Econ 251 Exam 2 terms
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1.
2 effects of a price change: 1) income effect
2) substitution effect
2.
2 measures of concentration: 1) Herfindahl-Hershman Index
(HHI)
2) Concentration ratio
3.
3 possibilities of of goods: 1) normal goods
2) inferior goods that violate the law of demand
3) inferior goods that obey the law of demand
4.
4 types of industries: 1) perfect competition
2) monoply
3) monoplistic competition
4) oligopoly
20.
Extreme case of IC- Perfect substitutes: The indifference
curve for perfect substitutes is a straight line.
"I'm willing to trade y in a constant ratio for good x"
21.
FC + VC= ??: FC + VC= total cost (TC)
22.
Fixed costs (FC): costs that do NOT vary with output
23.
Giffen goods: Giffen goods are goods that violate the law of
demand. As price increases, the demand of the Giffen good
also increases
24.
Herfindahl-Hershman index (HHI): sum of squared
marketshares of all firms
(1,000-1800) are moderately concentrated
1800 and greater are concentrated
5.
Accounting profit: Revenue minus explicit costs
25.
6.
Average fixed cost (AFC): AFC is the Fixed Cost divided by
quantity
How to calculate marginal utility: Marginal Utility= Change in
utility/Change in quantity
26.
7.
Average product of labor: -The output per worker
-Average product of labor is calculated by the Quantity/Labor
How to calculate variable cost?: Variable cost= amount of
labor x wage
27.
If economic profit = 0: Revenue= opportunity costs
8.
Average total cost (ATC): ATC is the Total Cost divided by the
quantity
28.
If economic profit is negative: revenue is less than opportunity
costs
9.
Average Variable Cost (AVC): AVC is the Variable cost divided
by quantity
29.
If economic profit is positive:: revenue is greater than
opportunity costs
30.
Income effect: a change in the Quantity demanded from a
change in purchasing power/"real income"
-increase in P = decrease in real income
-Decrease Q of normal goods/increase quantity of inferior
goods
10.
Budget line: A line that describes the limits to consumption
possibilities, given the income of the consumer & prices of the
goods
11.
Budget line info con't: Px/Py= relative price of good x
Slope of the budget line= Change in Qy/Change in Qx
31.
12.
Causes of changes in the budget line: 1) change in price
2) change in income
Indifference curve: combinations of goods that generate the
same level of utility
32.
13.
Changes in income & budget line: *A change in income does
NOT change the slope of a budget line**
Inferior goods: For inferior goods, the income & substitution
effects work in opposite directions.
33.
14.
Characteristics of an indifference curve: 1) always have a
negative slope
2) the magnitude of the slope = the marginal rate of
substitution
3) slope gets progressively flatter as x increases
Law of Diminishing Marginal Utility: MU eventually declines as
consumption increases
34.
Law of diminishing returns: Marginal product of labor
eventually declines as labor increases
15.
Concentration ratio: A measure of the total output produced in
an industry by a given number of firms in the industry. the most
common concentration ratios are the cr4 and the cr8, which
means the market share of the four and the eight largest firms.
16.
Consumer choice: The goal of a consumer is to maximize
"utility"/happiness on a limited budget
17.
Consumer equilibrium: MUx/Px= MUy/Py (equal marginal
utilities per dollar spent for each good)
18.
Economic profit: Revenue minus explicit & implicit costs!
19.
Extreme case of IC- Perfect complements: A good that must
be consumed with another good in a fixed ratio.
Right-angled IC
L-shaped IC
Leontief IC
35.
Long run: any period of time when ALL inputs are variable
36.
Marginal product of labor: Additional output produced by 1
more unit of labor
MP
-Change in Quantity of output over the change in quantity of
labor
37.
Marginal product of labor & average Labor: 1) If marginal
product of labor is greater than the average product of labor,
then there is an increase of of the APL
2) If the marginal product of labor is less than the average
product of labor, then there is a decrease in the average
product of labor
3) If the marginal product of labor is equal to the average
product of labor, then there is no change in the average
product of labor & this is the maximum of the average product
of labor.
38.
Marginal Rate of Substitution (MRS): The amount of good y that you're willing to sacrifice for 1 more unit of good x
39.
Marginal utility: The utility received from consuming one additional unit of a good
40.
Marginal Utility Per Dollar: Marginal Utility/Dollar
41.
Monoplistic competition: 1) lots of firms
2) products are differentiated
42.
Monoply: 1) One firm
2) No close substitutes
3) significant barriers to entry
**Least competitive industry
43.
MU/Px = MU/Py, then...: If MU/P of x is equal to MU/P of good y & all of the income is spent, then utility is maximized.
44.
MUx/Px < MUy/Py, then...: If the MU/P of good x is less than the MU/P of good y, then increase the quantity of Y to increase utility
45.
MUx/Px > MUy/Py, then....: If marginal utility per dollar of good x is greater than the marginal utility of good y, increase the quantity of
X to increase utility
46.
Normal goods: For a normal good, the income effect reinforces the substitution effect. FOr a normal good, the two effects work in the
same direction.
47.
Normal goods: a) Increase price= decrease real income & decrease quantity demanded
b) Decrease price= increase relative price & decrease quantity demanded
48.
Oligopoly: 1) few firms
2) significant barriers to entry
49.
Perfect competition: 1) lots of firms
2) products are perfect substitutes
3) no barriers to entry
**Most competitive industry
50.
Short run: any period of time when at least ONE input is fixed
51.
Substitution effect: -a change in Quantity demanded from a change in relative prices (Relative Price= Px/Py)
-increase price=increase in relative price= decrease in quantity demanded
52.
Variable costs (VC): costs that DO vary with output
53.
What changes consumer equilibrium?: A) changes in income
B) changes in prices
54.
What is the goal of any firm?: To maximize profit!