Micro Final
Irrational arguments
"After all the money I spent on tuition to study accounting, I cannot leave my career now" "I've worked at this company for six years and should not leave after putting in so much time here"
Marginal Cost
Change in Cost/Change in Quantity
In unregulated market equilibrium
Demand (MSB) = MPC
Calculate opportunity cost
Explicit + Implicit
Policy Benefit Per Sugar Produced
Gain in Producer Surplus/Number of Sugar Producer
Dominant strategy in oligopoly
Non-cooperative
Under this law, a state receives a certain amount of money from the federal government to use on any of its programs that have an anti‑poverty component
Temporary Assistance for Needy Families
Inferior Good
a good that consumers demand less of when their incomes increase
City sanitation workers earn more than park maintenance workers.
compensating differentials
The marginal revenue product of a factor shows how much an additional unit of a factor adds to
dollar revenue
TU is the same
for each indifference curve
Private marginal cost
less than social marginal cost
More substitutes
more elastic
National Defense
nonexcludable and nonrivalrous
Mental accounting
purchase and compartamentalize things
oligopoly
very few large firms and interdependence amongst firms
Rational arguments
"I only went into accounting because I could earn a high salary, but I will be happier if I move back to Alaska" "There's no guarantee I will be able to find work in Alaska. At least I have a job now"
Elasticity of Demand
% change Q / % change price
Medicare
- Designed to reimburse the elderly for medical expenses - Must have worked for at least ten years paying premiums
Why healthcare in this country is more expensive than in other countries
- Lack of price transparency - R&D - Two more ?
Medicade
- Run through state level agencies -Specifically aimed at helping low-income Americans
If an economy's income is completely equally distributed, then the value of its Gini coefficient is ____. If an economy's income is completely unequally distributed, then the value of its Gini coefficient is ____.
0 ; 1
Gini Coefficient
A measure of income inequality within a population, ranging from zero for complete equality, to one if one person has all the income.
Average Products
APk = K^a L^B/K and APl = K^a L^b / L
Economies to scale
ATC declines and output increases
Diseconomies of scale
ATC increases as output increases
Constant returns to scale
ATC is constant as output increases
Reginald, who is chronically ill, opts to purchase health insurance without disclosing his illness. Buffy, who is in perfect health, decides to forego purchasing health insurance altogether.
Adverse Selection
Suppose the Gini coefficient in Canada is 0.130.13 , and the Gini coefficient in the United States is 0.480.48 . Which country's income distribution is more evenly distributed?
Canada
Marginal utility
Change in TU / Change in Quantity
Marginal Utility
Change in Total Utility/Change in Quantity
Behavioral view
Consumers are irrational
Jack, a 22-year-old soccer player, earns more than Jim, who is the same age and has the same level of experience.
Differences in talent or ability
A licensed physician earns more than a nurse.
Differences in total human capital
This policy provides a tax refund to families with children that have a low income; the tax refund increases to a certain point and then decreases once that point is reached. Families that make over $100,000 do not receive this tax credit.
Earned Income Credit
Either-or-Decision
Highest economic profit
An increase in quantity demands that are attributable to changes in purchasing power as the price of a good falls
Income effect
Edmond works at a restaurant and on some days is a shift manager and on other days is a server. He makes more money as a server. After the restaurant tells him they only need him to work as a shift manager, he asks to have his hours increased.
Income effect
Vlad delivers pizzas and decides to reduce his hours after the company increases his wage
Income effect
Alexander is heavily invested in the stock of Nortel, a telecommunications giant. However, Nortel has been in steady decline, and even though all signs point to the fact that Nortel will likely go bankrupt, Alexander holds onto his stocks, unwilling to sell unless he makes back at least the money he invested.
Loss Aversion
Gross Cost Per Household
Loss in Surplus/Number of Households
VMPL =
MPL x P
Marginal Product (Capital):
MPk = aK^a-1 L^b
Marginal Product (Labor):
MPl = bK^a L^b-1
Profit maximizing level of output
MR=MC
This program provides health insurance coverage to selected low income people, particularly families; it does not focus on the elderly or disabled
Medicaid
Jim is washing his laundry and, as he checks his pockets, finds an unexpected windfall of $50. Elated because it is $50 more than he had before, he decides to splurge on a lobster-and-filet-mignon dinner.
