microeconomics
By drawing a demand curve with ________ on the vertical axis and ________ on the horizontal axis, economists assume that the most important determinant of the demand for a good is the ________ of the good.
quantity; price; quantity
Which of the following displays these two characteristics: nonrivalry and excludability?
quasi-public goods
Economists argue that the level of pollution should be
reduced to the point where the marginal benefit of pollution reduction is equal to the marginal cost of pollution reduction to society.
f the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would
remain constant
government can increase the consumption of a product that creates positive externalities by
subsidizing the production of the product so that the supply is increased and market price is reduced
when the price of a normal good falls, consumers buy a larger quantity because of the ______________ effect and the __________________ effect
substitution; income
what is the difference between technology and technological change?
technology is the processes it uses to turn inputs into goods and technological change is a change in the ability of a firm to produce a given level of output with a given quantity of inputs
In general, a "big ticket item" such as a house or new car will
tend to have a more elastic demand than a lower priced good
What is the difference between a firm's shutdown point in the short run and in the long run?
in the long run, a firm's exit point is minimum point of the average total cost curve, and in the short run, a firms shutdown point the minimum point on the average variable cost curve
what are the three conditions for a market to be perfectly competitive?
must have many buyers and sellers, firms must be producing identical products, and there must be no barriers to new firms entering the market
productive efficiency
a situation in which a good or service is produced at the lowest possible cost; the result of perfect competition
market failure
a situation in which a market left on its own fails to allocate resources efficiently
allocative efficiency
a state in which the good is produced up to the point where the last unit provides a marginal benefit to consumer equal to the marginal cost of producing it for producers
marginal revenue =
change in total revenue / change in quantity
Income elasticity measures how a good's quantity demanded responds to
change in buyers' incomes.
When the federal government orders firms to use particular methods to reduce pollution, it is said to be using
command and control policies
the difference between the highest price a customer is willing to pay for a good and the price the consumer actually pays is called
consumer surplus
which of the following statements is true?
consumer surplus measures the net benefit from participating in a market
variable costs
costs that change as output changes
fixed costs
costs that remain constant as a firm's level of output changes
fixed costs
costs that remain constant as output changes
average variable cost
equal to variable cost divided by the level of output
economics of scale
factors that cause a producer's average cost per unit to fall as output rises
price takers
firms in perfectly competitive markets
average fixed cost
fixed cost divided by the level of output
average fixed cost
fixed cost divided by the quantity of output produced
average fixed cost =
fixed cost/quantity
if the marginal benefit of reducing emission of some air pollutant is greater than the marginal cost
further reduction will make society better off
getting an annual flu shot is a way to reduce the chances of not only contracting influenza but also spreading it to other people. in this sense, getting an annual flu shot ___________________ spreading a contagious disease
has a positive externality by reducing the chance of
The price elasticity of demand measures ___.
how responsive or sensitive consumers are to a change in price
the coase theorem states that
if transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities
Where do economic agents such as individuals, firms and nations, interact with each other?
in any arena that brings together buyers and sellers
marginal cost is
the additional cost a firm will incur by producing one more unit of a good or service
marginal revenue
the change in total revenue from an additional unit sold
economics is the study of
the choices people make to attain their goals, given their scarce resources
total cost
the cost of all the inputs used by a firm
average cost of production
the cost per unit, or the total cost of producing Q units divided by Q
In January, buyers of gold except that the price of gold will rise in February. What happens in the gold market in January, holding all else constant?
the demand curve shifts to the right
profit
the difference between total revenue and total cost
the concept of opportunity cost is that
the economic cost of using a factor of production is the alternative use of that factor that is given up
marginal cost of production
the increase in total cost that results from producing another unit of output
minimun efficient scale
the level of output at which all economies of scale are exhausted
Conceptually, the efficient level of carbon emissions is the level for which:
the marginal benefit of reducing carbon emissions is equal to the marginal cost of reducing carbon emissions.
The supply curve shows
the marginal cost of producing one more unit of a good or service.
willingness to pay measures
the maximum price that a buyer is willing to pay for a good.
shutdown point
the minimum point on a firm's average variable cost curve; if the price falls below this point, the firm shuts down production in the short run
the attainable production points on a production possibilities frontier are
the points along and inside the production possibility frontier
The income effect of a price change refers to the impact of a change in
the price of a good on a consumer's purchasing power
A change in all of the following variables will change the market demand for a product except
the price of the product
Suppliers will be willing to supply a product only if
the price received is at least equal to the additional cost of producing the product
law of diminishing returns
the principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline
diseconomies of scale
the property whereby long-run average total cost rises as the quantity of output increases; cost curve turns up
production function
the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs
economic loss
the situation in which a firm's total revenue is less than its total cost, including all implicit costs
long-run competitive equilibrium
the situation in which the entry and exit of firms has resulted in the typical firm breaking even
what is a social cost of production?
the sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product
Suppose an excise tax of $1 is imposed on every case of beer sold and sellers are responsible for paying this tax. How would the imposition of the tax be illustrated in a graph?
the supply curve for cases of beer would shift to the left by $1.
a demand curve shows
the willingness of consumers to buy a product at different prices.
average total cost
total cost divided by the quantity of output produced
average total cost =
total cost/quantity
average revenue =
total revenue / quantity of product sold
total cost =
variable cost + fixed cost
average variable cost
variable cost divided by the quantity of output produced
average variable cost =
variable cost/quantity
A demand curve which is ________ represents perfectly inelastic demand, and a demand curve which is ________ represents inelastic demand
vertical; downward sloping
DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is the marginal cost of adding the engine detailing to the basic detailing package?
