Microeconomics Exam 2

Absolute Advantage

The ability to produce more of a good vs competitors when using the same amount of resources

Comparative Advantage

The ability to produce a specific good or service at a lower opportunity cost than a competitor

Terms of Trade

The ratio at which a country can trade its exports for other countries

Tariff

A tax or duty imposed by a government on imported goods

Import Quota

A maximum numerical limit imposed by the by the government on the quantity of a good that can be imported into a country

Voluntary Export Restraint

An agreement negotiated between 2 countries that places a numerical limit on the quantity of a good that can be important by one county from another country

Marginal Utility (MU)

The change in total utility (TU) a person receives for consuming one additional good. MU means extra/additional satisfaction.

MU/P

Tells which item gives the most bang for your buck

Substitution Effect

The change in quantity demanded of a good that results on a change of price, making the good more or less expensive relative to other goods, holding constant the price change effect on consumer purchasing power. (Stronger Effect)

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 holding all other factors constant

Short Run

A period of time during which at least one of the firms inputs is fixed

Long Run

A period of time in which a firm can vary all of its inputs, adopt new technology, and increase or decrease the size of it’s physical plant

Explicit Costs

Costs that involves spending money

Implicit Costs

Non-monetary opportunity cost

Marginal Product of Labor (MPL)

The additional output a firm produces as a result of hiring one more worker

Law of Diminishing Returns

The principle that at some point, adding more of a variable input (labor) to some fixed input (land, capital) will cause the marginal product of the variable input to decline

Total Fixed Costs (TFC)

The sum of all business expenses that do not change with the quantity of output produced by a firm in the short run

Total Variable Costs (TVC)

The sum of all business expenses that rise or fall in direct proportion to the volume of output or production

Total Costs (TC)

The cost of all inputs a firm uses in production

AFC (Average Fixed Cost)

A firm's total fixed costs divided by the quantity of output produced

Average Variable Cost (AVC)

A firm's total variable costs divided by the quantity of output produced

Average Total Cost (ATC)

The total cost per unit of output produced

Marginal Costs (MC)

The extra financial cost a business incurs to produce one additional unit of a good or service

Economies of Scale

When a firms LRAC falls as its output increases

Diseconomies of Scale

When a firms LRAC rises as its output

Minimum Efficient Scale

A level of output at which all economies of scale have been achieved