exam 1

Question 1

variable proportions technology

Answer 1

idea that the (K/L) ratio can be varied

Question 2

K

Answer 2

units of capital, fixed in the short term

Question 3

L

Answer 3

units of labor, variable in the short term

Question 4

Q

Answer 4

units of output for a given combination of capital and labor

Question 5

AP

Answer 5

average product, =Q/L

Question 6

MP

Answer 6

marginal product, =(change in Q/change in L)

Question 7

the law of diminishing returns

Answer 7

as successive units of a variable input are combined with a fixed input, at some point, the return to that variable input MUST diminish

Question 9

economics

Answer 9

the study of how individuals, businesses, and societies make decisions based on the unlimited wants and scarce resources - all our decisions on a societal and personal level are based on the scarcity of our resources and our options

Question 10

factors of production

Answer 10

land, labor, capital, and entrepreneurship

Question 11

land

Answer 11

natural resources used for production, payment for this resource is rent

Question 12

labor

Answer 12

the number of hours households are ready, willing, and able to supply to firms for production, payment is wages

Question 13

capital

Answer 13

the physical means of production, paid for with interest – think LOANS for things like machines or warehouses

Question 14

entrepreneurship

Answer 14

the ability to organize the other 3 factors of the production process, paid for with profit

Question 15

marginal analysis

Answer 15

economics assumes that most decisions are made at the margin – deciding whether or not we consume one more or one less of a unit of a good or service

Question 16

marginal benefit

Answer 16

the benefit received from consuming one more unit of a good or service

Question 17

diminishing marginal utility

Answer 17

as the quantity of a good or service consumed increases, the marginal benefit decreases

Question 18

marginal cost

Answer 18

the opportunity cost of consuming one more unit of a good or service

Question 19

allocative efficiency

Answer 19

producers supply the quantity of each product that consumers demand, producing on the point of the PPF curve that society deems most valuable, determined by the wants and needs of that society – usually in the context of a larger society

Question 20

PPF, production possibilities frontier

Answer 20

the boundary between the combination of goods or services that can be produced

Question 21

productive efficiency, pareto efficiency

Answer 21

you cannot produce more of one good without producing less of another, producing on any point on the PPF

Question 22

factors that shift the PPF

Answer 22

resource gain & increase in productivity

Question 23

what does the PPF’s concavity represent?

Answer 23

some resources are better used at producing some goods over others, representing the concept of diminishing returns

Question 24

demand curve shifters
QDX= f(Px; T, M, ND, PR, PeX)

Answer 24

Px: price, doesn’t shift curve
T: tastes and preferences, direct relationship
M: income, direct for normal goods, inverse for inferior goods
ND: number of buyers in the market, direct relationship
PR: price of related goods, direct relationship if price increase for a substitute, indirect if price increases for a compliment
PeX: expected future price, direct relationship

Question 25

supply curve shifters QSX= f(Px; Z, PI, S, PO, G, NS, PeX)

Answer 25

Px: price, doesn't shift the curve Z: technology, direct relationship PI: price of a vital input, inverse relationship S: state of nature, direct relationship PO: price of related outputs, alternate output is an inverse relationship, jointly produced goods is a direct relationship G: government policies and actions, subsidies have a direct relationship, taxes have an inverse relationship NS: number of sellers in the market, has a direct relationship PeX: expected future price, has an inverse relationship

Question 26

QSX>QDX

Answer 26

surplus

Question 27

QSX

Answer 27

shortage

Question 28

price ceiling

Answer 28

a limit to the maximum price that a producer can charge for their good or service, i.e. rent control -- only works if price ceiling is set BELOW equilibrium price

Question 29

price floor

Answer 29

a limit to the minimum price that a producer can charge for their good or service, i.e. minimum wage -- only works if price floor is set ABOVE equilibrium price

Question 30

variable proportions technology

Answer 30

the K/L ratio can be varied

Question 31

AP

Answer 31

average product, = Q/L or quantity of units produced over units of labor

Question 32

MP

Answer 32

marginal product, = change in Q/change in L

Question 33

law of diminishing returns

Answer 33

as successive units of a variable input are combined with a fixed input, at some point the return to that variable input MUST diminish

Question 34

the total production curve

Answer 34

L1: increasing at an increasing rate --> increasing at a decreasing rate, point of diminishing returns L2: increasing at a decreasing rate, the level of labor hired that maximizes average product (AP) -- where AP hits it's peak L3: increasing at a decreasing rate --> decreasing at an increasing rate -- marginal product (MP) goes negative

Question 35

marginal and average product curves

Answer 35

L1: point of diminishing returns, additional output generated by using one more unit of a variable input (LABOR) hits it's max -- marginal product hits it's peak L2: labor hired that maximizes average product peaks L3: AP decreasing, MP goes negative

Question 36

the marginal average rule

Answer 36

M>A, A increases M

Question 37

TFC

Answer 37

= PK * K, fixed in the short-run

Question 38

TVC

Answer 38

=PL * L

Question 39

STC

Answer 39

= (PK * K) + (PL * L)

Question 40

AVC

Answer 40

= (PL*L)/Q

Question 41

ATC

Answer 41

= ((PK * K) + (PL * L))/Q

Question 42

SMC

Answer 42

= change in (PL * L)/ change in Q

Question 43

SAC

Answer 43

= STC/Q = TFC/Q + TVC/Q = AFC + AVC

Question 44

the two problems firms face in the long-run

Answer 44

1) output maximization subject to the expenditure constraints, i.e. TOTAL COST, the firm is a price-taker in the factor markets 2) cost minimization subject to the output constraints, i.e. MARGINAL RATE OF TECHNICAL SUBSITUTION -- what's the ratio in which I would substitute labor for capital?

Question 45

price discrimination

Answer 45

when firms charge consumers different prices for the same product, i.e. airplane tickets, may leave profits the same but expands the pool of people able to afford the product,

Question 45

minimum efficient scale on the long-run average cost curve

Answer 45

the point on the curve when it stops falling, but is not yet increasing, this is where the firm MUST operate in the long-run to survive -- aka the point where the firm achieves the lowest output level at the lowest price per unit with constant returns to scale (when the firm grows the cost per unit remains the same)