ECON 102 - MT 2

Consumers are willing to purchase a product up to the point where

the marginal benefit of consuming the product = its price

a negative externality exists if

the marginal social cost of producing a good or service exceeds the private cost

When a firm's long-run average cost curve is horizontal for a range of output, then that range of production displays

constant returns to scale

Economic costs of production differ from accounting costs in that

economic costs add the opportunity costs of a firm using its own resources while accounting costs do not

Over the past twenty years, the number of small family farms has fallen significantly and in their place there are fewer, but larger, farms owned by corporations. Which of the following best explains this trend?

economies of scale in farming

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

price elasticity of supply =

the % change in quantity supplied divided by % change in price

Elasticity

A measure of how much one economic variable responds to changes in another economic variable.

Law of Diminishing Marginal Returns

As more of a variable resource is added to a given amount of a fixed resource, marginal product eventually declines and could become negative

Inelastic

Describes demand that is not very sensitive to a change in price

negative externality

a cost that is suffered by a third party as a result of an economic transaction

if demand is inelastic, the absolute value of the price elasticity of demand is

less than one

the larger the share of a good in a consumer's budget, holding everything else constant, the

more price elastic is a consumer's demand

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire. If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor. What does this indicate about the supply curve for janitorial services?

supply is perfectly elastic

average product

the average amount produced by each unit of a variable factor of production

marginal product

the increase in output that arises from an additional unit of input

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. Which of the following statements accurately predicts the resulting increase in price?

the more elastic the supply curve, the smaller the price increase