Econ 203 exam 3 galose
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
