BackMicroeconomics Final Exam Key Concepts
Terms in this set (25)
Law of demand states that, ceteris paribus, as price decreases, quantity demanded increases, and vice versa.
Market equilibrium occurs when \(Q_d = Q_s\), meaning quantity demanded equals quantity supplied.
A shortage occurs when price is below equilibrium, causing quantity demanded to exceed quantity supplied: \(Q_d - Q_s\).
A surplus occurs when price is above equilibrium, causing quantity supplied to exceed quantity demanded: \(Q_s - Q_d\).
Law of supply states that, ceteris paribus, as price increases, quantity supplied increases, and vice versa.
Producer surplus is the area above the supply curve and below the market price, representing producers' benefit from selling at market price.
Total Cost is the sum of variable and fixed costs: \(TC = VC + FC\).
Average total cost is total cost divided by quantity: \(ATC = \frac{TC}{Q}\), or sum of average variable and average fixed costs.
Total revenue is price times quantity sold: \(TR = P \times Q\).
Marginal revenue is the change in total revenue from selling one more unit: \(MR = \frac{\Delta TR}{\Delta Q}\).
Firms maximize profit where marginal cost equals marginal revenue: \(MC = MR\).
Profit is total revenue minus total cost: \(\pi = TR - TC\), or \(\pi = (P - ATC) \times Q\).
A monopoly is a market structure with a single seller who controls the entire market supply and faces no close substitutes.
Barriers to entry are obstacles that prevent new firms from entering a market, sustaining monopoly power.
Price discrimination types: 1st degree (perfect), 2nd degree (by quantity blocks), and 3rd degree (by consumer groups).
Marginal social cost equals marginal cost plus marginal external cost: \(MSC = MC + MEC\).
Marginal social benefit equals marginal benefit plus marginal external benefit: \(MSB = MB + MEB\).
Rivalry means one person's use reduces availability for others; excludability means people can be prevented from using the good.
Goods classified as public, common, club, and private based on rivalry and excludability.
Comparative advantage is when a country can produce a good at a lower opportunity cost than another.
Absolute advantage is when a country can produce more of a good with the same resources than another country.
Tariff revenue equals tariff rate times quantity of imports: \(\text{Tariff Revenue} = \text{Tariff Rate} \times Q_{imports}\).
Consumer surplus is the area below the demand curve and above the market price, representing consumer benefit.
Area of triangle = \(\frac{1}{2} \times \text{Base} \times \text{Height}\), used to calculate consumer surplus, producer surplus, and deadweight loss.
Area of rectangle = Base × Height, used to calculate tariff revenue.