Econ Test

What is meant by isoutility?

"equal satisfaction"

What is meant by utility?

"satisfaction"

What are the ways in which a market structure can be characterized?

1) # of firms. 2) Type of product 3) Degree of market power 4) Ease of entry/exit to/from industry 5) Buzzwords 6) Graphs

Misperceptions regarding monopolistic firms?

1) charge highest $ possible 2) guaranteed to make a profit 3) monopolies have supply curves in which price increases then quantity supplied increases.

What are the characteristics of an isoutility curve?

1. Equal Satisfaction 2. Can not cross 3. Higher curves are preferred to lower curves 4. Slopes are negative 5.Shape of curve refers to the law of diminishing marginal utility

What are the 3 stages of production in a short run production function?

1. Increasing at a rapid rate. 2. Increasing at a slower rate. 3. Declining

Find the multiplier for the following cases: MPS = 0.25 MPC = 5/6 MPS = 0.125 MPC = 6/7 C = $200 + 0.9Y

4 6 8 7 10

The total 2005 US employment status of the​ non-institutional adult population is depicted in the figure on the right. It is measured in millions of workers and as a percentage. According to the labor data in the pie​ chart, the unemployment​ rate, the labor​ force, and the labor force participation rate​ are:

5.08%, 149.32, 66.05% The unemployment rate ​(5.08​%) is found by dividing the number of unemployed workers ​(7.59 ​million) by the total labor force ​(149.32 ​million). The total labor force ​(149.32 ​million) is the sum of the employed ​(141.73 ​million) and unemployed ​(7.59 ​million) persons. The labor force participation rate is found by dividing the total labor force ​(149.32 ​million) by the civilian​ non-institutional adult population ​(226.08 ​million).

How can a production function be used to determine the MPL & APL?

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How does ATC relate to AVC (graphically)?

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How does the APL curve relate to AVC?

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How does the MPL curve relate to MC?

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What is meant by lumpy facilities?

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What ways can production be related to cost?

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What are A) Fixed costs & B) Variable Costs?

A) Costs that do not change due to output production. (ie rent, utilities, insurance, salaries, etc.) B) Costs that do vary with output. If output is 0, variable costs are 0. (ie, if you own a coffee shop variable costs are coffee, sugar, cups, milk, etc..)

What happens to a budget constraint when: A) the price of one good changes? B) more income if received?

A) results in a rotation of the budget constraint.(half price pizza) B) results in a parallel shift to the budget constraint.

What are the formulae for ATC, AFC, & AVC?

ATC=AFC+AVC & ATC=TC/Q AFC=ATC-AVC & AFC=TFC/Q AVC=ATC-AFC & AVC=TVC/Q

What is meant by the law of diminishing marginal utility?

As Q increases there is a decrease in your utility. (Total utility can become negative)

What determines whether a firm should shut down or continue to operate at a loss?

As long as Profit is greater than AVC operate at a loss.

Which government agency is in charge of keeping track of employment data?

Bureau of Labor Statistics

What is the formula for marginal utility?

Change in TUx/change in Qx

Which type of unemployment is relevant to a worker who loses a job due to a recession?

Cyclical

What are the various things that the demand curve for a PC firm equals?

D=AR=MR=P

How does the concept in #24 differ from that of #25?

Dealing with different terms?

What are the formulae for economic profit, normal profit, less-minimization, shutdown.

Economic Profit = P>ATC Normal Profit P=ATC Less-Minimization = AVC< P < ATC Shutdown=P<AVC<ATC

What is the formula for the Labor Force?

Employed PLUS Unemployed

What is meant by isoquant?

Equal output

What is meant by perfect competition?

Firms approaching infinity. Ease of entry/exit into industry. Standardized product. Zero market power.

Which type of unemployment is relevant to a worker who is unemployed while switching from being a cashier to be an accountant?

Frictional

Suppose that a nation has a labor force of 100 people. In​ January, Amy,​ Barbara, Carine, and Denise are​ unemployed; in​ February, those four find​ jobs, but​ Evan, Francesco,​ George, and Horatio become unemployed. Suppose further that every​ month, the previous four who were unemployed find jobs and four different people become unemployed. Throughout the​ year, however, the same three people long dash ​Ito, Jack, and Kelley long dash continually remain unemployed because their skills are a poor match with​ employers' requirements.

Frictional Unemployment rate= Frictional Unemployment / Labor Force x 100 1. 4% 2. 3% 3. 7%

The natural rate of unemployment is approximately the sum of which two types of unemployment.

Frictional and structural

In terms of high-fixed costs or low fixed cost firms, what types of firms are more likely to shutdown?

High.

What is the formula for a budget constraint if only two goods may be purchased?

I=Px*Qx+Py*Qy

What is meant by increasing returns to scale?

If output increases by more than the proportional change.

How can a Cobb-Douglas Production Function be used to determine returns to scale?

If the inputs increase by the same amount as output then it is a return to scale.

What is meant by the law of demand?

If the price in a good drops, the demand will increase and vice versa.

How does isoquant differ from isoutility?

Isoquants can bend inward.

How is a long run ATC curve derived?

It envelopes the short run curves. (Just outside of it)

In terms of high-fixed cost or low fixed cost firms what types of firms are more likely to operate at a loss?

Low.

How does MC related to ATC & AVC?

MC crosses ATC at its minimum point.

What are the formulae for MC & MR?

MC=change in TC/change in Q & change in TVC/change in Q. MR=change in TR/change in Q

What is the formula for cost minimization?

