micro importants

capital

manufactured goods used to make other goods and services.

command economy

an economy in which industry is publicly owned and a central authority makes production and consumption decisions.

economics

the study of scarcity and choice.

economy

a system for coordinating a society's productive and consumptive activities.

incentives

rewards or punishments that motivate particular choices.

individual choice

decisions by individuals about what to do, which necessarily involve decisions about what not to do.

macroeconomics

the branch of economics that is concerned with the overall ups and downs of the economy.

marginal analysis

the study of the costs and benefits of doing a little bit more of an activity versus a little bit less.

market economy

an economy in which the decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement in the decisions.

microeconomics

the branch of economics that studies how individuals, households, and firms make decisions and how those decisions interact.

normative economics

the branch of economic analysis that makes prescriptions about the way the economy should work.

opportunity cost

the real cost of an item: what you must give up in order to get it.

positive economics

the branch of economic analysis that describes the way the economy actually works.

resource

anything that can be used to produce something else.

scarce

in short supply; when a resource is not available in sufficient quantities to satisfy all the various ways a society wants to use it.

efficient

describes a market or economy in which there is no way to make anyone better off without making at least one person worse off.

production possibilities curve

illustrates the trade

productive efficiency

achieved by an economy if it produces at a point on its production possibilities curve.

technology

the technical means for producing goods and services.

trade

off

absolute advantage

the advantage conferred by the ability to produce more of a good or service with a given amount of time and resources; not the same thing as comparative advantage.

comparative advantage

the advantage conferred by an individual if the opportunity cost of producing the good or service is lower for that individual than for other people.

gains from trade

an economic principle that states that people can get more of what they want through trade than they could if they tried to be self

specialization

each person specializes in the task that he or she is good at performing.

terms of trade

indicate the rate at which one good can be exchanged for another.

trade

when individuals provide goods and services to others and receive goods and services in return.

budget constraint

limits the cost of a consumer's consumption bundle to no more than the consumer's income.

budget line

shows the consumption bundles available to a consumer who spends all of his or her income.

consumption possibilities

the set of all consumption bundles that are affordable, given a consumer's income and prevailing prices.

marginal utility

the change in total utility generated by consuming one additional unit of a good or service.

marginal utility curve

shows how marginal utility depends on the quantity of a good or service consumed.

marginal utility per dollar

the additional utility from spending one more dollar on a good or service.

optimal consumption bundle

the consumption bundle that maximizes the consumer's total utility given his or her budget constraint.

optimal consumption rule

says that in order to maximize utility, a consumer must equate the marginal utility per dollar spent on each good and service in the consumption bundle.

principle of diminishing marginal utility

the idea that each successive unit of a good or service consumed adds less to total utility than does the previous unit.

util

a unit of utility.

utility

a measure of personal satisfaction.

economic profit

total revenue - opportunity cost

explicit cost

cost that involves moeny

implicit cost

cost that is measured in other value - other than money

marginal revenue curve

shows how marginal revenue changes as output changes

optimal output rule

profit is maximized y producing when MC=MR

fixed input

input whose quantity is fixed for a period of time and can not be changed during this time

long run

a time period in which all inputs can be changed

short run

the time period in which at least one input is fixed

average fixed cost

the fixed cost per unit of output

average product

total product per unit of output

average total cost

total cost per unit of output

average variable cost

the variable cost per unit of output

fixed cost

a cost that doesn’t depend on the quantity of output produced

total cost

the sum of fixed and variable costs at any level of output

variable cost

cost that depends of quantity of output produced

constant returns to scale

when output increases in proportion to an increase in inputs

ex: increase in inputs by 20% and output increases by 20%

decreasing returns to scale

decreasing inputs your output will directly decrease in proportion

returns to scale

when i scale up, what do I get back?

diseconomies of scale

when output increases less than in proportion to an increase in inputs

ex: increase in inputs by 30% and out put increases by 20%

economies of scale

when output increases more than in proportion to and increase in inputs

ex: increase inputs by 20% and output increases by 30%

increasing returns to scale

occurs when increasing inputs leads to a more than proportionate increase in output, resulting in reduced per-unit costs.

long run average total cost curve

lowest average total cost curve at each level of output

sunk cost

cost that has been incurred and cannot be recovered.

price taking firms optimal rule

produce where P = MC

break-even point

where you are neither loosing or gaining money for the price that you are selling at

shut down price

P ≦ AVC; point where firm should stop producing

total fixed cost

cost of fixed inputs

total variable cost

cost depending on quantity produced

total cost

sum of fixed cost and variable cost of producing a given quantity of output

what does a “average cost curve” look like

characteristics of perfect competition

• many small firms

• identical goods

• low barrier to entry

• firms are PRICE TAKERS

• firms break even in the LR

perfect competition

many firms produce identical products

accounting cost

all explicit costs

economic costs

implicit and explicit costs

perfect competition equalibrium point

ATC = MR = MC

perfect competitive market profit loss

when min ATC > MR

perfectly competition market profit gain

when min ATC < MR

long run supply curve

how quantity supplied responds to the price once producer have had the time to exit/enter the industry

constant cost industry

newly entered firms don’t increase costs for firms already in the market

increasing cost industry

newly entered firms increase the cost for other firms already in the market

decreasing cost industry

newly entered firms decrease costs for existing firms in the market

normal profit

when economic profit is 0

monopoly

one firm which controls the market

oligopoly

when multiple firms dominate th emarket

monopolistically competitive markets

large # of seller w differentiate products

differentiated products

companies selling very similar products with with distinct differences

imperfectly competitive market characteristics

• few large frism

• firms are price makers

• high parriers to enter

• earn long-run profit

subsidy

gift of money from government to help firms produce more l

lump-sum subsidy

one -time payment provided to firms to support their production efforts.

per-unit subsidy

financial assistance given by the govt for each unity of good sold —> leads to and increase in supply because marginal costs are reduced

prices discrimination

when specific products are sold to different groups of people for different prices

characteristics of price descrimination

• has to ve a monopolistic power

• has to be able to group people together to discriminated against

• no consumer surplus

• allocatively efficient ; productively inefficient