ECON FINAL TOPHAT
excess demand
shortage =
social efficiency
social marginal benefit = social marginal cost
Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.
substitute good
excess supply
surplus =
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
absolute advantage
the ability to produce a good using fewer inputs than another producer
If a monopoly faces a demand curve that is downward-sloping, then marginal revenue will be which of the following? A Must be less than price B Must be equal to price C Must be greater than price D Is not related to the price
A
If a monopoly faces a demand curve that is entirely above the average cost function, in the long run they will likely do what? A Continue to operate B Increase quantity C Decrease quantity D Exit the market
A
If accounting profits equal $10 million for a firm and the owners could likely earn $7 million in a similar business, the firm's economic profit is ________. A $3 million B $7 million C $10 million D $13 million
A
At the Fisherman's Wharf in San Francisco, there are a lot of seafood vendors. Suppose that there are twenty vendors selling steamed crab. If Tommy's crab shack sells 100 steamed crabs per day for $20 each, how much economic profit will Tommy earn in the long run? (Assume that the seafood vendors are operating in a monopolistically competitive market.) A 2000 B 1000 C 0 D There is not enough information
C
An increase in fixed costs for a monopoly will do which of the following? A Increase the price B Decrease the economic profits C Lower the level of output D Lower marginal revenue
B
An increase in product differentiation created by advertising in a market with many firms will _______ the elasticity of demand facing the firm: A increase B decrease C increase or decrease D not change
B
An increase in the cost of producing GM SUVs will be most likely to cause which of the following to happen to the prices of Toyota SUVs? A The price of Toyota SUVs will not change. B The price of Toyota SUVs will increase. C The price of Toyota SUVs will decrease. D One cannot tell what will happen to the price of Toyota SUVs.
B
Consider a perfectly competitive firm. When the market price is greater than both the firm's marginal cost and average variable cost, the firm ________. A Is maximizing profits B Should shut down C Should increase its level of output D Should reduce its level of output
C
Copyrights on movies, books, and music act as a barrier to entry in order to give people what? A Guaranteed profits B Starter money for to pay for research and development C Incentives to create D Unfair advantages
C
Given all the characteristics of perfect competition, which of the following is the main factor that affects consumers' decisions on which firm to purchase a good from? A Opinions of friends B Quality of the good C Price D Reputation of the firm
C
If a firm shuts down in the short run, A profits would be zero. B losses would equal its variable costs. C losses would equal its fixed costs. D losses would be zero.
C
If diminishing marginal utility exists and a person decreases consumption of a good, then (all else equal) it must be true that A the person's total utility will rise B the person's marginal utility will decline C the person's marginal utility will rise D the price of the good will fall
C
Imagine two firms with identical cost structures that do not exhibit economies of scale at high levels of production. One is competing in a perfectly competitive market and one is a monopoly. In the long run which of the following is true? A The monopoly and the perfectly competitive firm will produce the same quantity B The monopoly and the perfectly competitive firm will charge the same price C The monopoly will charge a higher price than the perfectly competitive firm D The monopoly will sell a higher quantity than the perfectly competitive firm
C
An oligopolistic industry with the same costs as a monopoly will have prices: A Equal to a monopoly price. B Greater than a monopoly price. C Less than or equal to a monopoly price. D Less than a monopoly price. E Greater than or equal to a monopoly price.
C
When comparing a monopoly and a perfectly competitive market where the costs are the same, the monopoly will produce a ______________ (greater / lower / same) quantity.
lower
3 requirements of competitive market
many buyers and sellers, standardized product, no barriers
social benefits
private benefits + external benefits
social costs
private costs + external costs
Assume a competitive industry is in long-run equilibrium. The short-run effects (on the typical firm) of a decrease in demand are which of the following? A prices decrease; firm output decreases B prices decrease; firm output increases C prices do not change; firm output decreases D prices do not change; firm output increases
A
Economic profits are ______________ than accounting profits. A Always less B Always more C Sometimes more D Sometimes less
A
Match each type of market with whether or not their price equals their marginal cost. Premise Response 1 Perfect competition 2 Monopolistic competition 3 Oligopoly 4 Monopoly
1 yes 2 no 3 no 4 no
Calculate marginal revenue in the following case: price is $100 and 20 units are sold, then price drops to $99 and 21 units are sold.
