Microeconomics Final

Definition of Poverty

A lack of income

The state or condition of having little to or no money, goods, or means of support.

How many US individuals are currently living in poverty

37,933,000

What is the US poverty rate

11\.6%

Causes of poverty

The individual

The society

Inadequate investment of human capital(education)

Not enough jobs

Life tragedy, death of spouse, injury, loss of a job

Discrimination

Solutions of poverty

Invest more in education

Work to eliminate discrimination

Create more jobs

Define Game Theory

The study of how people (firms) behave in strategic situations

Define Nash equilibrium

A situation in which each player’s strategy is a best response against the other.

Define Dominant Strategy

One player has superior tactics regardless of how their opponent plays.

Define Price Discrimination

Charging different prices to different consumers based on differences in willingness to pay and not difference of costs

How is Price Discrimination used

A business looks to charge a customer with lower Elasticity of demand a greater price. And a higher elasticity of demand a lower price. If someone wants a plane ticket and needs to get to the new city that day, they will pay more.

Define Economies of scale

ATC decreases as more output is produced

Define constant economies

ATC does not vary as more output is produced

Define diseconomies of scale

ATC increases as more output is produced

What does MC=MR mean

This is where output is produced in every industry structure

What is the role of advertising

Used to convince people to buy more of a seller’s product at the going price.

Sellers can inform buyers what they have to offer.

Define Tariff

Tax on imported goods

Define free trade

The free movement of goods/services between nations. Unrestricted trade

Define protectionism

The opposite of free trade, tariffs and quotas which restrict the movement of free goods/services

Define welfare economics

The study of how the allocation of resources affects well-being. Is our nation better off in situation A or B.

What is the relationship between price and elasticity/ inelasticity of demand

If demand is inelastic, an increase in the price of the amount demanded will go up very little.

If decreasing the price, the amount demanded goes up or down very little

Define price floor

Price is above equilibrium

Define price ceiling

Price is below equilibrium

Example of price floor

Setting a minimum wage

Example of price ceiling

Rent control. Laws set in place that limit how much a landlord can charge tenents.

Predicted economic consequences of a price floor

There will be a surplus which means more unemployment for a minimum wage example.

Predicted economic consequences of a price ceiling

There will be a shortage

Define economics

The social science that studies the production, distribution, and consumption of goods/services.

Study of how societies provision

Define microeconomics

Study of how people/businesses make decisions. The individual units that make up a system consumer, business, government.

Define macroeconomics

Study of economy-wide ups and downs. The study of the overall economy

Define opportunity cost

What is given up obtaining an item.

Define Adam Smith

The father of economics

Define David Ricardo

The developer of Comparative Advantage

What is the Law of Demand

As price goes up, the quantity will go down. As price goes down, the quantity will go up. (This is the demand line)

What is the Law of Supply

As price goes up, the quantity will also go up. (This is the supply line)

Define Market forces

The interaction between supply and demand

Define equilibrium

The amount demanded is equal to the amount supplied

Define shortage

The quantity demanded is greater than the quantity supplied. D>S

Define surplus

The quantity demanded is less than the quantity supplied DS

What is comparative advantage

The ability to produce a good at a lower opportunity cost than another nation. (producer)

Define Perfect Competition

Numerous buyers and sellers of a product that is identical. It’s easy to enter the industry and no firm influences the industry price.

Define Monopoly

One firm in the industry that is the only seller without close substitutes.

Define monopolistic competition

An industry structure in which many firms sell products that are similar but not identical such as restaurants, bars, and salons.

Define oligopoly

Having a few very large firms in one industry. This is the structure of the oil, car, cereal, and beer industries.

