nothing to your satisfaction

Front 29

budget constraint

Back 29

the fact that a consumer's consumption bundle can't exceed their income

*consumption bundles are affordable when they obey the budget constraint

Front 30

consumption possibilities

Back 30

the set of all affordable consumption bundles

*depend on the consumer's income and the prices of goods/services

*every bundle on or inside the budget line is affordable

Front 31

budget line

Back 31

budget line shows consumption bundles when ALL of income is spent

(if not all income is spent the bundle is inside the line)

*downward sloping

(Q of good 1)(P of good 1)
+ (Q of good 2)(P of good 2)
===========================
INCOME

*to find intercepts of budget line (when all income spent on 1 good & 0 on the other):
(Q of good 1)=(income)/(P of good 1)

*further the budget line from the origin = higher the income

Front 32

the slope of the budget line shows:

Back 32

the opportunity cost of an individual consuming an additional unit of a good in terms of how much of the other good mst be forgone

*the scarce resource is $$

Front 33

"relative price"

Back 33

number of good 1 that must be forgone to obtain one more of good 2

(it is in terms of the good thats being given up)

Front 34

a larger income...

Back 34

increases consumption possibilities & total utility

(& moves budget line further from origin)

Front 35

optimal consumption bundle

Back 35

the consumption bundle that maximizes total utility given the budget constraint

*the point on the budget line that holds the most satisfaction/utility for the person

**point where total utility is greatest**
[total utility = sum of good 1's utility @ pt + sum of good 2's utility @ pt]

Front 36

total utility function graph

Back 36

shows vertically plotted total utility (utils) against horizontilly plotted consumption bundles (diff consumption amts of good 1 & good 2)

***optimal consumption bundle is at the top of the curved "total utility curve"
(where curve is at highest vertical pt)

Front 37

to find optimal consumption bundle we can find where total utility is maximized.... but also BY...

Back 37

thinking in terms of how much to spend on each good

--HOW to spend the marginal Dollar (how to allocate the dollar between the 2 goods at hand)

Front 38

marginal utility per dollar

Back 38

how much additional utility you get from spending an additional dollar on either good

(marginal utility of the good)/(price of good in dollars)

==MU/P

*falls as quantity consumed rises* (bc marginal utility falls as Q consumed rises)
[diminishing marginal utility]

Front 39

optimal consumption bundle by marginal utility per dollar

Back 39

marginal utility per dollar spent is the SAME for both goods at the optimal consumption bundle

optimal consumption bundle:
MU1/P1=MU2/P2

*when marginal utility per dollar on good one is 3 and good two is 1 then you're consuming too many of good two*

Front 40

optimal consumption rule

Back 40

to maximize utility with a budget constraint the marginal utility per dollar spent on each good in the consumption bundle is the same

Front 41

Individual Demand Curve

Back 41

shows relationship between the Q of a good demanded and the market price of the good

(how many of good 1 you'll buy at a given price)

Front 42

market demand curve

Back 42

shows how Q of a good demanded depends on the market price of the good

(market price is the sum of of the individual demand curves for all consumers)
-->person 1 demands 1 lb, person 2 demands 2 lbs, =>Q demanded by market is 3 lbs

Front 43

law of demand

Back 43

as price increases the Q demanded decreases

*the individual demand curve is downward sloping, obeying the law of demand

Front 44

how does the price of a good affect MU {marginal utility} & MU/P {marginal utility per dollar}

Back 44

the marginal utility doesn't change

rising price = marginal utility per dollar DECREASES
-->gives customer incentive to consume fewer clams

lowering price = marginal utility per dollar increases

Front 45

substitution effect

Back 45

the change in quantity consumemd as the consumer substitutes the good thats cheaper for the good thats more expensive

--when the good absorbs SMALL share of consumer's spending

*also why individual demand curve slopes downward

*in turn why market demand curve slopes downward

Front 46

Income effect

Back 46

the change in Q consumed of the good that results from a change in the consumer's purchasing power due to change in price of the good

