Academic Decathlon microeconomics

0.0(0)
studied byStudied by 0 people
learnLearn
examPractice Test
spaced repetitionSpaced Repetition
heart puzzleMatch
flashcardsFlashcards
Card Sorting

1/105

encourage image

There's no tags or description

Looks like no tags are added yet.

Study Analytics
Name
Mastery
Learn
Test
Matching
Spaced

No study sessions yet.

106 Terms

1
New cards

An Inquiry into the Nature and Causes of the Wealth of Nations (Author)

Adam Smith

2
New cards

An Inquiry into the Nature and Causes of the Wealth of Nations (Year and topic)

1776 - Outlined modern economic analysis

3
New cards

economics

study of how individuals make choices about how to allocate resources in order to satisfy virtually unlimited human wants and about how individuals interact with one another

4
New cards

scarcity

inescapable fact of human existence due to limited resources and insatiable human desires

5
New cards

trade-offs

every choice we make requires that we give something to get something else

6
New cards

opportunity cost

the value of the thing you give up when you make a choice (time, money, etc.)

7
New cards

economic models

help us to understand economic phenomena by capturing essential details and eliminating unnecessary details

8
New cards

positive economics (definition)

uses tools of economic analysis to describe and explain economic phenomena and then make predictions about what will happen under particular circumstances

9
New cards

positive economics (simple version)

cause-and-effect relationships

10
New cards

positive economics

objective and fact based

11
New cards

positive economics (gas example)

how much we EXPECT the consumption of gasoline to decrease when the price of gasoline increases

12
New cards

positive economics (minimum wage example)

identifies the way in which an increase in the minimum wage would affect different groups as well as provide estimates of their size

13
New cards

normative economics (definition)

uses tools of economic analysis to evaluate the relative merits of different situations

14
New cards

normative economics (simple version)

what should be opposed to what is

15
New cards

normative economics

subjective and value based (opinionated)

16
New cards

Pareto efficiency

Vilfredo Pareto (Italian) - no way to improve at least one persons well being without reducing the well-being of someone ele

17
New cards

microeconomics (definition)

concentrates on individual behavior and the operation of specific markets

18
New cards

macroeconomics (definition)

concentrates on the overall performance of the national economy

19
New cards

market

comprised of all the buyers and sellers of a particular good or service

20
New cards

highly organized market examples

New York Stock Exchange and the Chicago Mercantile Exchange

21
New cards

Rules for a perfectly competitive market

1. good or service is highly standardized (similar)

2. number of buyers and sellers is large

3. all participants are well informed about the market price

4. firms are price takers (they can't control market price)

22
New cards

nearly competitive market example

gasoline

23
New cards

law of demand

negative relationship

24
New cards

shifts in the demand curve

1. income

2. prices of related goods

3. tastes [benefits of consumption (environmental impact)]

4. expectations (predictions for the future)

5. number of buyers

25
New cards

normal goods

demand is positively related to income (when income rises, the quantity demanded rises)

26
New cards

normal goods (example)

expensive clothes

27
New cards

inferior goods

demand is negatively related to income (when income rises, the quantity demanded falls)

28
New cards

inferior goods (example)

bus rides

29
New cards

substitutes

decline in the price of one good causes a reduction in the quantity demanded of another

30
New cards

substitute (example)

decline in price of airline tickets=decline in demand for driving (gasoline)

31
New cards

complements

lower price for one good causes the demand for another good to increase

32
New cards

complement (example)

lower auto insurance price=more cars bough (they have more money)

33
New cards

law of supply

positive relationship

34
New cards

shifts in the supply curve

1. input prices

2. technology

3. expectations (predictions)

4. number of sellers

35
New cards

competitive markets

tend to gravitate toward the equilibrium quantity and price

36
New cards

consumer surplus

the value between the market price and the amount that consumers are willing to play (has to be more than market price)

37
New cards

producer surplus

if the market price is greater than the opportunity cost, the difference is this monetary measure (market price - sellers price)

