Term
|
14. When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing
|
|
Definition
|
|
Term
|
15. Cindy’s Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is
|
|
Definition
|
|
Term
15. Cindy’s Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 100 units of output (car washes). The firm's total cost is
a. $100.
b. $200.
c. $300.
d. $500. |
|
Definition
|
|
Term
| what are the 4 market structures? |
|
Definition
1. Perfectly compectitive
2. Momopoly
3. Oligopoly
4.Monopolistic competition |
|
|
Term
| What is Marginal Revenue = to? |
|
Definition
|
|
Term
| Marginal revenue is = to? |
|
Definition
|
|
Term
| What could cause a short-run decision(referring to Shutdowns)? |
|
Definition
| If the Average Variable Cost is = to the price then a Short-run decision is made |
|
|
Term
| What happen if a Long-run shutdown decision is made? |
|
Definition
1. TR< VC
2. Loss of Revenue
|
|
|
Term
|
Definition
| costs that can't be recovered |
|
|
Term
Are Markets are usually a good way to organize economic activity’? If Yes is it efficient? What is maximized?
|
|
Definition
- yes
- In absence of market failures, the competitive market outcome is efficient
- maximizes total surplus
|
|
|
Term
What is one type of market failure and what is the specific term?
|
|
Definition
-
The uncompensated impact of one person’s actions on the well-being of a bystander
- Externality
|
|
|
Term
What is Negative externality?
|
|
Definition
Impact on the bystander is adverse
|
|
|
Term
What is Positive externality?
|
|
Definition
Impact on the bystander is beneficial |
|
|
Term
Self-interested buyers and sellers usually? and make the market....
|
|
Definition
Neglect the external costs or benefits of their actions
So the market outcome is not efficient |
|
|
Term
What happens If negative externality occur?
|
|
Definition
| Market quantity larger than socially desirable |
|
|
Term
What happens If positive externality? |
|
Definition
| Market quantity smaller than socially desirable |
|
|
Term
What would remedy an, “internalize the externality”?
|
|
Definition
- Tax goods with negative externalities (Pigouvian tax)
- Subsidize goods with positive externalities
|
|
|
Term
“If private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own”
What is this referring to?
|
|
Definition
|
|
Term
The Coase Theorem
What does this promote?
|
|
Definition
- Whatever the initial distribution of rights
Interested parties can reach a bargain:
A) Everyone is better off
B) Outcome is efficient |
|
|
Term
|
Definition
| is a person who receives the benefit of the public good without paying for it |
|
|
Term
The free-rider problem causes what?
|
|
Definition
- Public goods are not excludable, so people have an incentive to be free-riders
- If no one pays for the public good, the good will not be supplied
- The amount of public good supplied is usually less than the socially efficient amount
|
|
|
Term
What are Common Resources?
|
|
Definition
-
Common resources are non-excludable but also rival in consumption
- The combination of these factors means you cannot prevent free riders from using the good
- Little incentive for firms to provide (done by government)
|
|
|
Term
formulas to memorize
maximize profit:
Profit = Total Revenue – Total Cost
Total Revenue =
- the amount a firm receives from the sales of its output
Total Revenue = PxQ
Total Cost = the market value of the inputs a firm uses in production
|
|
Definition
if mc<mb keep productivity
if mc>mb make less
short-run < 1yr
Long-run will make all fixed costs = 0
Suppose a firm has three factory sizes: Small, Medium, or Large
Each factory size has its own SRATC curve
In long run, can “choose” the SRATC curve, i.e. the firm can change to a different factory
[image]
|
|
|
Term
|
. If something happens to alter the quantity supplied at any given price, then
|
|
Definition
|
|
Term
|
Michael is a college student. He can either buy a textbook for $100 or save up for a road trip he wants to take during the summer. This illustrates the principle that
|
|
Definition
|
|
Term
|
Which of the following best describes the movement from E1 to E2?
