Microeconomics-diagram-handout

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24 Terms

1

Abnormal Profit

Occurs when Ppm > Pcost, indicating all costs are covered and there are surplus profits.

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2

Ad Valorem Tax

A tax based on the value of a transaction, such as a VAT or sales tax.

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3

Allocative Efficiency

Achieved when community surplus is maximized at price P*.

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4

Average Revenue (AR) and Marginal Revenue (MR)

Under perfect competition, AR and MR are equal and represented by the same line.

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5

Average Fixed Costs

A fixed cost per unit that diminishes as output increases but never reaches zero.

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6

Average Product

Displays productive efficiency at its highest point where it intersects the average variable cost curve.

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7

Average Revenue in Imperfect Competition

The light blue curve, which is the same as the demand curve, slopes downward.

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8

Average Revenue in Non-Collusive Oligopoly

The green curve is relatively elastic above Ppm and inelastic below Ppm.

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9

Average Total Costs

Sum of average fixed costs and average variable costs, represented by the blue line.

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10

Average Variable Costs

Initially decreases then increases due to diminishing marginal returns, approaching but never reaching average total cost.

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11

Break-Even Profit

Occurs at Qpm where Ppm equals Pcost, indicating all costs are covered with no profit.

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12

Change in Demand

A shift in demand often due to factors like a new marketing campaign.

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13

Change in Quantity Demanded

A movement along the demand curve caused by a change in price.

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14

Change in Quantity Supplied

Movement along the supply curve in response to a change in price.

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15

Change in Supply

A shift in the supply curve often due to external factors such as technological improvements.

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16

Community Surplus

A situation where both producers and consumers are satisfied with the market price up to quantity Q.

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17

Complement

A good that is typically used together with another good.

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18

Constant Returns to Scale (LR)

Occurs when further expansion at output level Q3 does not lower costs.

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19

Consumer Surplus

The difference between what consumers are willing to pay and what they actually pay, measured as additional utility.

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20

Decreasing Returns to Scale (LR)

When output increases beyond Q3 results in rising costs.

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21

Elastic Supply

The quantity supplied changes more than the price change, represented as Qs = -C + dP.

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22

Equilibrium

Achieved when quantity supplied equals quantity demanded at price P*.

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23

Increasing Returns to Scale (LR)

When output increases to Q3, resulting in lower average costs.

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24

Inelastic Supply

The quantity supplied changes less than the price change, represented as Qs = +C + dP.

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