38
New cards

marginal seller

seller who would leave the market if the price were any lower

39
New cards

total surplus

combination of consumer and producer surplus that provides a measure of the total benefits that market participants receive from their transactions

40
New cards

Bovine Growth Hormone (BGH)

increases milk production by 10-15%

41
New cards

price elasticity of demand (definition)

1. measures how much the quantity demanded responds to a change in price (price affects quantity)

2. reflects how responsive consumers are to changes in the price of a good

42
New cards

price elasticity of demand (formula)

% change in quantity demanded / % change in price

43
New cards

influences of the price elasticity of demand

1. substitutes (close substitutes=high elasticity because it's easy for consumers to switch products)

2. necessities (low elasticity because people need these)

3. market definition (broad market= few substitutes and low elasticity; soft drinks= low elasticity compared to specific cola brands)

4. time horizon (adjusting to prices might take time)

44
New cards

levels of elasticity of demand

1. perfectly inelastic (vertical line) (no slope)

2. inelastic demand (e

45
New cards

price elasticity of supply (definition)

reflects the ease with which suppliers can alter the quantity of production (price affects supply)

46
New cards

price elasticity of supply (formula)

% change in quantity supplied / % change in price

47
New cards

influences of the price elasticity of supply

1. ease of entry and exit (if it's easy to enter or exit a market as a seller, supply is more elastic)

2. scarce resources (if an input good is scarce, supply is inelastic)

3. time horizon (longer the time is, the greater the elasticity of supply is; firms can't hire additional workers over short periods of time)

48
New cards

levels of elasticity of supply

1. perfectly inelastic (vertical line) (e=0)

2. inelastic supply (e

49
New cards

total revenue equation

price x quantity

50
New cards

first example of a price ceiling

In 1979, Middle Eastern oil prices skyrocketed; the government set a max price

51
New cards

taxes

used to raise revenue to pay for public expenditures

52
New cards

deadweight loss

reduction in social welfare due to taxes (difference between the $ paid by consumers and the $ suppliers receive [tax wedge])

53
New cards

burden of the tax

depends on the price elasticity of supply and demand (the lower the elasticity of demand [necessities], the greater the share of the tax paid by buyers)

54
New cards

production possibility frontier (PPF)

trade-offs faced in production (Robinson Crusoe: coconuts and fish example)

55
New cards

economic "firms"

economic actors who are responsible for supplying goods and services in the economy (firms combine labor, capital equipment, raw materials, and other inputs to produce the products that we consume)

56
New cards

profit vs. economic profit

money made after subtracting expenses from revenue vs. money made after subtracting expenses (including opportunity cost of time) from revenue

57
New cards

fixed costs

opportunity cost of time, rent, equipment

58
New cards

variable costs

labor and materials (ingredients and staff in a restaurant)

59
New cards

marginal cost

increase in costs that occurs when producing an additional unit of output

60
New cards

marginal cost formula

increase in $ / increase in quantity produced

61
New cards

diminishing returns to scale

bakery example ; ovens fill up, so he can only increase his production and revenue by so much (now he has extra labor waiting for ovens, causing him to lose money)

62
New cards

marginal revenue

benefit that someone gets from supplying more products (Bob producing one more loaf of bread)

63
New cards

examples of imperfectly competitive markets

computer operating systems, commercial airplanes, automobiles, air travel, mobile phones (small number of very large firms) ; electricity, water, cable television (single supplier in community)

64
New cards

goal of markets

to maximize profits

65
New cards

imperfectly competitive markets differ from perfectly competitive markets (how)

decisions about how much to supply often do affect the price at which products are sold

66
New cards

market power

firms that have a downward sloping demand curve (increase supply=lower price) ; instead of taking prices as given (like gas), they choose market prices

67
New cards

types of imperfectly competitive markets

1. monopoly (single supplier)

2. oligopoly (few suppliers)

3. monopolistic competition (firms produce similar, but different products)