79
A competitive firm's short run supply curve is most closely related to which of the following curves? A marginal cost B total variable cost C marginal revenue D average total cost
A
A consumer faces the following situation. Her marginal utility of a luxury good with a price of $100 is 100 utils. An alternative good has a marginal utility of 75 utils and a price of $50. What should she do if she wishes to increase her total utility? A purchase fewer of the luxury goods and more of the alternative goods B purchase more of the luxury goods and fewer of the alternative goods C purchase fewer of the luxury goods and fewer of the alternative goods D purchase more of the luxury goods and more of the alternative goods
A
A fall in demand in a perfectly competitive market that is in a long-run equilibrium will do which of the following? A Cause firms to cut back production in the short run and some to leave the industry in the long run. B Cause firms to cut back production in the short run, but firms will not necessarily leave the industry in the long run. C Firms will not necessarily change production in the short run, but will leave the industry in the long run. D Firms will reduce production to zero in the short run, but we cannot tell what they will do in the long run.
A
A monopoly would never produce where marginal revenue is negative because which of the following is true? A Marginal cost is always positive B Profits would automatically be negative C A firm is always trying to maximize revenue
A
A single firm in a perfectly competitive market is a _________. A Price-taker B Price-maker C Quantity-taker D Quality-maker
A
A utility-maximizing consumer of coffee also enjoys consuming tea. Coffee prices rise, while tea prices do not change. This consumers consumes only these two goods and all else remains the same. For this consumer, consumption of tea will ______________, and marginal utility of coffee will ______________. A increase; increase B increase; decrease C decrease; not change D decrease, decrease E one cannot tell
A
Accounting profits at a firm's economic profit break-even point are ________. A Positive B Negative C Zero D Equal to the firm's total revenue
A
For a firm in a perfectly competitive market, average revenue equals ________. A The market price B Average total cost C Fixed cost D Price divided by quantity
A
If orange prices increase, consumers maximizing satisfaction will change their consumption patterns in such a way that the marginal utility of oranges ______________ and the marginal utility of all other goods ______________. A increases; decreases B increases; increases C decreases; decreases D decreases; increases
A
If the government mandates that a price cannot be set above some specified level, then A None of the below. B Only the demand curve will shift. C Only the supply curve will shift. D There will always be excess supply. E There will always be excess demand.
A
If there were only 3 of you in the classroom (and you were still allowed to talk amongst yourselves), would the average donation likely go up or go down? A The average donation would probably rise. B The average donation would probably fall.
A
In class, we motivated how "risk aversion" (the dislike of risk) is the same as diminishing marginal utility of wealth. The basic idea is that A From a utility standpoint, the pain of losing $100 is greater than the happiness of winning $100. B The greater a person's wealth, the more the person dislikes taking a gamble. C An insurance company typically charges a higher premium to wealthier customers. D Wealthier people are in a better position to take gambles because they will still have money left over.
A
In the long run, the monopolist's economic profits will be ______________ than the total of the competitive firms' profits. A Higher B Lower C The same
A
In the short run, how will an increase in demand affect the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell
A
In which of the following markets do sellers act as price takers? A Perfect competition B Monopoly C Cartel D Monopolistic competition
A
Marginal product is the change in a firm's output divided by the change in the amount of an input (like capital or labor) used. A True B False
A
Most markets are not monopolies in the real world because A there are substitutes for most goods. B supply curves slope upward C price is usually set equal to marginal cost by firms. D monopolies are not efficient. E firms usually face downward-sloping demand curves.
A
Patents stimulate innovation by A providing incentives to incur research and development costs B guaranteeing profits for those who innovate. C prosecuting anyone who purchases the good protected by the patent. D providing tax breaks to investors. E increasing the interest rate on borrowed funds.
A
Supply decreases in a market and demand increases. The price in the market will: A increase B decrease C not change D could either increase or decrease
A
Suppose that a 10 cent tax per apple is imposed on apple growers (producers). Then A the effective supply curve will shift upwards by 10 cents B the effective supply curve will shift upwards by 5 cents C the effective supply curve will shift downwards by 10 cents D the effective demand curve will shift upwards by 5 cents E the effective demand curve will shift downwards by 10 cents
A
The current equilibrium price of a specific type of automobiles is $23,000. An increase of a price ceiling on automobiles from $20,000 to $25,000 will do what to the amount sold in the market and to the price of automobiles? A The price of automobiles will increase and more will be sold. B The price of automobiles will not change and no more will be sold. C The price of automobiles will increase to $25,000 and fewer will be sold. D The price ceiling must not be effective as the equilibrium price is above the initial price ceiling.
