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Econ Test Definition

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djamesmck57's version from 2016-03-29 04:27

Section 1

Question Answer
Income and substitution effects Income effect is the change in a consumer’s consumption choices that results from a change in the purchasing power of the consumer’s income. Substitution effect is the change in a consumer’s consumption choices that results from a change in the relative prices of two goods, holding the utility level fixed at the original consumption bundle.
marginal revenueMarginal revenue is the additional revenue from selling one additional unit of output.
marginal product of laborMarginal product of labor is the additional output that a firm can produce by using an additional unit of labor (holding use of the other input constant).
marginal revenue product of laborMarginal revenue product of labor is the additional revenue from selling the additional output that a firm can produce by using an additional unit of labor (holding use of the other input constant).
isoquantIsoquant is a curve representing all the combinations of inputs that allow a firm to make a particular quantity of output.
memorize

Section 2

Question Answer
economic vs technical efficiency in production: Economic Efficiency in production is when the cost of production of an output is as low as possible. Technical efficiency means that there is no waste in input and that the output is exactly the amount given by the production function and not less.
average variable cost: It is the variable cost of production per unit of produced quantity
marginal costIt is the additional cost of producing one more unit
average total cost It is the total cost of production per unit of produced quantity
long run vs short time supply curve Long-run supply curve is the supply curve when firms can freely enter and exit. (We also equate P=min(AC) for all firms) Short-run supply curve is the supply curve when the number of firms is fixed as there is no entry and exit. (We equate P=MC)
memorize

Section 3

Question Answer
pareto inneficiencyAn allocation of resources is Pareto Inefficient if the same resources
could be re-allocated to make everyone better off or at least some better off without
hurting anyone.
pareto frontierConsists of Pareto efficient alternatives to every Pareto inefficient
allocation of resources.
social plannerA social planner is someone that maximizes utility for everyone involved.
pareto efficient-allocationAn allocation of resource is said to be Pareto efficient when
one person cannot be made better off without making someone else worse off.
monopolyWhen there is only one seller in the market
lerner indexLerner index measure the power of monopoly. It looks at the difference
between the price and marginal cost expressed as a percentage of price. For a
monopoly, the index in as inverse of price elasticity of demand.
natural monopolyA type of monopoly that exists as a result of the high fixed or startup
costs of operating a business in a particular industry
memorize