68
New cards

barriers to entry that cause monopolies

1. ownership of a key resource (DeBeers diamond company owns 80% of all diamond mines)

2. government created monopolies (patents for 20 years)

3. natural monopolies (single firm can supply the market at a lower cost than could two or more firms [large costs] ; railroads, pipelines, and cable television)

69
New cards

Sherman Anti-Trust Act (year)

1890

70
New cards

Sherman Anti-Trust Act

used to break up monopolies

71
New cards

federal government attempts to stop the negative effects of monopolies

1. increase market competition (regulations on mergers to make sure they don't reduce competition) ; AT&T split up in 1984 (government made them break up)

2. regulation (electric power companies and cable television providers can't choose prices freely [because they are natural monopolies] - they have rates approved by government

3. public ownership (local water, sewer, and sanitation services)

72
New cards

price descrimination

separate customers into groups depending on how highly they value the product (allows monopolies to increase profits by capturing a greater fraction of the benefits produced by each transaction)

73
New cards

oligopoly examples

tennis balls, breakfast cereals, aircrafts, electric light bulbs, washing machines, and cigarettes

74
New cards

cartel

an illegal agreement (in the U.S.) where oligopolies would work together to behave like a monopoly to try to maximize profits

75
New cards

Organization of Petroleum Exporting Countries (OPEC)

international, so its cartel isn't illegal ; oil raised from $11 a barrel in 1972 to $35 a barrel in 1981 (members got greedy and raised supply, so prices fell back down to $13 a barrel in 1986)

76
New cards

monopolistic competition

firms produce similar but differentiated products

77
New cards

monopolistic competition (example)

book publishing, restaurants, clothing, breakfast cereals, and service industries

78
New cards

entrepreneurs

individuals who take on the risk of attempting to create new products or services, establish new markets, or develop new methods of production

79
New cards

creative destruction

a term that describes the impact of entrepreneurs as this (Joseph Schumpeter)

80
New cards

market failures

circumstances in which competitive markets fail to produce socially desireable outcomes

81
New cards

market failures (groupings)

1. externalities

2. public goods

82
New cards

externality

actions of one person affect the well-being of someone else, but neither party pays nor is paid for the effects

83
New cards

positive externalitites

beneficial effects

84
New cards

positive externalities (examples)

beekeepers and apple orchard

85
New cards

negative externalitites

harmful effects

86
New cards

negative externalitites (examples)

neighbor failing to maintain his house

87
New cards

solutions to negative externalities

1. split the cost to fix the paper plant pollution

2. internalize the problems by combining the activities that produce the externality within a single company

88
New cards

Coase Theorem (Ronald Coase)

parties involved can negotiate with each other to resolve the inefficiencies caused by externalitites (private markets)

89
New cards

government regulation of externalitites

London tax for driving in town in 2003 (reduce congestion)

90
New cards

United States Environmental Protection Agency (EPA)

regulating externalities by dealing with sulfur dioxide emissions

91
New cards

tragedy of the commons

when a resource is owned jointly, no one takes account of the negative externalitites caused by overuse (over fishing in public pond)

92
New cards

rival good example

pizza (you take some, there is less for other people)

93
New cards

determining public and private goods

extent of excludability and extent of rivalry in consumption

94
New cards

private goods

high exludability and high rivalry (pizza, haircuts, gasoline)

95
New cards

common resources

low exludability and high rivalry (fish in ocean, environment, city streets) ; over utilized

96
New cards

collective goods

high excludability and low rivalry (satellite radio, websites, pay-per-view movies)

97
New cards

public goods

low excludability and low rivalry (radio broadcast, tornado siren, national defense)

98
New cards

institutions

formal and informal rules that structure human interaction

99
New cards

pork barrel politics

elected officials introduce projects that steer money to their communitites

100
New cards

logrolling

legislators will often vote in favor of other people's bills to get a vote on one of their own (accounts for wasteful government spending)