-effects goods that account for substantial share of consumers' spending
-housing, food
-doesn't have effect for majority of goods bc most are effected by substitution effect

Front 47

income effect influencing
NORMAL goods

Back 47

-reinforces the substitution effect
--->when good taking up a lot of a persons income's price rises person becomes poorer bc purchasing power falls
--->decreases demand for normal goods
--->SO increase in price in large good reduces income reduces Q demanded, & reinforces substitution effect

Front 48

income effect influencing
INFERIOR goods

Back 48

-income & substitution effect work in DIFFERENT directions
-the income effect of a price tends to produce an increase in the Q demanded of the inferior good

Front 49

what effect?:

when housing becomes cheaper people have incentive to substitute housing for other goods in their consumption bundle

Back 49

SUBSTITUTION EFFECT

Front 50

what effect?:

when price of housing falls people are in effect, richer
(they feel richer so they buy bigger houses, or more normal goods)

Back 50

INCOME EFFECT

Front 51

how do you represent a utility function that takes consumption of both goods into account

Back 51

"utility hill"

good 1 on horizontal
good 2 on vertical

has contour lines where altitude of hill is constant

Front 52

indifference curve

Back 52

the contour line on the utility hill that shows all consumption budnles that yield the same amount of utility

(consumers indifferent between 2 pts on the same contour line bc they yeild the same amt of utility)

Front 53

indifference curve map

Back 53

collection of indifference curves (normal 2D)
-each indifference curve corresponds to a different level of utility

*indifference curve above = higher level of utility

*no 2 individuals have same indifference curve maps

Front 54

properties of indifference curves

Back 54

*never cross [if crossed then a point would represent two different levels of utility]

*curves farther out yield higher total utility

*curves slope downward bc increasing one good must decrease the other good

*the slope gets flatter as you move down the curve to the right (CONVEX shape) -->means diminishing marginal utility

Front 55

what happens with utility between good when you move down the indifference curve

Back 55

the utility you gain from more of one good is equal to the utility you loose from less of the second good

(-change in utility of good one) + (+change in utility of good two)= 0

or

-(MU of good 1)(Q of good 1)
= (MU of good 2)(Q of good 2)

or

-(change in Q 1)/(change in Q 2)
= (MU 1)/(MU 2)

*when consuming a small amt of goods the marginal utility per good is HIGH

Front 56

equation for change in total utility from changing consumption

Back 56

(MU of good) x (Q of good)

Front 57

What condition must be met for total utility level to remain constant along indifference curve

Back 57

quantity of good one willing to give up in return for good two EQUALS ratio of marginal utility of good one to marginal utility of good two

Front 58

Marginal rate of substitution (MRS)

Back 58

substituting good 1 in place of good 2 is equal to
MU 1/ MU 2

***ind. who consumes a lot of A and a little of B will be willing to trade off a lot of A for one more unit of B***

(the ratio of marginal utility of both goods)

***falls as you move down the indifference curve***

Front 59

diminishing marginal rate of substitution

Back 59

the more of good 1 a person consumes in proportion to good 2, the less good 2 person is willing to substitute for another unit of good 1

Front 60

ordinary goods

Back 60

a pair of goods in a utility function w/ 2 properties::
1)consumer requires more of one good to coimpensate for less of the other

2)the consumer has a diminishing marginal rate of substitution when substituting one good for the other

*marjority of goods

Front 61

tangency condition

Back 61

where the budget line (linear) is tangent to the indifference curve (convex) is the point at whcih the OPTIMUM CONSUMPTIOn BUNDLE occurs

Front 62

slope of the budget line

Back 62

-N/P1 DIVIDED BY N/P2
=
-P1/P2

(N IS USED FOR INCOME)

Front 63

relative price

*REAL*

Back 63

P1/P2

(price of good 1)/(price of good 2)

the rate at which good one trades for good two in the market

Front 64

relative price rule

Back 64

at the optimal consumption bundle
MU1/MU2 = P1/P2

(the marginal rate of substitution between two goods is equal to the ratio of their prices

AKA the rate at which you'd trade G1 for more of G2 EQUALS the rate at which the two goods are traded in the market

Front 65

the relative price rule shows that at the optimal consumption bundle slopes of the indifference curve and the budget line......