[image] |
|
Definition
|
|
Term
[image]
Which of the following combinations of points are both efficient and attainable for this economy?
|
|
Definition
|
|
Term
|
5. Annie is an excellent baker and Sam has a plentiful farm. If Sam trades eggs and butter to Annie for some of Annie’s bread and pastries,
|
|
|
Definition
|
|
Term
|
|
6. To determine whether a good is considered normal or inferior, one could examine the value of the
|
|
|
Definition
|
|
Term
|
7. An economic outcome is said to be efficient if the economy is
|
|
|
Definition
|
|
Term
[image]
At equilibrium, consumer surplus is
|
|
Definition
|
|
Term
|
A statement describing how the world should be
|
|
Definition
|
|
Term
|
10. George produces cupcakes. His production cost is $10 per dozen. He sells the cupcakes for $16 per dozen. His producer surplus per dozen cupcakes is
|
|
|
Definition
|
|
Term
|
|
11. The opportunity cost of an item is
|
|
|
Definition
|
|
Term
|
12. A rational decisionmaker takes an action if and only if
|
|
|
Definition
|
|
Term
|
Definition
|
|
Term
14. The sum of all the individual supply curves for a product is called
|
|
Definition
|
|
Term
|
15. When quantity moves proportionately the same amount as price, demand is
|
|
|
Definition
|
|
Term
|
16. Assume a market is perfectly competitive. When a new producer enters the market, the
|
|
|
Definition
|
|
Term
17. The market demand curve
|
|
Definition
|
|
Term
[image]
A price ceiling set at $5 will:
|
|
Definition
|
|
Term
|
19. A rational decision maker takes an action only if the
|
|
|
Definition
|
|
Term
|
20. David tunes pianos in his spare time for extra income. Buyers of his service are willing to pay $135 per tuning. One particular week, David is willing to tune the first piano for $115, the second piano for $125, the third piano for $140, and the fourth piano for $175. Assume David is rational in deciding how many pianos to tune. His producer surplus is
|
|
|
Definition
|
|
Term
21. If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of
|
|
Definition
|
|
Term
[image]
Which area represents consumer surplus when the price is P1?
|
|
Definition
|
|
Term
[image]
Which of the following movements would illustrate the effect in the market for doctor’s visits of an increase in the number of medical students graduating from medical school and successfully completing their residency programs?
|
|
Definition
|
|
Term
|
If demand is price inelastic, then when price rises, total revenue
|
|
Definition
|
|
Term
[image]
Between point A and point B on the graph, demand is
|
|
Definition
|
|
Term
|
A production possibilities frontier is a straight line when
|
|
Definition
|
|
Term
[image]
Buyers who value this good less than the equilibrium price are represented by which line segment?
|
|
Definition
|
|
Term
[image]
You want to hire a professional photographer to take pictures of your family. The table shows the costs of the four potential sellers in the local photography market. You hire Kevin for a price of $500. What is his producer surplus?
|
|
Definition
|
|
Term
|
Suppose there is an early freeze in California that reduces the size of the lemon crop. What happens to consumer surplus in the market for lemons?
|
|
Definition
|
|
Term
[image]
Suppose producer surplus is larger than C but smaller than A+B+C. The price of the good must be
|
|
Definition
|
|
Term
1. If a decrease in income increases the demand for a good, then the good is a(n)
a. substitute good.
b. complementary good.
c. normal good.
d. inferior good. |
|
Definition
|
|
Term
2. If an externality is present in a market, economic efficiency may be enhanced by
a. increased competition.
b. weakening property rights.
c. better informed market participants.
d. government intervention. |
|
Definition
|
|
Term
3. Suppose the cost of flying a 100-seat plane for an airline is $50,000 and there are 10 empty seats on a flight. The average cost per seat is
a. $50.
b. $500.
c. $50,000.
d. This cannot be determined from the information given. |
|
Definition
|
|
Term
4. Offering different opportunities to similar individuals who differ only by race, ethnic group, sex, age, or other personal characteristics is called
a. a compensating differential.
b. an efficiency wage.
c. discrimination.
d. compensating variation. |
|
Definition
|
|
Term
5. An economic outcome is said to be efficient if the economy is
a. using all of the scarce resources it has available.
