AP Micro Exam Review
180
#180
What is the price elasticity formula?
%change in QD/%change in P
As a result of increased growth, a firm may experience difficulty in managing larger plants and lose efficiency. This is known as
Diseconomies of scale
The key difference between accounting and economic profit is
Economic costs includes the opportunity cost of capital
The difference between total revenue and total explicit and implicit costs is known as
Economic profit
Specialization and lower costs of inputs will often result in
Economies of scale
In the long run, monopolistic competitive firms break even due to
Entry of new firms into the market
As a result of the scarcity of resources,
Every society must choose best how to use their resources
A shortage exists when there is
Excess demand
A surplus occurs when there is
Excess supply
Human capital and entrepreneurship and machinery are all examples of
Factors of production
Why is the demand fro fruit less price elastic than the demand for a boat?
Fruit takes up less of a consumers budget
Economic systems differ most in
How they answer the fundamental economic questions
All the following are variable inputs EXCEPT
Human capital
An oligopoly refers to
a small number of large firms producing a standardized product
Which of the following would cause the demand for a normal good to decrease?
consumer income decreasing
The bets way the govt deals with a monopoly is
creating regulations on the monopoly firm
The long run average total cost curve is also known as
the U curve
marginal benefit
the additional benefit to a consumer from consuming one more unit of a good or service
consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
producer surplus
the amount a seller is paid for a good minus the seller's cost of providing it
income effect
the change in quantity demanded because of a change in price that alters consumers' real income
substitution effect
the change in quantity demanded because of the change in the relative price of the product
The equilibrium price is established
when the quantity supplied meets the quantity demanded
A monopoly refers to
One producer and no competition
When the price of pears increase, we expect
Quantity demanded of pears to fall
if the demand for tennis rackets increases
The price and quantity supply of tennis balls will increase.
Which of the following would most likely increase the price of gasoline?
The price of crude oil, a raw material for gasoline, rises
Which of the following is true of equilibrium in a purely competitive market?
The quantity demanded equals the quantity supplied
What will most likely result if the price of apples decreases?
The quantity of apples demanded will increase
The competitive market provides the best outcome for society because
The total welfare is maximized
Economic growth is only possible if?
There in an increase in resources and technological advancements in production
According to the law of demand
There is an inverse relationship between quantity demanded of a good and the price of a good
The law of diminishing marginal utility refers to
the marginal utility from consuming one additional item will fall
Perfect competition market structure is
the most competitive market structure
What percentage of firms in the united states are sole proprietors?
75%
It is beneficial for two countries to trade only when there is
A comparative advantage in production between the two countries
Which of the following is likely to decrease the demand for kindergarten teachers?
A decrease in the average number of children per household
Which is a characteristic of an oligopoly?
A few large producers
If a firm owns a patent on a product, what may occur?
A monopoly
What tax system is designed to redistribute income from the wealthy to the poor?
A progressive tax system
A price floor is usually set
Above the equilibrium price
Economies of scale refers to
An increase in efficiency of production as the number of goods produced increases
If the price of a variable resource increases, the result would be
An upward shift in MC
According to the law of supply
As the price of a good or service increases, the quantity supplied will increase
A price ceiling is usually set
Below the equilibrium price
Cartels are an example of
Collusive pricing
What is a determinant of supply?
Cost of inputs
Total variable cost refers to
Costs that change with the level of output
Which of the following describes the theory behind the demand curve?
Decreasing marginal utility as consumption rises
Implicit costs are
Indirect costs or opportunity costs
Enjoying a product less and less is an example of what?
Law of diminishing marginal utility
When there is zero incentive for more firms to enter perfectly competitive market, it is said that the market has reached
Long run Equilibrium
A cartel will maximize profit where
MC=MR
Which is profit maximizing for ALL market structures?
MR=MC
In short run monopolistic equilibrium, how do you find profit?
MR=MC, then go up until D and go left for P
Marginal analysis is best defined as
Making decisions based off of the marginal benefits and marginal costs of that decision
If a society over allocates its resources then.
Marginal benefit would be less than marginal costs
In a command economy
Market prices are determined by a central plan designed by the government
What is the profit maximizing rule?
Maximize profits at MR=MC
Product differentiation is an essential part of which type of market structure?
Monopolistic competition
If Michaels avg yearly income increases, and his demand for steak increased, then steak must be considered a
Normal Good
Game theory fits best with which market structure
Oligopoly
Price leadership fits best with which market structure?
Oligopoly
Dead weight loss occurs in which market structure
Oligopoly, Monopolistic competition, Monopoly
The concave shape of the production possibilities curve implies the notion of
Opportunity costs
Measuring efficiency through allocation of resources is best expressed in which formula?
P=MC
Monopoly dead weight costs is caused by
P>MC
If your price elasticity result is 1.2, then it is
Price Elastic
If your price elasticity result is 0.7, then it is
Price Inelastic
If the government establishes a price less than the market equilibrium price, then it is a
Price ceiling
Oligopolies are NOT
Price takers
If demand and supply both shift to the right, then:
Quantity will go up, but price is ambiguous
More firms entering a market, a decrease in price, and a decrease in long run profits are a result of
Several firms earning am economic profit on a good or service
If prices fall below AVC, what should a firm decide to do?
Shut down operations
Law of Supply
Tendency of suppliers to offer more of a good at a higher price
Which is an example of a public good?
The Hubble telescope
marginal cost
The additional cost incurred from the consumption of the next unit of a good or service
If new firms enter the market, which is most likely to happen?
The cost curve will shift downward
Scarcity is defined as
The difference between unlimited wants and limited economic resources
As a rule, one should purchase a good or engage in an activity if
The marginal benefit is greater than or equal to the marginal cost
A negative externality from the production of a good exists when
The market over allocates resources to the production of this good
What is NOT a microeconomic variable?
Unemployment rate
Wage and employment will be set at where
Wage= Marginal Revenue Product of Labor
Which of the following are some of the basic questions every economy must answer?
What to produce? How to produce? How much to produce?
Monopolistic comepetition refers to
a few small firms offering a differentiated product with easy entry into the market
The law of increasing costs is best defined as
as more of a product is produced, the greater its opportunity costs
A point lying directly on the production possibilities curve is
attainable and efficient
The key difference between the short run and the long run is that the short run
cannot change the size of the plant
if the price of cigarettes increases we would expect
demand to be inelastic
The study of economics is correctly defined as
how to best satisfy our unlimited wants with limited and scarce resources
monopolistic competition is often characterized by
many resources devoted to advertising
Within the market system, prices are determined by
supply and demand
Another word for excess supply is
surplus
Dead weight loss refers to
the lost benefit to society caused by the movement away from the market equilibrium
Competition in a market best helps society because
the total welfare is increased
In perfect competition, where is profit maximization?
where MR=MC