A
The economic cost of growing corn on a farm is typically A much greater than the accounting cost due to the existence of large opportunity costs B about the same as the accounting cost after factoring in tax consequences C less then the accounting cost due to the existence of large sunk costs D less then the accounting cost due to the existence of large opportunity costs
A
Tony's Gas Station and Robert's Gas Station are the only two gas stations in a small town of Westville. If Tony and Robert collude to earn more profits, which of the following would be true? A Each limit the amount of gasoline available and raise prices B Each limit the amount of gasoline available and lower prices C Each increase the amount of gasoline available and raise prices D Each increase the amount of gasoline available and lower prices
A
When a firm earns zero economic profits, it does which of the following? A Has a positive accounting profit B Has a negative accounting profit C Cannot continue to produce and should shut down D Has opportunity costs that are larger than accounting profits
A
Which of the following is NOT true regarding perfectly competitive markets? A It is difficult or impossible for a firm to enter and compete in the market B All firms in the market are price takers C Homogenous goods are sold by the firms D The market contains many buyers and sellers
A
finding the height of the firm's ___________ at the profit-maximizing level of output q*. A demand curve B average total cost (ATC) curve C total revenue (TR) curve D total cost (TC) curve
A
A profit-maximizing monopolist produces where marginal cost is equal to ________. A Price B Marginal revenue C 0 D The minimum
B
If one person has __ in one resource, the other person automatically has __ in the same resource
AA, CA
A profit-maximizing monopoly will produce where which of the following is true? Multiple answers:You can select more than one option A Marginal revenue is less than the price B Marginal revenue is equal to the marginal cost C Marginal revenue is positive
ABC
If a monopoly increases the quantity above the profit-maximizing level which of the following will be true? Multiple answers:You can select more than one option A Marginal revenue will be lower than before B Marginal cost will be greater than marginal revenue C Price would decrease
ABC
What do you think would happen in a commercial neighborhood near your home if a restaurant in that neighborhood were making a great deal of profit (select all that apply)? Multiple answers:You can select more than one option A In-and-Out burger will open a new franchise. B Domino's Pizza will move to this neighborhood from a rundown area of the town. C Chipotle will open a new store next door. D The restaurant will close down.
ABC
Select all explicit costs from the list below. Multiple answers:You can select more than one option A Wages B Raw materials C Revenues D Rent E Profit earned in similar businesses
ABD
A car wash owner is currently operating at a profit while providing 120 car washes per week. At this output level, marginal cost exceeds marginal revenue (MC > MR). To maximize profit, the owner should A increase output. B decrease output. C leave output at 120 carwashes per week.
B
Compare the levels of economic profits in a long-run equilibrium for a perfectly competitive firm, a monopoly, a monopolistically competitive firm, and an oligopoly. Economic profits will most likely be: A Zero in perfect competition and positive in monopoly, monopolistic competition and oligopoly B Zero in perfect competition and monopolistic competition, perhaps positive in a monopoly and perhaps positive in oligopoly C Zero in perfect competition, monopolistic competition, and oligopoly and perhaps positive in monopoly D Zero in all four market models E Positive in all four market models
B
Consider the market structure of perfect competition. What does the lack of entry barriers indicate? A All firms will end up producing a unique and different product B There are no significant obstacles preventing firms from entering and leaving the industry C No new firms can enter an already-established industry D Firms can enter the industry easily but cannot exit the industry easily
B
From an economic efficiency perspective, the primary concern about monopoly power is that monopolies generally A earn too much profit B fail to produce some units of output that have high social value compared with the cost of producing those units C produce too much output since there are no competitors D fail to produce the types of goods and services most valued by customers E pay low wages to their employees
B
If a monopoly increased the price above the profit maximizing level __________. A Marginal revenue would decrease B Revenue would decrease C Profits would increase D Profits would be unchanged
B
If a monopoly is producing where price is greater than average cost (and thus making a profit), more firms will enter the market. A True B False
B
In a perfectly competitive market, there are A many buyers and many sellers who can each significantly affect the price of the product. B many buyers and sellers, and no single participant can significantly affect the price of product. C only a few buyers or sellers who can each significantly affect the price of the product. D many buyers but only a few sellers, and a single seller can significantly affect the price of the product.
