Microeconomics - Handout 2
Microeconomics - Handout 2
Microeconomics - Handout 2
Set of flashcards Details
| Flashcards | 32 |
|---|---|
| Language | English |
| Category | Micro-Economics |
| Level | University |
| Created / Updated | 08.06.2016 / 09.06.2016 |
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For a normal good, which of the following is most likely?
For an inferior good, which of the following is most likely?
Calculate accounting profit:
Revenues - Accounting costs = Acccounting profit
Calculate economic profit:
Revenues - (Explicit costs + Implicit costs) = Economic profit
Calculate Normal profit:
Accounting profit - Economic profit = Normal profit
Revenue: $9'000'000
Accounting costs: $8'200'000
Foregone wages elsewhere: $100'000
Investments elsewhere: $700'000
What is the accounting profit, economic profit, and normal profit?
Accounting profit: $800'000
Economic profit: $0
Normal profit: $800'000
Explain the economic rent.
Economic rent can be calculated when supply curve is very almost perfectly inelastic.
Scarce supplies, like specialist, brain surgeants or appartments in NY will cost more when demand is higher, but quantity will stay the same. Economic rent is (P2-P1) x Q1 = Economic rent.
What are factors of a perfect competitive market?
- Many players; identical products
- No barriers to entry
- No advantage for existing firms
- Buyers and sellers know all the prices of goods
Calculate Total Revenue:
TR = P x Q
Calculate Average Revenue:
AR = TR / Q
Calculate Marginal revenue:
MR = (delta) TR / (delta) Q
Explain the "short-run" and "long-run"
Short run is approx. 2 years long. Changes during the short run are very expensive.
Long run is approx. 2 months long. Changes of variables can be made which will endure for the next short run (2years).
Based on this information, at an output of:
If total product is increasing at an increasing rate, which of the following is most likely?
What kind of ranking does the utility function offer?
What are the axioms of theory of consumer choice?
- Assumption of complete preferences
- Assumption of transitive preferences
- Assumption of non-satiation
What are indifference curves?
Indifference curves reflect all bundles of two goods that give a consumer the same level of satisfaction.
Any curve about to the right represents a higher level of utility (higher income).
What is the marginal rate of substitution (MRS)?
Slope of the indifference curve.
Rate on substituting good A for good B.
Can indifference curves for a specific consumer intersect each other?
Is it possible for indifference curves of two different persons can cross?
What is a voluntary exchange?
The principle of voluntary exchange assumes that people act in their own self-interest, an important factor in a healthy economy. The voluntary exchange of a product or service means that both parties will be better off because the exchange is beneficial to both of them; otherwise they would not be willing to make the exchange.
How to draw a budget constraint?
How do you calculate Q of product A, and Q of product B?
Income / Product A = Quantity A
Income / Product B = Quantity B
A firm can produce at maximum level 1000 cars or 500 trucks.
What is the opportunity cost to produce 1 Truck?
1000 cars / 500 trucks = 2 (exchange rate)
1 truck * 2 = 2 cars
Where is the point of maximum satisfaction in a indifference curve?
Tangency point
What happens with the budget constraint when the income is higher?
An increase of income leads to a parallel outward shift in the budget constraint, if both goods are normal!
How will an income increase affect the consumption of inferior (bread) goods?
It will lead to a decrease of consumption.
Explain the two-part tariff pricing mechanism.
This is a fixed fee (membership) and a price per unit (visit).
What is a veblen good?
Increase in price would result in an increase in Q demanded.
- Luxury items, art, very expensive.
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