Back 65

ARE THE SAME!!!!

indifference curve and budget line have the same slope at optimum bundle (where budget line is tangent to the indifference curve)

Front 66

individuals with different preferences have different....

Back 66

have different utility functions.... then different indifference curve maps with different shapes.... which translate into different consumption choices

*even amoung consumers with the same income facing the same prices*

Front 67

Perfect Substitutes

Back 67

-indifference curves are straight lines
-any combination of the 2 goods (that adds to the same amt) yields the same utility
-marginal rate of substitution CONSTANT (always willing to substitute one good for the other no matter how much of one is consumed)
-any increase in price of one good will cause person to switch completely to the other goood (bc marginal rate of substitution doesn't depend on the composition of consumption bundle)
-utility is maximized @ any pt on budget line SO CANNOT PREDICT which bundle she'll choose among the bundles that lie on the budget line.

Front 68

Perfect Complements

Back 68

-when a consumer wants to consume two goods in the same ratio, no matter what their prices
(an extra cookie w/o an extra glass of milk yeilds no utility)
-Slope of budget line has no effect on relative consumption of the two goods
-->he'll always consume the two goods in same proportions regardless of prices
-marginal rate of substitution is UNDEFINED bc ind.'s preferences don't allow ANY substitution between goods
-indifference curves are right angles away from the origin

Front 69

lowering income but relative price remains the same.....

Back 69

budget line shifts inward due to lower income; slope remains the same due to same relative price

Front 70

what kind of good:

consume less of both goods when income falls

Back 70

NORMAL GOODS
(demand decreases when income falls)


*inferior goods=demand increases when income falls*

Front 71

what makes the budget line change?

Back 71

if relative price of good in terms of other good changes

--->then chooses new consumption bundle

Front 72

rise in the price of rooms can make

Back 72

purchasing power fall making you poorer

--this reduces consumption possibilities & lowering indifference curve

*with raise in housing its as if income declined

Front 73

movement along the individual dmeand curve shows

Back 73

substitution effect

Front 74

how does a lower income affect the budget line

Back 74

budget line shifts inward but maintains same slope bc relative price hasn't changed

Front 75

if price of rooms increase and in turn slope becomes steeper...

Back 75

the quantity of other good u must give up for a room is higher -- opportunity cost has changed

--also u consume less rooms bc a raise in price of rooms makes you poorer.... income hasn't changed but still can't reach same level of utility
(lower indifference curve)

Front 76

production function

Back 76

the relationship between quantity of inputs a firm uses and the quantity of output it produces

*the quantity of outputs a firm produces depends on the quantity of inputs

Front 77

fixed input

Back 77

an in put whose quantity is fixed and cannot be varied

*ONLY EXIST IS SHORT TERM

ex.....land when only 10 acres are available

Front 78

variable input

Back 78

input whose quantity the firm can vary

ex....labor

Front 79

long run

Back 79

given a long enough period of time firms can adjust the quantity of any input (even so called "fixed" inputs

Front 80

short run

Back 80

the time period in which at least one input is fixed

Front 81

total product curve

Back 81

shows how the quantity of output depends on quantity of the VARIABLE input (for a given quantity of the fixed input)

Front 82

marginal product

Back 82

the marginal product of an input is the additional quantity of output that is produced by using one more unit of the input

marginal product of labor =
change in Qoutput/
change in Qinput

MPL = change Q / change L

Front 83

the slope of the total product curve is:

Back 83

simply the MARGINAL PRODUCT OF LABOR....

change in Qoutput / change in Qlabor

Front 84

diminishing returns to an input

Back 84

these exist when an increase in Q of the input (when Q of other inputs are fixed) reduces the inputs marginal product

*Ex. as you add more and more workers w/o increasing acre number each worker is working a smaller share of the 10 acres.... thus the additional worker can't produce as much output as the previous worker

Front 85

total product curve

Back 85

shows how the quantity of output depends on quantity of the VARIABLE input (for a given quantity of the fixed input)

Front 86

marginal product

Back 86

the marginal product of an input is the additional quantity of output that is produced by using one more unit of the input

marginal product of labor =
change in Qoutput/
change in Qinput

MPL = change Q / change L

Front 87

the slope of the total product curve is:

Back 87

simply the MARGINAL PRODUCT OF LABOR....

change in Qoutput / change in Qlabor

Front 88

diminishing returns to an input

Back 88

these exist when an increase in Q of the input (when Q of other inputs are fixed) reduces the inputs marginal product

*Ex. as you add more and more workers w/o increasing acre number each worker is working a smaller share of the 10 acres.... thus the additional worker can't produce as much output as the previous worker

Front 89

fixed cost

Back 89

doesn't depend on the quantity of output produced
"overhead cost"

(like always having to pay for land you're using)

Front 90

variable cost

Back 90

cost that depends on the quantity of output produced (the cost of the variable input)

Front 91

total cost

Back 91

fixed cost + variable cost

(total cost of producing

Front 92

total cost curve

Back 92

curve showing how total cost depends on the Quantity of output

*slopes upward due to variable cost

*gets steeper (slope is greater as amount of output increases)
[due to diminishing returns to variable input]

Front 93

marginal cost

Back 93

change in total cost /
change in Qoutput

MC = change TC / change Q

( slope )

-upward sloping due to diminishing returns to inputs (as output increases the marginal product of the variable input decreases)
-->more and more of the variable input must be used to produce an additional unit of output

Front 94

flattening of total product curve as output increases is the flip side of

Back 94

steepening of the total cost curve as output increases

Front 95

average total cost (aka average cost)

Back 95

total cost divided by quantity of output produced

ATC = TC / Q

tells the producer how much the typical (avg) unit of output costs to produce

(while marginal costs tell producer how much one more unit of output costs to produce)

ATC = AFC + AVC

fixed cost falls as more output produced & variable cost rises as output is produced (leads to the u-shaped average cost curve)

Front 96

average total cost curves

Back 96

u-shaped
-falls at low levels of output then rises at higher levels

Front 97

average fixed cost

Back 97

fixed cost per unit of output

AFC = fixed cost / Qoutput

Front 98

average variable cost

Back 98

variable cost per unit of output

AVC = variable cost / Qoutput

Front 99

increasing output has two opposing effects on average total cost:

Back 99

1)spreading effect:
the larger the output the more production that can "share" the fixed cost--> the lower the average fixed cost
*more powerful at low Q's

2)diminishing returns effect:
the more output produced the more variable input required to produce additional units--> therefore higher average variable cost
*more powerful as Q rises

Front 100

minimum cost output

Back 100

The Q that corresponds with minimum ATC

where atc curve is at the bottom of the U

Front 101

3 things always true about marginal cost and ATC

Back 101

1)at minimum cost output ATC is EQUAL to marginal cost

2)at output less than minimum cost output marginal cost is less than ATC and ATC is falling

3)when output is greater than minimum cost output, marginal cost is greater than ATC and atc is rising

Front 102

price taking producers

Back 102

when their actions cannot affet the market price of a good

(when there's enough competition -in perfect competition- every producer is a price taker)

Front 103

price taking consumers

Back 103

a consumer who can't influence the market price

Front 104

perfectly competitive market

Back 104

all producers and consumers are price takers

--consumption/production prices by individuals DON'T affect the market price.

