Microeconomics Final Fall 2022

Relationship between GDP and living standard

higher GDP means higher living standard and vice versa.

You lose your job and, as a result, you buy more frozen pizzas. For you, frozen pizzas are an

inferior good.

Excludable

it is excludable when it's possible to prevent someone else from using the goods.

Rivalrous

it is rivalrous when one's usage reduces others' ability to use the goods.

What does per capita mean?

per head or per person.

The term "market failure"

refers to the failure of a market to produce an efficient allocation of resources.

Notion of utility

refers to the usefulness or satisfaction a consumer can get from a service or good.

The mainstream view among economists is that

society faces a tradeoff between unemployment and inflation, but only in the short run.

Market Power

the ability of a firm to charge a price greater than marginal cost. an example of this is a monopoly.

Absolute advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.

Comparative advantage

the ability to produce a good at a lower opportunity cost than another producer.

Tax and deadweight loss

the measurement of loss caused by the imposition of a new tax.

What is the concept of producer surplus?

the total amount that a producer benefits from producing and selling a quantity of a good at the market price.

Lafer curve

visually shows the relationship between tax rates and the amount of tax revenue collected by governments.

What is the concept of consumer surplus?

when the price that consumers pay for a product or service is less than the price they're willing to pay.

Closed economy

A closed economy is one that does not interact with other economies in the world. There are no exports, no imports, and no capital flows.

Oligopoly

A maFrket structure in which a few large firms dominate a market.

Monopoly

A market structure in which there are many buyers but only one seller (or business). This seller can set their price at any number and change it whenever they want. This negatively affects consumers because if the price of that good increases to a crazy amount, they have no choice but to buy the product. There are no other competitors in the market.

Externalities

An externality is a cost or benefit caused by a producer that is not financially incurred or received by that producer.

Open economy

An open economy is one that interacts freely with other economies around the world.

Why do nations trade?

Because it allows countries to expand their markets, goods, and services that otherwise may not have been available in their own country.

What is the fundamental basis of national trade?

Comparative advantage

Minimum wage affects

If the country has a high minimum wage, then the unemployment rate is high.

If an economists is looking at the GDP of Latin American counties for the last ten years is this the concept of micro or macroeconomics?

Macroeconomics

Difference between microeconomics and macroeconomics

Microeconomics studies individuals' business decisions, while macroeconomics analyzes the decisions made by countries and governments.

You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. George, who is one of your advisors, says that the best way to avoid a shortage of oranges is to take no action at all. Charles, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Otto, a third advisor, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Which of your three advisors is most likely to have studied economics? a) George b) Charles c) Otto d) Apparently, all three advisors have studied economics, but their views on positive economics are different.

a) George

When society requires that firms reduce pollution, there is a) a tradeoff because of reduced incomes to the firms' owners and workers. b) a tradeoff only if some firms are forced to close. c) no tradeoff, since the cost of reducing pollution falls only on the firms affected by the requirements. d) no tradeoff, since everyone benefits from reduced pollution.

a) a tradeoff because of reduced incomes to the firms' owners and workers.

Which of the following firms is likely to have the greatest market power? a) an electric company b) a farmer c) a grocery store d) a local electronics retailer

a) an electric company.

It costs a meat-processing company $50,000 to produce 5,000 pounds of steak. The company's cost will be $50,009 if it produces an additional pound of steak. If the company produces 5,001 pounds of steak then a) its average cost is greater than its marginal cost. b) its average cost and marginal cost are equal. c) its average cost is less than its marginal cost. d) there is insufficient information to compute average and marginal costs.

a) its average cost is greater than its marginal cost.

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct? a) the effective price received by sellers is $0.40 per bottle less than it was before the tax. b) sixty percent of the burden of the tax falls on sellers. c) this tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume. d) all of the above are correct.

a) the effective price received by sellers is 0.40 per bottle less than it was before the tax.

Efficiency wages

above-equilibrium wages paid by firms in order to increase worker productivity.

Public Goods

are neither rivalrous nor excludable, e.g. national armed forces, internet, fireworks etc.

Common Goods

are rivalrous but non-excludable in consumption, e.g. clean air, roads.

Consider Frank's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Frank's cost of going to college is a) $33,800 b) $42,600 c) $49,800 d) $57,000

b) $42,600

As a result of a successful attempt by government to cut the economic pie into more equal slices, a) the pie gets larger, and there will be more pie overall. b) the pie gets smaller, and there will be less pie overall. c) it increases the reward for working hard, resulting in people producing more goods and services. d) those who can earn more income pay less in taxes.

b) the pie gets smaller, and there will be less pie overall.

The following table contains a supply schedule for a good. If the law of supply applies to this good, then Q1 could be a) 0 b) 50 c) 100 d) 150

d) 150

In the early 1970s, OPEC's goal was to increase the world-wide price of oil by reducing the quantity of oil supplied. It worked for a couple of years. But why was OPEC unable to maintain high oil prices in the long run? a) demand is inelastic and supply is elastic in the long run compared to the short run. b) demand is elastic and supply is inelastic in the long run compared to the short run. c) demand and supply are both inelastic in the long run compared to the short run. d) demand and supply are both elastic in the long run compared to the short run.

d) demand and supply are both elastic in the long run compared to the short run.

In less than two years in the early 1920s, the cost of a German newspaper rose from 0.30 marks to 70,000,000 marks. This is a spectacular example of a) market power caused by change in the country's living standard. b) market power caused by a single firm controlling the newspaper production. c) inflation caused by increased productivity in the economy. d) inflation caused by an increase in the quantity of money in the economy.

d) inflation caused by an increase in the quantity go money in the economy.

If a merchant know his or her products' price elasticity of demand is relatively inelastic what would the merchant do now if the industry expects the price will go up in few months?

decrease supply

The law of demand states that when the price of a good

falls, the quantity demanded of the good rises.