MPK/PK = MPL/PL

What is the formula for producer equilibrium?

MPL/PL=MPK/PK

What are the formulas for MPL & APL?

MPL: change in Q/change in L APL: Q/L

What is the formula for profit maximization?

MR=MC

What is the formula for consumer equilibrium?

MUx/Px=MUy/Py

How is the demand curve for a firm in perfect competition determined?

Market supply

What is meant by MES?

Minimum Efficient Scale is the minimum point of a LR ATC curve.

Define the structures.

Monopoly - one firm. Duopoly - two firms. Oligopoly - few. Monopolistic competition - many. perfect competition - firms approaching infinity.

What are the types of market structures?

Monopoly, duopoly, oligopoly, monopolistic competition, perfect competition.

What is the slope of the isoutility curve?

Mux/Muy (negative slopes)

What are the two labor groups our population is broken into?

Nonparticipants and labor-force participants

Allocative Efficiency?

P=MC

Productive Efficiency?

P=Min ATC

What is meant by MR=MC

Profit maximization.

What are the formulae for profit?

Profit=TR-TC & Profit=Q * (P-ATC)

What is the slope of the budget constraint?

Px/Py

What is the Cobb-Douglas Production Function?

Q=f(K,L)

How does returns to scale differ from economies of scale?

Returns to Scale: No changes in ATC (constant ATC); Economies of Scale: reduction in ATC as the firm expands the size of its output in the long run

What are the shapes of all these curves?

See homework page.

How does a short-run production function differ from a long run production function (graphically)?

Short run: at least 1 fixed input. Long run: can be all variable inputsSuppose Q = A K^B L^C ; then MPK = B*A K^(B-1) L^C ; and MPL = C*A K^B L^(C-1). For example: If Q=100 K^.6 L^.4 ; then MPK = 60 K^-.4 L^.4 ; and MPL = 40 K^.6L^.6. (Potential bonus question)

What are the reasons for economies of scale?

Specialization, Geometric Growth, Managerial Specialization, Increased Use & capital equipment.

What is meant by a government spending multiplier? What is the formula for the multiplier associated with government spending ?

Spending multiplier (also known as fiscal multiplier or simply the multiplier) represents the multiple by which GDP increases or decreases in response to an increase and decrease in government expenditures and investment. It is the reciprocal of the marginal propensity to save

Which type of unemployment is relevant to a change in technology which makes a worker's skills obsolete?

Structural

What things are equal when output is equal to one?

TC=ATC; TVC=AVC=MC; TFC=AFC

What is known about TC & TFC when output is equal to zero?

TC=TFC (On 0, No: AFC, MC, AVC, ATC)

What are the formulae for TC, TFC, & TVC?

TC=TFC+TVC & TC=ATC*Q TFC=TC-TVC & TFC=AFC*Q TVC=TC-TFC & TVC=AVC*Q

How does the size of MPC affect the size of the multiplier ?

THe greater the MPC (the smaller the MPS), the greater the multiplier.

How does the Total Product curve relate to the cost curve?

TP is the reverse of TVC & TC.

What is the slope of TR & TC?

TR=MR & TC=MC

Price-taker? Price-maker?

Taker- take the price. price-maker - makes the price (monopoly)

What is meant by intransitivity?

That is when isoutility curves cross. Where A>B & B>C but C>A

What is meant by a business cycle ? ... an expansion? ... a recession? ...a recovery? ... a depression?

The business economic cycle is characterized by a sequence of well-known phases: Recession, Recovery, and Expansion. Recessions are the low points of the regular economic cycle. Economists define depression as a recession that is unusually long-lasting and severe.

What is meant by the marginal product of capital (MPK)?

The increase in the amount of output from an additional unit of capital.

What is meant by the marginal product of labor (MPL)?

The increase in the amount of output from an additional unit of labor.

What is meant by production?

The producing of the output.

Aggregate supply

The total of all planned production for the economy.

What is meant by returns to scale?

This is when all inputs increase by a constant factor & output increases by the same proportional change that is constant returns to scale.

What is meant by diseconomies of scale?

This occurs at level C of a LR ATC curve. TC rises as Q rises.

In the short run, a firm must be able to cover which type of cost in order for it to make sense for the firm to operate?

Variable.

How are the vertical & horizontal intercepts of a budget constraint determined?

Vertical: I/Py Horizontal: I/Px

Animal Spirits

What determines the autonomous level of business investment according to John Maynard Keynes

How do MPL & APL relate to the cost curves?

When MPL is at it's peak, MC curve is at its minimum. When APL is at it's peak, AVC curve is at its minimum.

What is meant by a multiplier? What is the formula for the multiplier associated with investment ?

any increase in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy 1/(1−MPC)

What is meant by a tax multiplier? What is the formula for the multiplier associated with taxes?

ax multiplier represents the multiple by which gross domestic product (GDP) increases (decreases) in response to a decrease (increase) in taxes.(-MPC/1-MPC)

How can a Cobb-Douglas Production Function be used to calculate MPL & MPK?

change in Q/change in labor

What happens when the economy is operating in an inflationary gap?

consumers are more inclined to purchase goods and services

Fred Flintstone was laid off at the quarry because the nation is suffering from a recession

cyclical

What happens when the economy is operating in a recessionary gap?

increased unemployment

What is meant by the law of diminishing marginal product?

the marginal product of an input declines as the quantity of the input decreases.

Unemployment Formula:

unemployed/labor force