b. conserving on resources, rather than using all available resources.
c. getting all it can get from the scarce resources it has available.
d. able to produce more than what is currently being produced without additional resources. |
|
Definition
|
|
Term
6. In general, elasticity is a measure of
a. the extent to which advances in technology are adopted by producers.
b. the extent to which a market is competitive.
c. how firms’ profits respond to changes in market prices.
d. how much buyers and sellers respond to changes in market conditions. |
|
Definition
|
|
Term
7. The benefit that government receives from a tax is measured by
a. the change in the equilibrium quantity of the good.
b. the change in the equilibrium price of the good.
c. tax revenue.
d. total surplus. |
|
Definition
|
|
Term
8. The accumulation of investments in people, such as education and on-the-job training, is known as
a. physical capital.
b. human capital.
c. efficiency wage.
d. compensating differentials. |
|
Definition
|
|
Term
9. A firm that has little ability to influence market prices operates in a
a. competitive market.
b. strategic market.
c. thin market.
d. power market. |
|
Definition
|
|
Term
10. When the supply of workers is plentiful, one would predict that market wages would be
a. determined outside the domain of economic theory.
b. determined solely by factors that affect demand.
c. low, other things equal.
d. high, other things equal. |
|
Definition
|
|
Term
12. The sum of all the individual demand curves for a product is called
a. income demand.
b. equilibrium demand.
c. complementary demand.
d. market demand. |
|
Definition
|
|
Term
13. Which of the following is not considered human capital?
a. the golf clubs a professional golfer uses to play golf
b. the skills a professional golfer has gained by practicing on the driving range
c. the professional golfer’s knowledge of how to play a better game learned from talking with other players
d. none of the above would be considered human capital |
|
Definition
|
|
Term
14. The equilibrium quantity in markets characterized by oligopoly is
a. higher than in monopoly markets and higher than in perfectly competitive markets.
b. higher than in monopoly markets and lower than in perfectly competitive markets.
c. lower than in monopoly markets and higher than in perfectly competitive markets.
d. lower than in monopoly markets and lower than in perfectly competitive markets. |
|
Definition
|
|
Term
16. Suppose good X has a positive income elasticity of demand. This implies that good X could be
(i) a normal good.
(ii) a necessity.
(iii) an inferior good.
(iv) a luxury.
a. (i) only
b. (i) and (ii) only
c. (i), (ii), and (iv) only
d. (iii) only |
|
Definition
|
|
Term
17. Diminishing marginal product occurs when
a. the marginal product of an input increases as the quantity of the input increases.
b. the marginal product of an input decreases as the quantity of the input increases.
c. total output increases as the quantity of an input increases.
d. total output decreases as the quantity of an input increases. |
|
Definition
|
|
Term
18. Economic profit is equal to total revenue minus the
a. explicit cost of producing goods and services.
b. opportunity cost of producing goods and services.
c. accounting cost of producing goods and services.
d. implicit cost of producing goods and services. |
|
Definition
|
|
Term
19. Which of the following is not a characteristic of monopolistic competition?
a. a large number of sellers
b. firms are price takers
c. free entry into the market
d. a differentiated product |
|
Definition
|
|
Term
20. Bubba is a shrimp fisherman who catches 4,000 pounds of shrimp per year. He can sell the shrimp for $5 per pound. His average total cost of catching shrimp is $3 per pound. Bubba’s annual total revenue is
a. $8,000.
b. $12,000.
c. $20,000.
d. $32,000. |
|
Definition
|
|
Term
21. In the broadest sense, economics is the study of
a. production methods.
b. how society manages its scarce resources.
c. how households decide who performs which tasks.
d. the interaction of business and government. |
|
Definition
|
|
Term
23. In a monopolistically competitive market,
a. there are only a few sellers.
b. each firm takes the price of its product as given.
c. firms can enter or exit the market without restrictions.
d. each firm produces a product that is essentially identical to the products of other firms in the market. |
|
Definition
|
|
Term
24. Some costs do not vary with the quantity of output produced. Those costs are called
a. marginal costs.
