ECON 1 (2) FIB

A(n) __________ is anything people want to achieve.

objective

Pollution from the production and consumption of gasoline provides an example of

market failure

Goods or services that generate external costs tend to be

over produced and over consumed

The price elasticity of demand is the ratio of the percentage change in the quantity of a good demanded to a given percentage change in its __________.

price

The production possibility frontier model shows the trade-off faced by any __________, in which only two goods or services are produced.

producer

Economists use the term __________ to mean the difference between a firm's total revenues and its costs, including both explicit and implicit costs.

profit

When the quantity supplied exceeds the quantity demanded, there is an excess quantity supplied, or a(n) __________.

surplus

In a world of scarcity, alternatives are never unlimited, and __________ are universal.

constraints

The difference between what a consumer would willingly pay for each unit and the amount actually paid at the market price is the __________ surplus for that unit.

consumer

What is produced in a market system is determined by

consumers

If a product has an inelastic demand, this means that

consumers are relatively insensitive to a change in the price of the product.

Since low opportunity cost producers are efficient producers, this increases __________ resource allocation.

efficient

Market performance refers to how __________ markets do their job of providing arrangements for mutually beneficial trade.

efficiently

When the percentage change in quantity demanded equals the percentage change in price, demand is said to be unit __________.

elastic

Consumer equilibrium is achieved when the ratio of the marginal utility of one good to its price is __________ to the ratio of the marginal utility of another good to its price.

equal

If people __________ the price of a particular good to rise relative to the prices of other goods, they will step up their rate of purchase before the change takes place.

expect

__________ costs are payments by the firm for factors of production or payments to suppliers and vendors.

explicit

Most markets have many buyers and sellers, each making plans independently. Therefore, markets __________ the exchange between buyers and sellers.

facilitate

According to the income effect, a decrease in the price of a product leads buyers to

feel as though their income or budget has increased.

The principle of diminishing returns states that increasing the employment of some inputs while, others remain __________, eventually leads to a decrease in marginal physical product.

fixed

The opportunity cost of a good or service is the __________opportunity to pursue the best possible alternative activity with the same time or resources.

forgone

The decrease in demand for a good that results from the decrease in consumer incomes is shown as a shift in the entire demand curve to the __________.

left

If the quantity demanded changes by a(n) __________percentage than price, demand is said to be inelastic.

lesser

Comparative advantage is the ability to produce a good or service at a relatively __________ opportunity cost.

lower

The difference between the most a buyer is willing and able to pay and the amount actually paid

is the consumer surplus

Marginal cost is calculated by dividing

the change in total cost by the change in the output

Market performance means that

trade between individuals is efficient

If TU for the fifth Q is 83, and TU for the sixth Q is 97, MU for the sixth Q is

14

A market is any arrangement that people have for __________ with one another.

trading

The opportunity cost of something is

what is given up to acquire it

Suppose at a price of $10 the quantity demanded is 100. When price falls to $8, the quantity demanded increases to 130. Price elasticity of demand between $10 and $8 is approximately

-1.17

A farm can produce 1,000 bushels of wheat per year with 2 workers and 1,300 bushels of wheat per year with 3 workers. The marginal product of the third worker is

300 bushels

If a firm produces 10 units of output and incurs $30 in average variable cost and $5 in average fixed cost, average total cost is

35

Insufficient competition or monopoly markets cause a failure because firms charge a price __________ their opportunity costs, making the market price too high.

above

If the price of a good changes by 15% and the quantity demanded changes by 20%, then price elasticity of demand is equal to

approximately -1.33

Public goods fail to coordinate choices in a way that achieve efficient use of resources

because they lead to a free rider problem

In the case of harmful externalities, market failure occurs because prices are too low and fall __________ opportunity costs.

below

Three important variables to consider when determining consumer equilibrium are marginal utility, price, and __________.

budget

Variable inputs are factors that __________ be changed in a short time in order to increase or decrease output.

can

Fixed inputs are factors that __________ be increased or decreased in a short run in order to increase or decrease output.

cannot

If a firm is currently producing zero output in the short run, total __________ equals total fixed cost.

cost

If the price __________ causes total revenue to increase, demand is said to be elastic.

decrease

Other things being equal, a(n) __________ in demand will reduce market price and quantity. increase or decrease

decrease

The principle of __________ marginal utility states the greater the consumption of some good, the smaller the increase in utility from a one-unit increase in consumption of that good.