Mental Accounting
Tiffany lives in Alameda, California. She recently received two job offers, one in Oakland and one in San Francisco. The San Francisco job pays $1000 more per year, so Tiffany accepts the job. However, the travel time, which is an hour more each way, quickly becomes a burden.
Misperceiving opportunity costs
Steve is trying to diet. Each day he says the diet will begin today, but each time he sees potato chips, he indulges in them. The next day, he promises his diet will really start, but the vicious cycle continues
Overconfidence
Economic Loss
P<ATC, firms incentivized to leave the market
Zero Economic profit
P=ATC, at long-run equilibrium
Economic profit
P>ATC , new firms incentivized to enter the market
Profit
Price - Cost
Cobb-Douglass
Q=F (K,L) = K^a L^b
Geneva is a researcher at a biotech firm, and faces decision paralysis every time a big question is posed to her. Whenever her boss asks her what project she wants to work on, she always says she is indifferent, so eventually her boss stops asking for her input and just assigns her however he wants
Status Quo Bias
An increase in quantity demands that comes from consumers having a greater incentive to buy a good whose price is relatively lower
Substitution Effect
After Ashley, a bank teller, is given a raise, she decides to work more hours
Substitution effect
Veronica is a secretary at a small, struggling business. Managers decide to reduce her wage and she decides to work fewer hours.
Substitution effect
This program provides low income people with coupons that can be redeemed at grocery stores for food; it does not focus on people of a certain age or health status
Supplemental Nutrition Assistance Program (SNAP)
Accounting Profit
Total Revenue - Explicit
Economic Profit
Total Revenue - Total Opportunity Cost
An increase in quantity demands attributable to the combination of the income and substitution effect
Total effect
The supply curve of labor exhibits
a direct of positive relationship between wage and the quantity of people willing to work
Marginal Productivity Theory
a firm hires the number of workers where value of marginal product of labor equals wage rate (VMPL = W) or value of marginal product of labor is greater than wage rate (VMPL > W)
Giffen good
a good for which an increase in the price raises the quantity demanded
Normal Good
a good that consumers demand more of when their incomes increase
Leisure is
a normal good
negative income tax
a tax system that collects revenue from high-income households and gives subsidies to low-income households
In-Kind transfer
a transfer of resources in the form of goods and services rather than cash
The demand curve for labor exhibits
an inverse or negative relationship between wage and quantity of workers demanded
Common resource goods
assign property rights to avoid degradation of environment
Risk Aversion
choose outcomes that yield less utility because there is no risk
Both Riley and his twin brother, Roland, work for a package delivery company. Riley delivers cookies and cakes to local grocery stores and makes $18/hour$18/hour. Roland, who is responsible for the transport of chemicals to and from the local university, earns $25/hour$25/hour.
compensating differentials
Rosalie and Henry work at a nursery where they grow sunflowers. Rosalie works all day in the hot sun, planting and harvesting sunflowers, where she earns $34 per hour. Henry, on the other hand, works inside the air conditioned warehouse, drying and roasting sunflower seeds, and earns $22 per hour.
compensating differentials
Price of product A increases and quantity of product B decreases (& vise versa)
compliments
Means-tested benefits
conditional benefits provided by government to individuals whose income falls below a designated threshold
Tenets of Neoclassical view
consumers are rational
Status-quo bias
consumers don't like to make decisions
MB curve
demand curve
Airline captains earn more than copilots
difference in total human capital
Physical therapists earn more than massage therapists.