Which industry structure is unstable

Perfect competition

Which industry structure is illegal

Monopoly

Advantages of perfect competition

Easy to enter the industry

Consumer information is high

High quality product at low price

Disadvantages of perfect competition

Profit can’t be sustained

Identical products

Producers exit due to heavy competition

Advantages of monopoly

Experience economies of scale

Innovation. Anyone that creates a new product is a monopolist

Massive profits

Disadvantages of monopoly

Illegal

Inconsistent with democracy

No competition

Advantages of monopolistic competition

Few entry barriers

Many choices for consumer

Disadvantages of monopolistic competition

Lots of competition so not a lot of economies of scale

Lots of spending on advertising

Advantages of Oligopoly

Good information for consumers

Prices bring stability to market

Disadvantages of oligopoly

Extremely hard to enter industy

Risk of collision like a monopoly

When does a firm break even

ATC=Price

When does a firm make a loss

ATC>Price

When does a firm make a profit

ATC

Define elasticity

A response to a given stimulus

Define substitute goods

Two goods’ cross elasticity is greater than 0

Define complementary goods

Two goods’ cross elasticity is less than 0

Define normal good

Income elastic is greater than 0

Define inferior good

Income elasticity is less than 0

Define luxury

This is elastic. The income elasticity is greater than 1

Define necessity

This is inelastic. The income elasticity is between 0 and 1

Effects after a tax is imposed

Consumer surplus: Decreases

Producer surplus: Decreases

Government Revenue: Increases

Deadweight Loss: Increases

Total surplus: Decreases

Effects after a tariff is imposed

Consumer surplus: Decreases

Producer surplus: Increases

Government revenue: Increases

Deadweight loss: Increases

Total surplus: Decreases

Define Fixed cost

Costs that don’t vary with the quantity of output. Ex. rent, insurance, taxes

Define variable cost

Costs that vary with the quantity of output produced. Ex. labor energy and materials

Define Total cost

Fixed + Variable costs

Define Average total cost (ATC)

TC/Q

Define average variable cost

TVC/Q

Define average fixed cost

TFC/Q

Define marginal cost

(Change of TC) / (Change of Q)

Define marginal revenue

(Change of TR) / (Change of Q)

Solutions to inequality

Invest more in middle class jobs.

Do nothing and instead focus on opportunity and movement.

Redistribute wealth

Access to universal education.

Increase infrastructure investment.

Who is the USA balance of trade mostly with

China and so is most of our deficit

What is the US budget deficit

1\.1 trillion and falling

What is the US National debt

31\.1 trillion and rising

US GDP

23 trillion

US trade deficit

1\.2 trillion

Define surveillance capitalism

Companies that provide a service but are also gathering data on its users. They use the data to show people different ads or give suggestions on where to eat based on their interests. They can make money off this by predicting consumer behavior.

Define Public goods

A product that is provided without profit to all members of a society, either by the government or a private organization.

Examples if public goods

National defense, clean air and water, general knowledge and research, public parks

What is the problem with public goods

The free-rider problem. This means you can’t prevent anyone to enjoy a good, so people have no incentive to pay for it.

Define externalities

The unintended effects of a market transaction on a 3rd party. The uncompensated impact of one person’s actions on the well-being of a bystander.

What are some positive externalities

Home ownership, education, vaccination against disease.

What are some negative externalities

2nd hand smoke, pollution, climate change, car use.

How do you correct for a negative externality

The Coase Theorem: if private parties can bargain with significantly high transaction costs, they can solve the problem on their own.

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Pigouvian tax: This is a unit tax such as a tax on carbon.

Sherman Act 1890

Essence: Makes existing monopolies illegal

Reason: monopolies were very powerful and popular at the time

Clayton Act 1914

Essence: Makes conditions that will lead to a monopoly illegal.

Reason: The Sherman Act did nothing to address conditions that lead to a monopoly

Define the monopoly provisio

With anti-trust lawsuits, it’s only illegal if a firm’s actions are done to reduce competition.

1914 Federal Trade Commission Act

Essence: Creates the FTC. Along with department of justice, the FTC enforces anti-trust laws.

Reason: We needed an agency to enforce the new laws

Robinson-Patman Act 1936

Essence: Makes it illegal to charge or receive a price discount to another business, unless based on cost.

Reason: Two big businesses can sell to each other this way and wipe out their competition.

Celler-Kefauver Act 1950

Essence: Gives government power to prevent “veteran mergers and conglomerate mergers”

Reason: This is done to prevent mega companies to merge

Hart-Scott-Rodino Act

Essence: Requires companies to notify the government when planning significant mergers.

Reason: Big mergers aren’t done in secret

How much does the US rely on fossil fuels for energy

79\.2%

How much does the US rely on renewable energy

12\.5%

How much does the world rely on fossil fuels for its energy

84%

How much does the world rely on renewable energy

11\.4%

Who is the world’s largest oil producer

USA

Who holds the most coal reserves

USA