Microeconomics chapters 2-9

  1. Idea of Perfect Competition
    to maximize profit and value
  2. Formula for Accounting Profits
    Revenue - Input Costs
  3. Formula for Economic Profits
    Revenue - Input Costs - Opportunity Costs
  4. Requirements for Perfect Competition
    • 1. Large number of small producers
    • 2. Homogenous product
    • 3. No limits on entry/exit
    • 4. Perfect and symmetrical knowledge
  5. Define Production Function
    A technical relationship between physical quanity of output from various levels of a variable input with a bundle of fixed inputs per unit of time. 
  6. What is the Law of Diminishing Marginal Product
    Every production function has a point of diminishing marginal product (or returns)
  7. What are the 3 phases of the Production Function
    • 1. Increasing Marginal Returns: when marginal returns increase at an increasing rate.
    • 2. Decreasing Marginal Returns: when marginal returns increase at an increasing rate. 
    • 3. Negative Marginal Returns: when marginal returns are decreasing
  8. Define Market
    a process where buyers and sellers interact
  9. Define Demand
    the quanities of good that consumers are willing to purchase at alternative prices
  10. Define Quanity Demanded
    Amount purchased at a price, (a quanity NOT a relationship)
  11. Demand Shifters
    • 1. prices of substitute goods
    • 2. prices of complimentary goods
    • 3. consumer income
    • 4. tastes & preferences
    • 5. expectations 
    • 6. demographics
  12. Supply Shifters
    • 1. number of firms
    • 2. expectations
    • 3. technology
    • 4. taxes & subsidies
    • 5. prices of inputs
  13. Define Supply
    willingness to sell
  14. Define Quanity Supplied
    amount produced at a price (quanity NOT a relationship)
  15. Define Equilibrium Price
    price at which quanity supplied is equal to quanity demanded
  16. Conditions for Surplus
    price > equilibrium
  17. Conditions for Shortage
    price < equilibrium
  18. Economics
    particular social science that deals with allocation of scarce resources among an unlimited number of competing alternative uses
  19. Agricultural Economics
    socal science that deals with allocation of scarce resources among those competing alternative uses found in production, processing, distribution, and consumption of food and fiber. 
  20. 5 Basic Economic Decisions
    • 1. what to produce
    • 2. how to produce
    • 3. how much to produce
    • 4. where to produce
    • 5. for whom to produce
  21. Price System
    allocative system in which economic choices are based on prices
  22. Command System
    allocative system in which economic choices are made by a central administrative unit
  23. Agribusiness
    firms engaged in farm service marketing, agricultural production, food processing, food distribution, and consumption
  24. Economic Model
    expected pattern of economic behavior
  25. Ceteris Paribus
    "let one economic variable (cause) change and see how other variable (effect) changes, assuming else remains unchanged," 
  26. Formula For Marginal Product
    (Change Total Product) / (Change Variable Input)
  27. Exogenous Factors
    factors affecting profitability of the firm beyond the control of the manager. EX - input & output costs 
  28. Endogenous Factors 
    factors affecting profitability of the firm that manager can control. EX - variable inputs, quanities
  29. Two sides of a Firm
    Cost and Revenue
  30. Formula for Marginal Cost
    (change total cost) / (change quanity)
  31. What do you do to get Average Costs
    Divide by quanity
  32. How to Get Market Supply Curve
    horizontal summation of individual firm supply curves
  33. Industry
    collection of firms producing the same or similar products
  34. Value of Marginal Product Curve (VMP)
    (amount of marginal product) x (constant price of product)
  35. Marginal Factor Cost
    Additonal cost associated with unit increase of variable input; equal to price of variable input
  36. Demand Curve of the Varable Input
    quanities of the variable input used by the firm at alternative input prices; equal to VMP curve in rational range of production
  37. Marginal Firm
    firm in an industry with the highest average costs and most likely firm to leave industry if prices fall
  38. Input Demand Shifters
    • 1. price of product
    • 2. technology
    • 3. supply shift of other factors
  39. Utility
    satisfaction created by the consumption of goods and services
  40. Know about the Substitution and Real Income Effects
    • Substitution: EX - price of beef goes up, relative price of chicken goes down looks more appealing
    • Real Income: EX- price of beef goes up, purchasing power of consumer decreases and consumer is forced to buy less of everything including beef
  41. What is Utility Determind By
    tastes & preferences
  42. Goal of Consumer
    maximize utility given limited resources
  43. What are the Assumptions of the Consumer
    • 1. opportunity cost of purchasing = price of good
    • 2. rational behavior (more > less)
    • 3. consumer can express preferences
    • 4. budget constraint
    • 5. consumption includes utility from purchasing
    • 6. consumer seeks to maximize marginal utility
  44. Total Utility
    satisfaction obtained from consuming different quanities of two different goods
  45. Marginal Utility
    additional utility gained from one additional unit of consumption
  46. What is Market Demand
    aggregation of individual consumer demands
  47. Elasticity
    measure of responsivenessof quanity demanded to changes in price

    E = (% change in quanity demanded) / (% change in price)
  48. Cross Price Elasticity
    • measures changes in quanity demanded caused by a change in the price of substitutes and complements
    • E= (% change in quanity demanded of good A) / (% change in price of good B)
Card Set
Microeconomics chapters 2-9
returns competition