diminishing

If the quantity demanded changes by a(n) __________ percentage than price, demand is said to be elastic.

greater

A store sold an average of 30 ties per day at a price of $5 per tie but sold 40 of the same ties per day at a price of $3 per tie. Hence, the absolute value of the price elasticity of demand is

greater than zero but less than 1

Ultimately, producers determine __________ to combine resources to create goods and services.

how

From a point of equilibrium, which of the following would most likely result in a surplus?

if the government kept the price above the equilibrium price

__________ costs are the opportunity costs of using resources contributed by the firm when it engages in production.

implicit

According to the __________ effect, a decrease in the price of a produce leads buyers to feel as though their income or budget has increased.

income

If the price __________ causes total revenue to increase, demand is said to be inelastic.

increase

Other things being, equal a decrease in supply will __________market price. increase or decrease

increase

A decrease in the price of eggs will result in an

increase in the quantity of eggs demanded

An increase in the price of eggs will result in an

increase in the quantity of eggs supplied

A shift of a demand curve to the right, other things being equal, will

increase price and quantity

A firm producing a level of output that is inside its production possibility frontier indicates idle or unemployed resources, or __________ production

inefficient

A market failure is a situation in which a market coordinates choices in a way that achieves resource usage __________.

inefficiently

Elasticity varies along a linear demand curve. The lower (rightward) segment of a linear demand curve tends to generate a(n) __________ response.

inelastic

If total revenue goes down when price falls, the price elasticity of demand is said to be relatively

inelastic

Other things being equal, __________ physical product is the amount by which output, expressed in physical units, increases because of adding one unit of a variable input.

marginal

Other things being equal, __________ utility of a good is the amount of added utility that a consumer gains from consuming one more unit of that good.

marginal

An income policy (or price policy) of rent control

may result in landlords leaving the business because they cannot cover costs

Other things being equal, a change in supply would cause a(n) __________ along the demand curve.

movement

Because demand curves have __________ slopes, the midpoint formula for price elasticity of demand yields a negative value.

negative

The slope of the typical production possibility frontier is __________.

negative

When economists study the range of an elastic response it is stated in a(n) __________ value.

positive

The __________ surplus earned on each unit is the difference between the market price and the minimum that the producer would have been willing and able to accept in exchange for that unit.

producer

__________ rights are legal rules that establish what things a person may use or control.

property

__________ goods fail to coordinate market choice in a way that achieve efficient resource use because they lead to a free rider problem.

public

According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers

purchase more of the now relatively less expensive good

Rationality is acting __________ to achieve an objective, given constraints on available opportunities.

purposefully

The concept of comparative advantage is based upon

relative opportunity costs

A firm producing a level of output that is on its production possibility frontier has no idle resources and is using each __________ efficiently.

resource

Society has a dilemma determining what goods and services should be produced because

resources are scarce

Total __________ is the price times the quantity sold.

revenue

Firms that employ more technology in the production of output will decrease production cost and shift the supply curve to the __________.

right

Economists use the term utility to refer to the __________ people get from the consumption of goods and services.

satisfaction

In economics, society has a dilemma determining what goods and services to produce because resources are __________.

scarce

An increase in input costs tends to reduce the supply and __________ the supply curve to the left.

shift

When the government legally sets the price below the equilibrium price, the quantity demanded exceeds the quantity supplied creating a prolonged __________ in the market.

shortage

According to the __________ effect, goods that are now relatively more costly, cause the increase in the quantity demanded of a good whose price has fallen, and are now relatively less expensive.

substitution

Monopoly leads to market failure because

the price of a good is above the opportunity cost to provide the good at equilibrium.

Consumer equilibrium is a state of affairs in which a consumer cannot increase the __________ utility gained from a given budget by spending less on one good and more on another.

total

The __________ physical product curve shows the entire quantity of output a firm can produce, measured in physical units.

total

If a firm is currently producing zero output in the short run, total cost equals

total fixed cost

Any point inside a production possibility frontier indicates

unemployment and/or inefficiency

Economists identify the satisfaction a person derives from the consumption of a good as

utility

Total __________ cost can change with a change in the level of output.

variable

Ultimately, the consumer makes the choice of __________ will be produced.

what