Exam 2 flashcards- Microeconomics (Final)

Monopolistic Competition

A market structure where many firms compete by selling similar, but not identical, products.

Economic Profit

When total revenue exceeds total costs, providing an incentive for new firms to enter the market.

Differentiated Products

Products that are slightly different from each other in a market, allowing firms to have some market power.

Downward-Sloping Demand Curve

A demand curve that slopes downwards, indicating that as price decreases, the quantity demanded increases.

Marginal Revenue (MR)

The additional revenue gained from selling one more unit of a product.

Price Effect

The decrease in revenue from lowering the price of all units sold when increasing sales.

Output Effect

The increase in revenue from selling additional units of a product.

Average Total Cost (ATC)

The total cost divided by the number of goods produced, which shows the cost per unit.

Brand Management

The actions of a firm intended to maintain the differentiation of a product over time.

Brand Name

A name given to a product to distinguish it from other products and to create an identity.

Productive Efficiency

Producing at the lowest possible cost, typical in perfect competition.

Allocative Efficiency

Producing all goods up to the point where the marginal benefit to consumers equals the marginal cost to firms.

Short-Run Economic Loss

When a firm's total costs exceed total revenue, resulting in a loss over the short term.

Long-Run Zero Economic Profit

The situation in which firms in a monopolistically competitive market end up earning zero economic profit in the long run.

Perfect Competition

A market structure where many buyers and sellers exist, all firms sell identical products, and there are no barriers to entry.

Price Taker

A firm that has no influence over the market price and must accept the prevailing market price.

Marginal Revenue (MR)

The change in total revenue from selling one more unit of a product.

Average Revenue (AR)

Total revenue divided by the quantity of the product sold.

Economic Profit

Total revenue minus total costs, including both explicit and implicit costs.

Long-Run Equilibrium

The situation in which the entry and exit of firms results in the typical firm breaking even.

Allocative Efficiency

A state where production is in accordance with consumer preferences, with the price equal to marginal cost.

Productive Efficiency

A situation in which a good or service is produced at the lowest possible cost.

Shut Down Decision

A firm's choice to temporarily cease production when it cannot cover variable costs.

Sunk Costs

Costs that cannot be recovered once incurred and should not influence future production decisions.

Entry and Exit of Firms

The mechanism by which new firms enter a profitable market and existing firms exit an unprofitable one.

Horizontal Supply Curve

A curve that shows the relationship in the long run between market price and the quantity supplied in a perfectly competitive market.

Opportunity Cost

The value of the next best alternative that must be given up when making a choice.

Market Equilibrium

The condition in which supply equals demand, determining the market price.

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded.

Cost Curve

A graph that shows the relationship between production costs and the quantity produced.

Technology

The processes a firm uses to turn inputs into outputs of goods and services.

Technological Change

A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs.

Short Run

The period during which at least one of a firm's inputs is fixed.

Long Run

The period in which a firm can vary all of its inputs and adopt new technology.

Fixed Costs

Costs that remain constant as output changes.

Variable Costs

Costs that change as output changes.

Total Cost

The cost of all the inputs a firm uses in production.

Explicit Costs

Costs that involve spending money.

Implicit Costs

Nonmonetary opportunity costs associated with firm ownership.

Marginal Product of Labor

The additional output produced as a result of hiring one more worker.

Average Product of Labor

The total output produced divided by the number of workers.

Law of Diminishing Returns

The principle stating that adding more of a variable input to a fixed input will eventually cause the marginal product of the variable input to decline.

Marginal Cost

The change in a firm's total cost that results from producing one more unit of output.

Average Total Cost (ATC)

Total cost divided by the quantity of output produced.

Economies of Scale

The long-run average costs fall as the quantity of output increases.

Diseconomies of Scale

The long-run average costs rise as the firm increases output.

Isocost Line

A graph showing all combinations of two inputs that have the same total cost.

Isoquant

A curve that shows all the combinations of two inputs that produce the same level of output.

Expansion Path

A curve that shows a firm’s cost-minimizing combination of inputs for every level of output.

Marginal Rate of Technical Substitution (MRTS)

The rate at which a firm can substitute one input for another while keeping output constant.

Utility

The enjoyment or satisfaction that people receive from consuming goods and services.

Marginal Utility (MU)

The change in total utility a person receives when consuming one additional unit of a good or service.

Law of Diminishing Marginal Utility

The principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time.

Budget Constraint

The limited amount of income available to consumers to spend on goods and services.

Income Effect

The change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power.

Substitution Effect

The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods.

Giffen Good

A good for which demand increases as the price increases, contrary to the law of demand, often due to the strong income effect outweighing the substitution effect.

Network Externalities

Situations in which the usefulness of a product increases with the number of consumers who use it.

Endowment Effect

The tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than what they would pay for it.

Sunk Cost

A cost that has already been paid and cannot be recovered; should not affect future decisions.

Indifference Curve

A curve showing the combinations of consumption bundles that give the consumer the same utility.

Marginal Rate of Substitution (MRS)

The rate at which a consumer is willing to trade off one product for another while keeping the consumer’s utility constant.

Rational Consumer

The assumption that consumers make choices intended to maximize their well-being.

Behavioral Economics

The field of economics that studies situations in which people make choices that do not appear to be economically rational.

Rules of Thumb

Generalized decision-making strategies that often produce optimal results.

Anchoring

The tendency to rely heavily on the first piece of information encountered when making decisions.