B
Marginal cost is always positive; therefore, marginal revenue at the profit-maximizing output will have to be ________. A Negative B Positive C Equal to 0
B
Markets of perfectly competitive firms and monopolies both _________. A Have barriers to entry B Have downward sloping demand curves C Are easy to enter and exit
B
Monopolies will price discriminate if which of the following is true? A They dislike one group more than another and want to increase the price B At the current price, one group of consumers is elastic while another group is not as responsive (inelastic) C They can increase quantity without changing revenue
B
Regarding perfect competition, what does it mean when the goods sold by the firms in a market are homogeneous? A Firms can produce the same good with different inputs and different costs. B The good sold by one firm is a perfect substitute of the good sold by another firm in the same market. C The firms in the market are the same size. D The goods sold by one firm are complements of the goods sold by another firm in another market.
B
Suppose that a local Italian restaurant is operating in a monopolistically competitive environment and is maximizing its profit. The price of spaghetti with meat sauce is $10 and the average total cost is $7. Based on this information, the firm is operating in the and we can expect . A Short-run; firms to exit the the market B Short-run; firms to enter the market C Long-run; firms to exit the market D Long-run; firms to enter the market
B
Suppose that income decreases and at the same time the prices of inputs used in making a good decrease. The good is an inferior good. What to happen in the market for the good? A Price may increase or decrease, but quantity will decrease. B Price may increase or decrease, but quantity will increase. C Quantities may increase or decrease, but prices will increase. D Quantities may increase or decrease, but prices will decrease.
B
Suppose the price of wheat decreases. Wheat is a substitute for soybeans for consumers and producers. What will happen to the price of soybeans? A increase B decrease C not change D One cannot tell.
B
The law of diminishing marginal returns means that when one uses more and more of an input: A Output will necessarily decrease. B Output will eventually increase at a decreasing rate. C Costs will necessarily decrease. D Costs will eventually increase at a decreasing rate.
B
The monopoly and perfectly competitive firm are allocatively efficient. A True B False
B
The principle of specialization and exchange implies that A total production is highest when individuals specialize according to their absolute advantages B total production is highest when individuals specialize according to their comparative advantages C productive inefficiency increases as producers in society specialize D exchange can only occur when there is specialization in the economy E If Joe can complete a particular task more quickly Sam, then Joe should be assigned that task.
B
The profit maximizing level of output for the firm is where A marginal revenue exceeds marginal cost by the greatest possible amount B marginal revenue equals marginal cost for the last unit produced. C average revenue equals average total cost for the last unit produced. D marginal revenue equals the minimum point of the average variable cost curve.
B
The total amount spent on a service with an inelastic demand will ______________ if supply decreases. A One cannot tell without knowing the size of the change in supply. B increase C decrease D remain the same
B
Why do barriers to entry allow a monopolist to make positive economic profits? A It causes the monopoly to have lower costs. B Otherwise, firms would enter the market, resulting in a decrease in price and profits. C It allows the monopoly to be price-takers. D It does not need a barrier to entry because of the market demand.
B
A natural monopolist will face which of the following? A The same costs a competitive industry faces B Ownership of all of the sources of a natural resource C Economies of scale D Prices that are higher than average costs, while other monopolists will have average costs that are higher than prices
C
A perfectly competitive firm that chooses to produce will maximize profits at the output level where which of the following is true? A Average cost is equal to marginal revenue B Marginal cost is total revenue C Marginal cost is equal to marginal revenue D Average total cost is equal to average revenue
C
A monopoly producing where marginal revenue equals marginal cost will do which of the following? Multiple answers:You can select more than one option A It will make positive profits B It cannot increase quantity and make a greater profit C It is producing at the highest profit possible in their market D It is producing where the additional revenue is just equal to the additional cost for each output
BCD
A monopolistically competitive firm in the long run will produce an amount that is the quantity where average cost is at a minimum and charge a price that is marginal cost. A Equal to; greater than B Equal to; equal to C Less than; greater than D Less than; equal to
C
A monopoly will engage in price discrimination, if it can, in order to increase profits by doing which of the following? A By selling more of its goods B By reducing costs for some of its products C By continuing to produce the same amount D By increasing prices for all consumers and producing less
C
In a perfectly competitive market, a single firm that sets its price a small amount above the market price will do which of the following? A Make lower profits than other firms, but the exact amount less depends on the elasticity of demand for the product B Have lower revenues but receive zero economic profits C Not sell any units at all D Earn profits higher than other firms as long as the other firms continued to charge the market price
C
In the short run, how will an increase in fixed costs affect the output of a typical firm in a competitive market? A An increase in output B A decrease in output C No change in output D Cannot tell
C
Marginal revenue is defined as the A total revenue (TR) minus total cost (TC) B total revenue divided by the quantity of output C change in total revenue divided by the change in the quantity of output D quantity times price
C
Monopolistically competitive firms _________ earn economic profits in the _________. A may; short and long runs B may; long run only C may; short run only D will not; either the short or long run
C
OPEC is an example of . A Perfect competition B A monopoly C A cartel D Monopolistic competition
C
Suppose at her current level of consumption, a person enjoys going to an additional baseball game three times as much as seeing an additional new movie. The price of a ticket for a baseball game is $30, and the price of a ticket for a movie is $15. Is the person spending her income (for these two goods) in a manner that maximizes her satisfaction? A Yes, she is. B No, she should increase the consumption of baseball games and movies. C No, she should increase the consumption of baseball games and decrease the consumption of movies. D No, she should decrease the consumption of baseball games and increase the consumption of movies.
