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Cards In This Set
| Front | Back |
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Equilibrium
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Where the Q(d) = Q(s)
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Price elasticity of demand
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Relative response of quantity demanded of product in reaction to price change
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Elastic
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Greater than proportional change in Q(d)
Luxury items >% of Budget > # of Substitutes Long Run |
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Inelastic
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Less than proportional change in Q(d)
Necessities <% of Budget < # of Substitutes Short Run |
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Elastic Number
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%ΔQ(d)
%ΔP >1 = Elastic <1 = Inelastic |
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Accounting profit
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What a company has left over after taking into account all explicit cost (reported earnings)
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Economic profit
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What a company has lefte over after taking into account all costs, implicit and explicit (reported earnings less imputed costs
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Imputed costs
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Owner's wages
Interest Rent |
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Fixed costs
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Costs that do not change proportionally with increase/decrease in production
Rent Property taxes Indirect labor Interest Insurance Depreciation |
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Variable costs
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Costs that do change proportionally with level of output
Materials Components Labor (direct - wages) |
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Law of diminishing returns
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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. |
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4 Market structures
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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 |
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5 Characteristics of Perfect Competition
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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 |
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Benefits of monopoly power
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1. Entreprenuerial Incentive
2. Economies of scale 3. Research & Development |
