Micro Final

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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


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