portfolio 2
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Portfolio
Takahiro Kono
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Definitions
• Cost Theory: the theory that the price of an object or condition is determined by the sum of the cost of the resources that went into making it
• Revenue Theory: the change in total revenue earned by a firm that results from employing one more unit of labor
• Profit Theory: The positive gain from an investment or business operation after subtracting from all expenses
• Marginal Cost: Increase in total cost of producing an extr unit of output
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• Total Costs: Total cost to produce a certain output TC=TFC+TVC
• Total Variable Cost: Total cost of the variable assets that a firm uses in a given period of time
• Total Fixed Costs: Total cost of fixed assets used in a given time period
• Price Discrimination: When firms actively adjust prices according to the willingness/ ability of different consumers to pay
• Macroeconomics: The Study of a national economy• GDP: Gross Domestic Product= Total value of all
spending in an economy
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• GNP: Gross National Product= Total income earned by a nation’s factors of production regardless of where the assets are located
• Real GDP: Nominal GDP adjusted for inflation• Economic Development: A multidimensional concept that
includes poverty reduction, provision of education, health care and law and order, civil liberties and civic participation
• Aggregate Demand: The aggregate (total) spending on goods and service in a period of time at a given price level
• Aggregate Supply: The amount of goods and services that all industries will produce at a given price level
• Fluctuations in the growth of real output, consisting of periods of expansion and contraction called business cycles or trade cycles
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• Recession: When the economy experiences two consecutive quarters of falling GDP
• Neoclassical Perspective: Price mechanism regulates markets, full employment achieved without intervention, economy is an harmonious system, perfect competitive equilibrium is the benchmark
• Keynesian Perspective: Price mechanism fails as wages are “downward sticky”, reaching full employment requires intervention, the economy is inherently unstable, the economy can get stuck in the SR
• Fiscal Policy: Increase government spending, decrease personal and/or business taxes, combination of both policies
• Monetary Policy: Increase money supply, lower interest rates (easy money)
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• The Multiplier Effect: Any change in consumption, investment, government spending, and net exports. Prices induced expenditures, a chain reaction of further expenditures
• Crowding-out Effect: Governments borrow to finance fiscal policy, interest rates rise, private investment fails
• Unemployment: Number of adults who are not working but actively look for a job
• Underemployment: Number of adults who are working part-time but looking for full time work or people who are not fully using their skills
• Unemployment Rate: Number of unemployed as a percentage of the labor force
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• Inflation: A continuing increase in the general price level of goods and service within the economy
• Deflation: A continuing decrease in the general price level of goods and service within the economy
• CPI (Consumer Price Index): Compares the value of a basket of goods and services in one year with a same basket in the base year
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Diagrams
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The Total Product Curve
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Average and Marginal Product Curves
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TFC, TVC, and TC
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Cost Curves
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LRAC
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Economies and Diseconomies of Scale
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Revenue Curves: Perfectly Esalstic Demand
5
Price
Output
D=AR=MR
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Relationship between D, AR, MR, TR, and PED for a Normal Demand Curve
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Shut Down Price
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Profit Maximizing Level of Output with Perfectly Elastic Demand
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Profit Maximizing Level of Output with Perfectly Elastic Demand
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Profit Maximizing Level of Output with Normal Demand
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Profit Maximizing Level of Output with Normal Demand
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Normal Profit Normal Demand
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Abnormal Profit Normal Demand
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Loss Normal Demand
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Profit, Sales, and Revenue Maximization
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Profit, Sales, and Revenue Maximization
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Price Discrimination Example Total Ticket Sales
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Price Discrimination Example Adult Tickets
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Price Discrimination Example Adult Tickets
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Productive Efficiency: Resources are not wasted
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Allocative Efficiency/ Socially Optimum Level of Output
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Perfect Competition Versus Monopoly
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Perfect Competition Versus Monopoly
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Aggregate Demand Curve
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Shifts in AD
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Demand for investment funds
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Aggregate Supply in the Short Run
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Shifts in SRAS
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Macroeconomic Equilibrium
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Shifts in AD
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Shifts in SRAS
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Business Cycle
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Using Diagrams to Illustrate Macroeconomic Goals
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Using Diagrams to Illustrate Macroeconomic Goals
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Changes in AD
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Changes in SRAS
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Deflationary (recessionary) Gap
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Inflationary Gap
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Full Employment Level of Output
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Changes in AD
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Changes in AS
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Neoclassical (Free Market) LRAS
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Long-run Equilibrium
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Long-run equilibrium and Decline in AD
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Return to Long-run equilibrium
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Long-run equilibrium
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Long-run equilibrium and Increase in AD
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Return to Long-run equilibrium
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Keynesian SR/LRAS
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Inflationary Gap in the Keynesian Perspective
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Full Employment Equilibrium in the Keynesian Perspective
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Economic Growth: Neoclasical Perspective
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Economic Growth: Keynesian Perspective
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The Multiplier Effect
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Crowding-out Effect
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Crowding-out Effect
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Demand-pull Inflation
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Cost-push Inflation
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“Good” Deflation
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Phillips Curve
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Phillips Curve