Microeconomics test 2

Consumer Surplus

-Maximum/Reservation price(MB) minus Market price(MC) -Area under the demand curve (MB) and above the market price (MC)

If Revenue= 30,000 and the total cost= 26,000. What is the profit?

4,000. Profit= total revenue-total cost

Total Consumer Surplus

= BxH/2

Maximized utility when?

Last dollar spent on each good provides the same marginal utility

Rule of seller

MB is greater than or equal to MC MR is greater than or equal to MC

Economic Surplus

MB-MC

If a consumer reallocates his or her spending away from Good A and towards Good B, then the consumer's total utility will increase if:

MUA/PA < MUB/PB.

If a consumer reallocates his or her spending away from Good B and towards Good A, then the consumer's total utility will increase if:

MUA/PA > MUB/PB.

The market price measures

Marginal cost: the amount the buyer will actually have to pay

If the output can be varied continuously, then the firms in a perfectly competitve market maximize their profits by choosing the level of output such that

P=MC

Total Revenue

Price x Quantity = total amount of $ collected by a seller (sales)

Supply

Provide something (Qunits) for payment

Question of seller

Should I/We produce/provide one more?

Nominal price

The absolute price of a good in dollar terms

What is the income effect of a price increase?

The change in quantity demanded of a good that results because an increase in the price of the good decreases purchasing power.

What is the income effect of a price decrease?

The change in the quantity demanded of a good that results because a fall in the price of the good increases purchasing power.

cost

expense of using inputs (negative value for suppliers)

Factor of production

is an input used in the production of a good or service

Total cost

the sum of all payments made to the firm's fixed and variable factors of production

A firm's fixed cost is the sum of all payments made

to the firm's fixed factors of production

fixed cost + Variable cost =

total cost

A firms ________ cost is the sum of all payments the firm makes to inputs whose quantites can be altered in the short run.

variable

Diminishing marginal utility

when a goods value slowly decreases as you obtain more of it

What are long run economics always equal to?

zero

When does a firm have no control over the price it charges?

When a firm is perfectly competitive

Geoff demands 5 bars of soap for 1$ per month. If there are 1000 people in the market with a demand curve like Geoffs What is the market demand for soap each month when the price of soap is 1$ ber bar?

When the price is $1, Geoff demands 5 bars of soap per month, so if there are 1000 people in the market like Geoff, then the quantity demanded will be 5000

Why are supply curves upward sloping?

because as prices rise firms with a higher opportunity cost of producing the product will be willing to start supplying the product, and because individual suppliers already in the market will be willing to turn to more costly production techniques to supply more of the product

If the dollar price of a good decreases relative to the average dollar price of all other goods, then the real price of a good will ________

decrease

If total consumer surplus in a market is $2,000 per day then the total amount, in aggregate, that consumers would be willing to pay to participate in that market is

equal to $2,000 a day

Marginal Revenue

extra dollars collected from selling or providing one more (MB of being a seller)

The sum of all payments made to the firms fixed factors of production is the firms___________

fixed cost

Short run

the period of time sufficiently short that at least some of the firm's factors of production are fixed

Profit

total revenue- total cost

Suppose the price of a sandwhich from Dagwoods Deli is 5$, there are 200 people who buy 1 sandwhich per week and 100 people who buy 2 sandwiches per week. Thus, at a price of $5, the market demand each week for sandwiches from Dagwood's Deli is ___________

The market demand each week for sandwiches is 400. Explanation: When the price is $5, the quantity demanded is (1x200)+(2x100)=400

The affordable combination of goods that yields the highest total utility for a consumer

The optimal combination of goods for a consumer

fixed factor of production

an input whose quantity cannot be altered in the short run

What are some characteristics of perfectly competitive markets?

firms can easily enter and exit the market, all firms sell the same standardized product

If you are eating cake and enjoy every bit, but each bite is never quite as good as the bite before it. Thus with each bite of chocolate cake your total utility ________ while your marginal utility _______.

increases ; decreases

When making a decision, the buyers reservation price measures the .....

marginal benefit: what the buyer is willing to pay

Goal of seller

maximize profit

As living standards improve

needs remain the same, but wants increase

Long run

a period of time of sufficient length that all the firm's factors of production are variable

If a firms total revenue is greater than its total cost, than the firm ________-

is profitable

The affordable combination of goods that yields the highest total utility for a consumer is known as the ________ combination of goods.

optimal

Price

payment per unit of "output"

Supply will increase as the number of

sellers in the market increases

The nominal price of a good is

the absolute price of the good in dollar terms.

What are the factors of production?

the actual inputs used in producing a good or service, not the money used to buy the inputs