Front 105

perfectly competitive industry

Back 105

an industry in which producers are price takers

(not all industries are always perfectly competitive, but very rare for consumers not to be price takers)

Front 106

TWO conditions for perfect competition

Back 106

1) must have many producers -- none with a large market share
*there's thousands of wheat farmers, none w/large market share [perfectly competitive], but breakfast cereal is dominated by kellogs--they have a large market share [not perfectly competitive]

2)industries' outputs must be a standardized product (aka commodity)
*consumers don't care who the wheat comes from, therefore if one farmer raises wheat price they loose all sales....but kellogs can change price because they're not standardized--NOT perfectly competitive

Front 107

market share

Back 107

fraction of total industry output represented by producer's output

Front 108

standardized product/ aka commodity

Back 108

consumers regard the products of different producers as the same good
*wheat*

Front 109

"free entry & exit"

Back 109

when new producers and enter and leave an industry easily

-most perfectly competitive markets

Front 110

total revenue equation

Back 110

TR = P x Q

Front 111

Profit equation

Back 111

Profit = TR - TC

Front 112

marginal revenue

Back 112

the change in revenue generated by one additional unit of output

MR = change TR / change Q

(marginal revenue = change in total revenue divided by the change in output quantity)

Front 113

optimal output rule

Back 113

profit is maximized by producing the quantity of output at which the marginal revenue of the last usit produced is equal to its marginal cost

***when MR = MC***

Front 114

"price-taking firm's optimal output rule"

Back 114

a price taking firm's profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced

***P = MC
@price-taking-firm's optimal Q of output***

Front 115

marginal revenue curve

Back 115

marginal revenue varies with output

Front 116

When is the firm:
[using TR & TC]

profitable
breaking even
incurring a loss

Back 116

TR > TC : profitable

TR = TC : breaking even

TR < TC : incurring loss

Front 117

when is the firm:
[using market price & avg total cost]

profitable
breaking even
incurring a loss

Back 117

P > ATC : profitable

P = ATC : breaking even

P < ATC : incurring loss

Front 118

PROFIT equation

Back 118

Profit = (P - ATC)(Q)

Front 119

break even price

Back 119

the minimum ATC
-->the price at which it earns zero profits


*firms profits when market price is above break even price & looses when market price is below break even price

Front 120

RULES for determining whether a producer is profitable depending on comparison of market pice of good and producer's minimum ATC (the break even price)

Back 120

1)when market price exceeds min ATC = producer is profitable

2) when market price equals min ATC = producer breaks even

3)when market price is less than min ATC = producer is unprofitable

Front 121

when should a firm be shut down?

Back 121

when market price is below min average variable cost

[bc there is no level of output at which the firms total revenue would cover its variable costs]
-->profits are maximized by not producing at all

Front 122

"shut-down price"

Back 122

the price at which a firm ceases production in the short run

*the MINIMUM AVC*

(when price is greater than min AVC firm should continue producing in short run)

Front 123

short-run individual supply curve

Back 123

shows how an individual producer's profit maximizing output quantity depends on the market price (fixerd cost is a given)

Front 124

industry supply curve

Back 124

shows relationship between price of good and total output of industry

*tells if an increase in demand will lead to a price increase*

*analyzed differently for short-run/long-run*

Front 125

short run industry suppply curve

Back 125

shows how quantity supplied by producers depends on market price (with fixed # of producers)

Front 126

short run market equilibrium

Back 126

the Q supplied equals the Q demanded (# producers is given)

Front 127

long run market equilibrium

Back 127

when Q supplied equals Q demanded [BUT sufficient time has ellapsed for entry and exit in industry to occur]
-->producers have adjusted to long-run choices.... not incentive for big exits/entries to and from market

Front 128

long run industry supply curve

Back 128

shows how Q supplied responds to price
(after producers given sufficient time to enter/exit industry