differences in total human capital
P > ATC
earning profits
A market for a private good with no externalities produces an _______ quantity of goods. A private good is ______ in consumption, an is
efficient, rival, excludable
Pay-Per-View cable television
excludable and nonrivalrous
A Hot Pocket sandwich
excludable and rivalrous
A Unicycle
excludable and rivalrous
Pajamas
excludable and rivalrous
Private Classroom Education
excludable and rivalrous
costs associated with fixing widgets under warranty
explicit cost
electricity from the power company
explicit cost
exhibit space rented at a trade show
explicit cost
janitorial staff
explicit cost
plastic mold produced by another company
explicit cost
the purchase of a new computer
explicit cost
Net Exports
exports - imports
Bob can pay to support his local public radio station, which depends on donations to be as effective as possible. Bob listens to the radio station several hours per day but never donates since he suspects that other people will donate enough to keep the station on the air
free-riding
Jim is working on a group project for a class in which he wants a high grade. However, since the grades are assigned to the group as a whole and he knows that the other group members will pick up most of the extra work, Jim calls in sick and plays video games on his Dream Station 64
free-riding
Firm supply curve
further to the right because not incurring cost
Higher curve
greater utility
Simon and Denise both work as third grade teachers at Riverbend Elementary School. Simon, who has a Master's Degree, earns $45,000$45,000 a year whereas Denise, who has only a Bachelor's Degree, earns $39,000$39,000 a year.
human capital
the current value of the centuries-old secret process used to produce widgets
implicit cost
trucks owned outright by Widgets R Us
implicit cost
What do economist mean when they say behavior is "rational"
individuals making choices which help them reach their goals
A market for an artificially scare good, also known as a club good, produces an _______ quantity. A club good is ______ in consumption, and is ______
inefficient, nonrival, excludable
A market for a public good produces an _________ quantity. A public good is ________ in consumption and is
inefficient, nonrival, nonexcludable
A market for a common resource produces an _________ quantity. A common resource is ________ in consumption and is __________
inefficient, rival, nonexcludable
P < ATC
loss
How much
marginal benefit and marginal cost analysis
Social optimal quantity is that quantity at which
marginal cost equals marginal social benefit
A profit‑maximizing firm operating in a perfectly competitive market will add new units of a factor of production until
marginal revenue product equals factor price.
playing World of Warcraft, a massive multiplayer online computer game
nonrivalrous and excludable
Street lighting in a park
nonrivalrous and nonexcludable
Drew always buys the lunch special for $5$5 at the restaurant across the street from where he works. If he decided to eat at the restaurant after 3:003:00 p.m., however, he would be unable to get the lunch special, and would instead have to pay $10$10 for the same food
not free-riding
Karl never drives at night, and gets no benefit from street lamps at all. Street lamps are nonexcludable and nonrival in consumption. When the community group tries to collect money to build street lamps, Karl does not donate any money
not free-riding
Monopoly
one firm
explicit costs
out-of-pocket costs, that is, payments that are actually made
Loss Aversion
perceive losses much more painfully than gains
Firm shuts down
price below AVC
Competitive industry
price taker
"Normal Profit" and "Zero Economic Profit"
refer to the same concept
implicit costs
represents the opportunity cost of utilizing resources a company already owns
Chipotle burrito
rivalrous and excludable
wild tuna in the Pacific Ocean for which no fishing permit is required
rivalrous and nonexcludable
Price of product A decreases and quantity of product B decreases
substitutes
Price of product A increases and quantity of product B increases
substitutes
Total Utility
sum of marginal utilities
MC curve
supply curve
Bert works for the county animal shelter and is ranked consistently as the top dog catcher in the state. When asked how he is able to convince so many stray dogs to answer to him, Bert says it just comes naturally. As a result, Bert earns a salary about 15%15% higher than most other dog catchers.
talent or ability
Utility is a measure of
that satisfaction a good or service gives to the consumer
This type of trade protection is passed into a law because
the benefits of the trade policy are concentrated among a few, whereas the costs are dispersed throughout the whole population
Income Effect
the change in consumption resulting from a change in real income
offshore outsourcing
the company outsources its business function to a third party (foreign based).
The marginal product of a factor shows how much an additional unit of a factor adds to
the level of production
opportunity cost
the most desirable alternative given up as the result of a decision
To calculate the equilibrium price and quantity with free trade
think about the two countries markets as one big market
excludable good
those who are unwilling to pay for the good do not obtain its benefits
nonexludable good
those who are unwilling to pay for the good obtain it benefits
Substitution Effect
when consumers react to an increase in a good's price by consuming less of that good and more of other goods
Negative externalities
when cost is passed onto society and not being incurred by two parties making the transaction ex: pollution
The Individual Labor Supply Curve
will be on exam
P = ATC
zero economic profit