C
The Coca-Cola Company is the only producer of Coca-Cola. Is it considered a monopoly? A Yes, it is the only firm with the recipe for a real Coca-Cola. B Yes, because Coca-Cola has no close substitutes. C No, because Coca-Cola has many close substitutes.
C
The addition of a single firm in a competitive market will cause the market ______________ to ______________. A Demand; increase B Demand; decrease C Supply; increase D Supply; decrease E Supply and demand; not change
C
The market demand in a monopoly market differs (or not) from the demand the monopoly itself faces by _________. A The amount of marginal revenue B The fixed revenue C The monopoly is the only firm in the market, so it does not differ. D The monopoly is the only firm in the market, so the demand curve is steeper.
C
Which of the following is a characteristic of perfect competition? A Differentiated products B A small number of firms competing C Easy entry for firms D None of the above
C
Which of the following is an example of a nonrival good? A food B an automobile C a view of the sun rising D public housing E a private apartment
C
Which of the following is true for a profit-maximizing monopolistic competitor? A Marginal cost = price B Marginal cost> marginal revenue C Marginal cost = marginal revenue D Marginal cost < marginal revenue
C
Which situation would be labeled a "natural monopoly"? A A firm owns exclusive rights to a natural resource. B A firm applies for a patent to exclude others from entering. C A firm has large economies of scale, and is thus able to sell the good for a lower price than would if there were many firms.
C
Why can't a single firm in a perfectly competitive industry influence the market price? A Its costs are too high B It is not allowed to advertise C Its production level is too small to affect the market D It is a price maker
C
A large number of firms in Biergarten sell flavored beer. However, each firm faces a downward-sloping demand curve. The market for flavored beer is . A Perfectly competitive B A monopoly C A cartel D Monopolistically competitive
D
A monopolist deciding to engage in price discrimination wants to keep the quantity produced the same (or close to the same) because which of the following is true? A Revenue will automatically go down with price discrimination. B Marginal revenue will be greater than price at that point. C Costs will decrease with an increase in quantity. D Costs will increase with an increase in quantity.
D
A single oligopolistic firm charging a price where industry marginal revenue is equal to marginal cost will be tempted to _______ prices, because it faces a more ______ demand if it alone changes its price. A raise; inelastic B raise; elastic C lower; inelastic D lower; elastic
D
A utility-maximizing consumer will consume a good or service until the point at which: A MU is zero B Total consumer surplus is zero C MU > marginal cost D MU/price of the good is on par with MU/price of other goods
D
Accountants tell a franchise owner that she earned $30,000 in profits last year. The owner knows that most of her business acquaintances earned at least $70,000 in profits in comparable franchises. Which of the following is true? Her firm earned an economic __________. A Profit of $30,000 B Profit of $100,000 C Loss of $100,000 D Loss of $40,000
D
All firms that are profit-maximizing, regardless of whether the demand curve is horizontal or downward-sloping, will produce where which of the following is true? A Marginal revenue is greater than price B Demand is elastic along the whole curve C Marginal cost is equal to price D Marginal cost is equal to marginal revenue
D
For a firm in a perfectly competitive industry, the demand curve for its own product is _________. A Vertical B Downward sloping C The same as the marginal cost curve D The same as the market price
D
In perfect competition, the demand curve for an individual's firm product is _________. A Downward sloping B Relatively elastic C Perfectly inelastic D Perfectly elastic
D
In the long run, a monopolist facing the same cost curves as a perfectly competitive firm will charge a ______________ price than the competitive market and produce a ______________ output. A Lower; higher B Lower; lower C Higher; higher D Higher; lower
D
In the theory of firm behavior, we assume that firms attempt to maximize _________. A Total revenue B Marginal revenue C The number of customers D Total economic profits
D
The increasingly negative slope of the Production Possibilities Frontier illustrates what economic concept? A Allocative Efficiency B Technical Efficiency C Marginal Cost D Principle of Increasing Marginal Costs
D
The supply curve in a perfectly competitive market is the sum of all of the individual firm's marginal cost curves. What is the supply curve for a monopoly? A The marginal revenue curve B The marginal cost curve C The demand curve D A monopoly does not have a supply curve