Front 129

economies of scale

Back 129

when long run ATC declines as output increases

Front 130

deseconomies of scale

Back 130

when long run ATC increases as output increases

Front 131

constant returns to scale

Back 131

when long run ATC is constant as output increases

Front 132

physical capital

Back 132

manufactured resources (buildings, machines)

Front 133

human capital

Back 133

the improvement in labor created by education and knowledge in the workforce

Front 134

factor distribution of income

Back 134

division of total income among labor/land/capital

Front 135

value of marginal product (VMPL)

Back 135

the VMPL of a factor is the value of additional output generated by employing one more unit of that factor

Front 136

VMPL
equation

Back 136

VMPL = (P)(MPL)

Front 137

should you hire another worker?

(based on VMPL)

Back 137

yes if value of extra output is more than cost of worker

VMPL > W

Front 138

to maximize profit (based on VMPL)

Back 138

hire workers until for the last worker employed

VMPL = W

Front 139

value of marginal product curve

Back 139

shows how value of marginal product of the factor depends on the Q of the factor employed

*downward sloping due to diminishing returns to labor in production
(the marginal product of each worker is less than the previous worker)

Front 140

factor demand curves shift bc OF::

Back 140

1)changes in prices of goods

2)changes in supply of other factors
*acquiring more land = each worker produces more = marginal product of labor rises

3)changes in technology

Front 141

rental rate

Back 141

(of land or captial) = the cost of using a unit of that asset for a given time

Front 142

equilibrium value of marginal product

Back 142

the additional value produced by the lsat unit of that factor employed

(in equilibrium the marginal product of labor will be the same for all employers

Front 143

marginal productivity theory of income distribution

Back 143

each factor is paid the value of the output generated by the last unit employed in the factor market as a whole

Front 144

compensating differentials

Back 144

wage differences across jobs that reflect the fact that some jobs are less pleasant than others

Front 145

unions

Back 145

organizations of workers trying to riase wages / improve working conditions

Front 146

efficiency wage model

Back 146

why we may observe wages offered above equilibrium level (incentives for better performance)

Front 147

time allocation

Back 147

decisions about labor -- how many hours to spend on different activities

Front 148

leisure

Back 148

time available for purposes other than earning money to buy marketed goods

Front 149

individual labor supply curve

Back 149

shows how Q of labor supplied by individual depends on the wage rate

Front 150

shifts in labor supply curve due TO:::

Back 150

1) changes in preferences/ social norms (women employed)

2)changes in popultaion
(shifts right bc more workers)

3)changes in opportunities
(more jobs available to women than just teachers)

4)changes in wealth (when wealth increases so does consumption of normal goods including leisure)
*income effect caused by change in wealth shifts labor supply curve*
*income effect caused by wage increase is movement along labor supply curve**

Front 151

you sell photos....
and increase in the price of photos from $10 to $12 will:::

Back 151

increase the DEMAND FOR LABOR

(meaning the demand curve! not quantity of demand which is a SHIFT up the demand curve)

Front 152

the long run average cost of producing 100 units OR 110 are both 4$... which shows

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CONSTANT RETURNS TO SCALE

Front 153

the labor supply curve shows a trade off between

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WORK & LEISURE

Front 154

the VMPL is EQUAL TO:

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(MP)(P per unit output)

Front 155

how do you find the AVERAGE PRODUCT ?

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TOTAL OUTPUT / Q labor

Front 156

when wages increase...

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the income effect will cause you to work less bc leisure is a normal good

[nothing to do with substitution effect!!!!!]

Front 157

in the SHORT RUN
which curve declines as more output is produced

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AVERAGE FIXED COST

Front 158

in a perfectly competitive market in the short run when do you shut down business??

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when total revenue can't cover total VARIABLE costs

Front 159

continue hiring workers til....

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(MPL)(P) = W