econ yay

welfare economics

the study of how the allocation of resources affects economic well-being

willingness to pay

the maximum amount that a buyer will pay for a good

consumer surplus

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

cost

the value of everything a seller must give up to produce a good

producer surplus

the amount a seller is paid for a good minus the seller's cost of providing it

efficiency

the property of a resource allocation of maximizing the total surplus received by all members of society

deadweight loss

the fall in total surplus that results from a market deduction, such as a tax

total revenue

the amount a firm receieves for the sale of its output / price x quantity

total cost

the market value of the inputs a firm uses in production

profit

TR - TC

explicit costs

input costs that require an outlay of money by the firm

implicit costs

input costs that do not require an outlay of money the firm

economic profit

TR - TC, including both explicit and implicit costs

accounting profit

TR - T(explicit)C

production function

the relationship between the quantity of inputs used to make a good and the quantity of output of that good

marginal product

the increase in output that arises from an additional unit of input

diminishing marginal product

the property whereby the marginal product of an input declines as the quantity of the input increases

fixed costs

costs do not vary with the quantity of output produced

variable costs

costs that vary with the quantity of output produced

average total cost

TC / Q of output

average fixed cost

FC / Q of output

average variable cost

VC / Q of output

marginal cost

increase in total cost that arises from extra unit of production

efficient scale

quantity of output that minimizes ATC

economies of scale

property whereby long-run ATC falls as quantity of output increases

diseconomies of scale

property whereby long-run ATC rises as quanity of output increases

constant returns to scale

property whereby long-run ATC stays the same as the quantity of output changes

competitive market

a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker

average revenue

TR / Q sold

marginal revenue

change in total revenue from an additional unit sold

sunk cost

a cost that has already been committed and cannot be recovered

monopoly

a firm that is the sole seller of product without any close substitutes

natural monopoly

a type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than could two or more firms

price discrimination

the business practice of selling the same good at different prices to different customers

oligopoly

a market structure in which only a few sellers offer similar or identical products

monopolistic competition

a market strucutre in which many firms sell products that are similar but not identical

where consumer surplus can be found on a graph

the area below the demand curve and above the price

where producer surplus can be found on the graph

the area below the price and above the supply curve

total surplus on the graph

the area below the demand curve and above the supply curve

price - cost

producer surplus =

consumer surplus increases

when the price of a good FALLS… what happens to consumer surplus?

P greater than or equal to AVC

shutdown when…

shutdown

short-term decision to cease production. done when P is below AVC. must still pay fixed costs

perfect price discrimination

seller charges each individual the max WTP