Economics II - Test 2

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14 cards   |   Total Attempts: 182
  

Cards In This Set

Front Back
Equilibrium
Where the Q(d) = Q(s)
Price elasticity of demand
Relative response of quantity demanded of product in reaction to price change
Elastic
Greater than proportional change in Q(d)

Luxury items
>% of Budget
> # of Substitutes
Long Run
Inelastic
Less than proportional change in Q(d)

Necessities
<% of Budget
< # of Substitutes
Short Run
Elastic Number
%ΔQ(d)
%ΔP

>1 = Elastic
<1 = Inelastic
Accounting profit
What a company has left over after taking into account all explicit cost (reported earnings)
Economic profit
What a company has lefte over after taking into account all costs, implicit and explicit (reported earnings less imputed costs
Imputed costs
Owner's wages
Interest
Rent
Fixed costs
Costs that do not change proportionally with increase/decrease in production

Rent
Property taxes
Indirect labor
Interest
Insurance
Depreciation
Variable costs
Costs that do change proportionally with level of output

Materials
Components
Labor (direct - wages)
Law of diminishing returns
A. Short run phenomenon - The time frame in which at least one of a companies factor inputs remains constant
B. Physical constraint/limitation
C. Universal

Any company can only go on adding additional variable factor input up to a point, beyond which every additional factor input added reduces marginal productivity.
4 Market structures
1. Perfect Competition - No company is able to influence price
2. Monopoly - One company; Company = Industry
3. Oligopolistic - Few producers
4. Monopolistic - Many different sellers
5 Characteristics of Perfect Competition
1. Many, Many sellers
2. Homogeneous/identical products
3. Very easy entry/exit
4. Expectation of existence of perfect knowledge - no one seller has advantageous position
5. No control over price
Benefits of monopoly power
1. Entreprenuerial Incentive
2. Economies of scale
3. Research & Development