$20
Suppose your expenses for this term are as follows: tuition: $28,000, room and board: $9,000, books and other educational supplies: $2,500. Further, during the term, you can only work part-time and earn $16,000 instead of your full-time salary of $42,000. What is the opportunity cost of going to college this term, assuming that your room and board expenses would be the same even if you did not go to college?
$36,500
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
0.5
Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses?
25 silk roses
Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. what does this mean?
A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption.
Which of the following would result in a higher absolute value of the price elasticity of demand for a product?
A wide variety of substitutes are available for the good.
marginal cost
An increase in total cost that arises from an extra unit of production
why are consumers so powerful in a market system?
Because it is consumers' demand that influences the market price and dictates what producers will supply in the market
variable costs
Costs that change as the firm's level of output changes
Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?
Demand is likely to be relatively inelastic
the incidence of a tax depends on whether the government collects the tax from buyers or sellers. True or False?
False
implicit cost
a non-monetary opportunity cost
When are firms likely to enter an industry? When are they likely to exit?
Firms will exit an industry when price is less than the minimum point on the average variable cost curve, and firms will enter an industry when price is greater than the minimum point on the average variable cost curve.
What is the difference between the short run and the long run?
In the short run, a firm's technology and the size of its factory, store, or office are fixed. In the long run, a firm is able to adopt new technology and increase or decrease the size of its physical plant.
implicit costs
a non-monetary opportunity cost
If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced.
Non linear
Rank these three items in terms of the elasticity of the demand for them at any given price, from MOST elastic to LEAST elastic: hot beverages, coffee and Peets' Coffee
Peets' Coffee, coffee, hot beverages
Which of the following exemplifies the tragedy of the commons?
The Malaysian tapir, distinguished for its unusual coloration, is a target for poachers who hunt it for its tough and leathery hide.
In September 2006, the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E. Coli bacteria. Following this recommendation, a Chicago distributor claimed that "the sale of arugula has gone through the roof". Based on this information we can infer that:
The cross price elasticity between arugula and spinach is positive
Suppose the value of the price elasticity of demand is -3. What does this mean?
a 1 percent in the price of the good causes quantity demanded to decrease by 3 percent
Externality
a benefit or cost experienced by someone who is not a producer or consumer of a good or service.
a movement along the demand curve for toothpaste would be caused by
a change in the price of toothpaste
which of the following displays these two characteristics: rivalry and non-excludability?
a common resource
explicit cost
a cost that involves spending money
explicit costs
a cost that involves spending money
long-run supply curve
a curve that shows the relationship in the long run between market price and the quantity supplied
If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as
a decrease in quantity demanded
economic profit
a firm's revenues minus all its costs, implicit and explicit
If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is
a luxury
economists assume that rational people do all of the following except
a. use all available information as they act to achieve their goals b. undertake activities that benefit others and hurt themselves c. weigh the benefits and costs of all possible alternative actions d. respond to economic incentives B. undertake activities that benefit others and hurt themselves
in new york city, government limits on the supply of taxis resulted in a price __________________ the competitive market level, which would typically ________________ economic efficiency
above; reduce
The market demand for a public good can be determined by
adding up how much each consumer is willing to pay for each unit of the public good.
what is the difference between an increase in demand and an increase in quantity demanded?
an increase in demand is represented by a rightward shift of the demand curve while an increase in quantity demanded is represented by a movement along a given demand curve
If the price of orchids falls, the substitution effect due to the price change will cause
an increase in the quantity of orchids demanded
In 2016, Philadelphia imposed a tax of 1.5 cents per ounce on sweetened beverages, and PespiCo indicated that its sales in Philadelphia fell by 40 percent after the tax took effect. If the Price of PepsiCo's sweetened beverages in Philadelphia increased by 32 percent following the implementation of the tax, then demand for sweetened beverages in Philadelphia would be
inelastic
Economic incentives are designed to make individual self-interest coincide with social interest. According to economists, which of the following methods of pollution control best uses economic incentives to reduce pollution?
instituting a system of tradable emission allowances
Suppose there is no unemployment in the economy and society decides that it wants more of one good. Which of the following statements is true?
it will have to give up production and consumption of some other good
in a city with rent controlled apartments all of the following are true except
landlords have an incentive to rent more apartments that they would without rent control
The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper.Question 4 options:
less elastic than
Economists reason that the optimal decision is to continue any activity up to the point where the
marginal benefit equals the marginal cost
the production possibilities frontier shows the ___________ combinations of two products that can be produced in a particular time period with available resources
maximum attainable
the slope of a production possibilities frontier ________________
measures the opportunity cost of producing one more of a good
Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is
negative, so Sefton considers potatoes to be an inferior good.
The term "free rider" refers to?
one who waits for others to produce a good and then enjoys it without paying for it.
one reason some manufacturing companies have moved production from overseas locations back to the United States is rising foreign labor costs. Assuming that managers at these companies used all available information, including the rising cost of foreign labor when making the decision to move production back to the United States exemplifies which key economic idea?
people are rational
Suppose the U.S. government encouraged new medical school graduates to take over existing practices from doctors wishing to retire by paying both the new and retiring doctors $100,000. These doctors would be exemplifying the economic idea that
people respond to economic incentives
A change in which variable will change the market demand for a product?
population
the difference between the lowest price a firm would have been willing to accept and the price it actually receives from the sale of a product is called
product surplus
If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded
will decrease by 45 percent
is it possible for technological change to be negative? if so, give an example.
yes; example is if a hurricane damaged a firm's facilities
a product is considered to be non-excludable if
you cannot keep those who did not pay for the item from enjoying its benefits.
A product is considered to be rival if
your consumption of the product reduces the quantity available for others to consume.
