Econ 203 exam 3 galose

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Elasticity of demand

Measures the responsiveness of quantity demanded to a change in the product price

Law of demand

More of a good will be bought the lower its price, less will be bought the higher it's price, ceteris paribus

When goods are complements, cross-price elasticity is

Negative

Average total cost

Total cost divided by the quantity of output in a given time period

Average fixed cost

Total fixed cost divided by the quantity of output in a given time period

When a firm doubles its inputs and finds that its output has more than doubled, this is known as:

Economies of scale

If the cross-price elasticity of demand for SUVs with respect to the price of gasoline is -0.10, and gasoline prices rise by 18 percent, then SUV sales should, ceteris paribus,

Falls by 1.8 percent

Total cost

Fixed costs plus variable costs

A price increase from $43 to $49 results in an increase in quantity supplied from 220 units to 240 units. Using the midpoint formula the price elasticity of supply in this price range is:

0.67

The four market structures?

1. Perfect competition 2. Monopolistic competition 3. Oligopoly 4. Monopoly

If the price of labor or some other variable resource decreased, the:

MC curve would shift downward

Monopolistic competition

Many firms, a little market power

Ceteris paribus, the law of diminishing returns states that beyond some point, the

Marginal physical product of a factor of production diminishes as more of that factor is used

Economies of scale

Reductions in minimum average costs that come through increases in the size (scale) of plants and equipments

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:

$200,000 and its economic profits were zero.

Oligopoly

A few firms, considerable market power

The cross elasticity of demand between Quaker State motor oil and Texaco motor oil is likely to be:

a positive number

The long run is a period during which:

all inputs can be varied and no inputs are fixed.

A fixed cost is:

any cost that a firm would incur even if output was zero.

If average total cost is declining, then:

marginal cost must be less than average total cost.

What is human capital?

the knowledge and skill of human beings and their ability to learn and apply new knowledge on their own

Explicit costs

A payment made for the use of a resource

Long run

A period of time long enough for all inputs to be varied

Production function

A technological relation-ship expressing the maximum quantity of a good attainable from different combinations of factor inputs

If you know that when a firm produces 10 units of output, total costs are $1,030 and average fixed costs are $10, then variable costs are:

$930

Income elasticity of demand

% change in quantity demanded divided by % change in income

Demand is unitary elastic

% change in quantity demanded is exactly equal to % change in price

A 3 percent increase in the price of tea causes a 6 percent increase in the quantity of coffee sold. The cross elasticity of demand for coffee with respect to the price of tea is:

+2.0

Suppose the quantity demanded of roses increases from 500 to 600 stems when income rises from $10,000 to $20,000. Using the midpoint formula income elasticity of demand for roses is

0.27

Blossom, Inc. sells 500 bottles of perfume a month when the price is $7. A huge increase in resource costs forces Blossom to raise price to $9, and the firm only manages to sell 460 bottles of perfume. Using the midpoint formula the price elasticity of demand is:

0.33

The elasticity of supply for a product will be 2 if:

A 1 percent decrease in price causes a 2 percent decrease in quantity supplied

Perfect competition

A market in which no buyer or seller has market power

Two types of profit?

Accounting profit Economic profit

Marginal cost

Additional cost of one additional output

What is the form of most wealth in modern societies?

Conscientious parents and mothers, rank as the major wealth creators in modern societies, as, of course, do the offspring whose own effort is crucial in assembling that capital.

Demand is elastic

Consumer response is large relative to the price change

Demand is inelastic

Consumer response is small relative to the price change

Variable cost

Costs that do change with the amount produced

Fixed cost

Costs that don't change with the amount produced

Complementary goods

Goods are frequently consumed in combination; when the price of good X rises, the demand for good Y decreases, and vice versa, ceteris paribus

Substitute goods

Goods the can replace each other; when the price of good X rises, the demand for good Y increases, and vice versa, ceteris paribus

Monopoly

One firm only

When goods are substitutes, cross-price elasticity is

Positive

Cross-price elasticity of demand

The % change in quantity demanded of X divided by the % change in price of Y

Elasticity of supply

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

Profit

The difference between total revenue and total cost

Normal profit implies that

The factors employed are earning as much as they could in the best alternative employment.

Marginal cost

The increase in total cost associated with a one-unit increase in production

Law of diminishing returns

The marginal physical product of a variable input decline as more of it is employed with a given quantity of other (fixed) inputs

Marginal physical product

The measure of this added output as labor increases

Market structure

The number and relative size of firms in an industry

Normal profit

The opportunity cost of capital

Price elasticity of demand

The percentage change in quantity demanded divided by the percentage change in price

Implicit costs

The value of resources used in production, even when no direct payment is made

Average variable cost

Total variable cost divided by the quantity of output in a given time period

Duopoly

Two firms

Average fixed cost:

declines continually as output increases.

If a good is normal, its

income elasticity of demand is positive


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