D
What are economic profits at a firm's break-even point? A Positive and equal to fixed costs B Positive and equal to opportunity costs C Negative D Zero
D
What does the Production Possibility Frontier model NOT show us? A Which points are possible and impossible to produce with current resources B Tradeoffs between producing the two goods shown in the model C The increasing opportunity costs of producing more of one of the goods D Which point on the frontier that is most valued by society
D
What is a reason that monopolies exist? A A firm owns a resource that no one else has B A firm is given legal protection that prevents another firm from entering C A firm naturally drives out competitors through lower prices. D All of the above are reasons
D
What will happen to the price and quantity of vacation-area hotel rooms in California if the cost of jet fuel rises? Most of the tourists come from Tennessee. The price will ______________; the quantity will ______________. A increase; decrease B decrease; increase C increase; increase D decrease; decrease
D
Which of the following is a normative statement? A the Milwaukee Brewers have won 76 baseball games this year B the Consumer Price Index (CPI) rose three-tenths of one percent in July C in January, the average temperature in Ames usually exceeds the average temperature in Minneapolis D the Minnesota Vikings need to find some better players for the offensive line E the French trade deficit reached an all-time high last year
D
Which of the following is not true regarding a firm in perfect competition? A The firm's marginal revenue function is equal to the market price. B The market demand and supply curves determine the market price. C The demand curve for a single firm's product is horizontal. D A single firm can influence the demand for its product by advertising.
D
Which of the following statements about utility is most accurate? As one consumes more of a good: A marginal and total utility are likely to increase. B marginal and total utility are likely to decrease. C marginal utility is likely to increase; total utility is likely to decrease. D marginal utility is likely to decrease; total utility is likely to increase. E None of the above is true.
D
A firm's implicit costs are A its maintenance costs. B its paid-out costs of production. C opportunity costs of production that do not involve money outlays. D irrelevant to the determination of economic profit. E both C and D.
E
Consider a good with a price floor that is above the equilibrium price. If demand decreases, what will happen to the price in the market and the amount produced? A The price will increase and the amount produced will stay the same. B The price will stay the same and the amount produced will increase. C The price and the amount produced will increase. D The price and the amount produced will stay the same. E The price will stay the same and the amount produced will decrease.
E
In the long run, a perfectly competitive firm maximizing profit will produce where: A price is greater than the average cost. B price is less than the average cost. C price is greater than the marginal cost. D price is less than the marginal cost. E average cost is at a minimum.
E
Select all implicit costs from the list below. A Wages B Raw materials C Revenues D Rent E Profit earned in similar businesses
E
complementary good
Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely).
implies that total production is highest when individuals specialize according to their comparative advantages
The principle of specialization and exchange
Normative economics
Value judgements ("I think we should...")
externality
a byproduct of a good or activity that affects someone not directly involved in the transaction (private benefits instead of external benefits)
PPF (Production Possibilities Frontier)
a curve on the PPG showing all maximum output for two or more sets of input
inferior good
a good for which, other things equal, an increase in income leads to a decrease in demand
normal good
a good for which, other things equal, an increase in income leads to an increase in demand
Given a normal production possibilities frontier, which of the following is most likely true?
as more of one good is produced, the more and more of the other good must be given up
A movie theater price discriminates by charging children and seniors lower prices than adults. The theater is assuming that children and seniors have a more ______________(elastic / inelastic) demand than adults.
elastic
perfect competition (horizontal D curve) implies a ___ demand
elastic
Positive economics factual in nature, have an answer
factual in nature, have an answer
A monopoly will always charge a price that is ______________ (greater than / less than / equal to) marginal cost.
greater than
society's most valued point
what does the PPF not show us?