b. average costs.
c. fixed costs.
d. explicit costs. |
|
Definition
|
|
Term
25. When a good is rival in consumption,
a. one person's use of the good diminishes another person's ability to use it.
b. people can be prevented from using the good.
c. an unlimited number of people can use the good at the same time.
d. everyone will be excluded from obtaining the good. |
|
Definition
|
|
Term
[image]
11. Refer to Figure 1. At equilibrium, producer surplus is
a. $36.
b. $72.
c. $54.
d. $18. |
|
Definition
|
|
Term
[image]
15. Refer to Figure 2. Which supply curve represents perfectly inelastic supply?
a. S1
b. S2
c. S3
d. None of the supply curves is perfectly inelastic. |
|
Definition
|
|
Term
[image]
22. Refer to Figure 3. Which points are not currently attainable but could become achievable for this economy if there is an improvement in technology?
a. I, L
b. G, H
c. J, K
d. F, G |
|
Definition
|
|
Term
26. Taxes are costly to market participants because they
a. transfer resources from market participants to the government.
b. alter incentives.
c. distort market outcomes.
d. All of the above are correct. |
|
Definition
|
|
Term
27. Which of the following measures of cost is best described as "the cost of a typical unit of output if total cost is divided evenly over all the units produced?"
a. average fixed cost
b. average variable cost
c. average total cost
d. marginal cost |
|
Definition
|
|
Term
28. In a market economy,
a. households decide which firms to work for and what to buy with their incomes.
b. firms decide whom to hire and what to make.
c. a central planner makes decisions about production and consumption.
d. Both a and b are correct. |
|
Definition
|
|
Term
29. If a monopolist sells 100 units at $8 per unit and realizes an average total cost of $6 per unit, what is the monopolist's profit?
a. $200
b. $400
c. $600
d. $800 |
|
Definition
|
|
Term
30. Profit is defined as total revenue
a. plus total cost.
b. times total cost.
c. minus total cost.
d. divided by total cost. |
|
Definition
|
|
Term
|
1) Elasticities
You are given the following data for the price of carrots, the quantity demanded for carrots, as well as the quantity demanded for another good, onions:
|
Price of Carrots
|
Quantity of Carrots Demanded
|
Quantity of Onions Demanded
|
|
$2
|
10
|
3
|
|
$3
|
8
|
4
|
a. Using the midpoint method, calculate the percentage change in the price of carrots if the price increases from $2 to $3.
b. Using the midpoint method, calculate the percentage change in the quantity demanded for carrots if the number of carrots demanded decreases from 10 to 8, and calculate the percentage change in the quantity demanded for onions if the number of onions demanded increases from 3 to 4.
c. Compute the elasticity of demand for carrots. Are carrots elastic, inelastic or unit elastic?
d. Compute the cross-price elasticity. Are carrots and onions substitutes, complements, or neither?
e. What happens to total revenue when the price of carrots increases from $2 to $3? |
|
Definition
|
1) A. Percentage change in price = (3-2)/2.5 * 100% = 40%
B. Percentage change in quantity demanded (carrots) = (8-10)/9 * 100% = -22.22%
Percentage change in quantity demanded (onions) = (4-3)/3.5 * 100% = 28.6%
C. Elasticity of demand = -22.22%/40% = -0.55, inelastic
D. Cross Price Elasticity = 28.6%/40% = 0.715, substitutes
E. TR will increase because price and TR move in the same direction when the elasticity is less than 1. |
|
|
Term
|
1) Labor Markets
a. For a given labor market, suppose the labor demand curve is elastic and the labor supply curve is inelastic. Also suppose that the equilibrium wage is equal to $15 per hour. Sketch a diagram for labor supply and demand in this market, label the wage, and label the employment level as L*.
b. Suppose the marginal product of labor (MPL) is constant but the price of the product sold by firms increases. Sketch the effect of the price increase on the labor market and label the new equilibrium wage and employment level, L’.
|
|
Definition
|
|
