exam 2 econ

explicit cost

monetary payments by individuals, firms, and governments for the use of land, labor, capital, and entrepreneurial ability

what kind of costs are explicit costs?

direct costs

implicit costs

the opportunity cost of using owned resources; cost for which no monetary payment is explicitly made

economic cost

explicit + implicit cost

total revenue

price x quantity

accounting profit

total revenue - explicit cost

economic profit

total revenue - economic cost

short run

the time period in which at least inout of production is fixed but others can be changed

total product

total amount of output produced with a given amount of resources

marginal product

the additional product that we get having new labor coming in

marginal product equation

(TP(n) - TP(o) / L(n) - L(o)

average production

AP = TP/L

increasing marginal returns

the marginal product of the next unit of a variable resource utilized is greater than that of the previous variable

diminishing marginal returns

the marginal product of the next unit of a variable resource utilized is less than that of the previous variable

fixed cost

cost that doesn’t change with the amount of output produced

variable cost

cost’s that don’t change with the amount of output produced

does average fixed cost decline or increase as output expands?

declines

total variable cost is always __ total cost

below

total cost

fixed + variable cost

average variable cost

TVC / Q

average total cost

AFC = TC / Q

marginal cost

additional cost associated with one more unit on an activity

marginal cost equation

TC(n) - TC(o) / Q(n) - Q(o)

where does the marginal cost curve cross the AVC and ATC?

at their lowest points

long run

the time period in which all the inputs of production can be changed

long run average total cost curve (LRATC)

a curve showing the lowest average TC possible for any given level output when all inputs of production are variable

economies of scale

condition in which the long run average total cost of production decreases as production increases

constant returns to scale

long run average total cost of production is constant as production increases

diseconomies of scale

long run average total cost of production increases as production increases

min efficiency scale

lowest level of output at which the long run average total cost is minimized

gross domestic product (GDP)

market value of all final goods and services produced in an economy in a fixed period of time

how is gdp measured?

in quarters

nominal gdp

measure of gap in which the quanities produced are valued at current-year prices

what does the nominal gdp measure?

current values of production

final goods

goods that are sold to the end user and are not used to produce another product

intermediate goods

goods that are used to build or make another product that will be sold

are intermediate goods counted in gdp?

no, because then it would be counted multiple times

depreciation

capital that wears out

net investments

gross investments - depreciation

imports

foreign goods sold domestically

exports

domestic goods sold foreignly

what are the gdp categories?

consumption: c

investments: i

government purchases: g

net exports: NX

consumption

expenditures made by households on goods and services, like clothing, food, electronics, and recreation during a given time period

consumer durables

goods that have an average life of 3>

consumer non durables

goods that have an average life of <3

government purchases

all final goods purchased by federal, state, and local governments during a given time

investments

dollar value of all new capital purchased and the expansion of inventories in an economy during a fixed time period

business fixed investments

purchases by firms of a new capital goods, such as offices, factories, tools and machinery

residential investments

purchases of new homes; also includes home improvements

inventory changes

changes in inventories from one year to the next. inventory investment is positive if firms produce > then they sell, and negative if they sell < then they produce

income approach

approach to measuring GDp that measures the value of all final goods and services in an economy during a tine period using income generated

national income

total payments to owners of resources plus profits and loses; sum of rent + wages + interest + profit

net foreign factor income

difference between payments received from resources owned in foreign countries and income earned by peoples in foreign countries from resources owned domestically

indirect business taxes

taxes paid by businesses; paid by firms → passed to consumers as part of the price of a good or service produced

real gdp

metric used to keep prices constant and compare production across time; inflation-adjusted gdp

base year

= year picked; reference point

calculation for real prices

year 1 prices and the year 2 quanities and multiply; the output in each year x the prices in the base year

real gdp per capita

measures averages and thus masks distributions; hides non market transactions

real gdp per capita = real gdp/population

price index

based on all goods and services that are accounted as part of gdp

gdp price index= nominal gdp/real gdp

what are the problems within gdp?

• home production

• underground economies

• intangibles

• resource depletion

• externalities