Test #2, Chapter 6 & 7 review

Mid point formula

(Q2-Q1)/[(Q2+Q1)/2] *100 / (P2-P1)/[(P2+P1)/2] *100

The typical pattern revealed in a budget constraint model shows that as the quantity consumed rises, A. total utility rises, but marginal utility falls B.Total utility decreases. C.Total utility decreases, but marginal utility rises. D.marginal utility increases

A. total utility rises, but marginal utility falls; ref pg 136 table 6.3

The law of diminishing marginal returns

As more of a variable resource is added to a given amount of a fixed resource, marginal product eventually declines and could become negative

A decrease in consumer preference for a product, other things being equal, will cause: A. a decrease in supply B. market demand to shift to the left C. Quantity demanded is not a price function. D. Market demand to shift to the right.

B. market demand to shift to the left

As a general rule, utility- maximizing choices between consumption goods occur where the: A higher-income households have the greatest satisfaction B. Price ratio and marginal utilities ratio of two goods is equal C. constraints on budget expenditures has fallen substantially. D. Rise in income has created the greatest utility.

B. Price ratio and marginal utilities ratio of two goods is equal- ref pg 139 &140

____________________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price. A. Total profits B. Total Revenue C. Average profit margin D. Total Cost

B. Total Revenue

unit elastic demand

Change of quantity is exactly equal to change of price. elasticity coefficient = 1

in microeconomics, the term _____________________________ is synonymous with economies of scale. A. diminishing marginal returns B. Decreasing returns to scale C. constant returns to scale D. increasing returns to scale.

D. increasing returns to scale.

When product x goes up in price and total revenue goes down the product is __________________.

Elastic

An inferior good is a product: A. that has an upward sloping demand curve. B. for which demand increases as income increases. C. for which there is no demand. D. for which demand decreases as income increases.

D. for which demand decreases as income increases.

Garth inherited $25,000. He needs to decide now much to spend now and how much to save for later. If he saves the money, then he can earn 15% interest on the total before he spends it. Using the information about his marginal utility in the table below, Garth should:

Spend nothing now and $28,750 in the future.

The 4 per unit cost curves

MC(tells you how much to produce, always looks like a check mark),ATC(tells you if you made a profit or loss, goes down on the graph),AFC (almost never on the graph),AVC(tells you if you should shut down or not)

The term_____________________ refers to the additional utility provided by one additional unit of consumption. A. Giffen utility B. Marginal Utility C. Utility D. Added Utility

Marginal Utility

zero economic profit

Normal profit- not able to make more profit doing something else.

perfectly inelastic

Vertical straight line on graph- No change in Quantity and only change in price. Elasticity coefficient = 0

inferior good

a good that consumers demand less of when their incomes increase

variable costs

cost that change with amount produced. Raw materials, labor, electricity etc

fixed costs

cost that don't change with amount produced. example: salary, equipment

total cost

fixed costs plus variable costs

cross-price elasticity for complimentary goods

have negative cross-price elasticities: If good A is a complement for good B, like coffee and sugar, then a higher price for B will mean a lower quantity consumed of A

cross-price elasticity for substitute goods

have positive cross-price elasticities of demand:if good A is a substitute for good B, like coffee and tea, then a higher price for B will mean a greater quantity consumed of A.

perfectly elastic

horizontal line on graph- No change in Price only change in Quantity. Elasticity coefficient = infinite

An ______________________ occurs when the output increases by a larger proportion than the increase in inputs during the production process. For example, if input is increased by 3 times, but output increases by 3.75 times, then the firm or economy has experienced an ____________________.

increasing returns to scale

Saving money is a(n)________________________, because it involves less consumption in the present, but the ability to consume more in the future. A. inter-temporal choice B. opportunity cost C. Risk premium D. budget constraint

inter temporal choice

intertemporal choice

is an economic term describing how an individual's current decisions affect what options become available in the future. Theoretically, by not consuming today, consumption levels could increase significantly in the future, and vice versa.

total revenue

the total amount of money a firm receives by selling goods or services; Equation Price x Quantity

Average Total Cost (ATC)

total costs divided by quantity of output

Average Fixed Cost (AFC)

total fixed costs divided by quantity of output

Average variable cost

variable cost divided by the quantity of output

marginal cost

the cost of producing one more unit of a good; Equation: Change in total cost/change in output-

inelastic

quantity is insensitive to changes in price or income. (products that have little to no substitutions) elasticity coefficient less than 1

elasticity

quantity is sensitive to price change(big change is quantity resulting from small change in price)(products that have many substitution or luxury items) elasticity coefficient greater than 1

In economics,______________ describe what happens to long run returns as the scale of production increases, when all input levels including physical capital usage are variable. The concept of returns to scale arises in the context of a firm's production function

returns to scale

profit

revenue - cost(implicit and explicit cost)

total revenue test

the lower left hand box from the equilibrium point down is total revenue, when the supply curve shifts to the left the new box will tell you whether the product is elastic or inelastic. Inelastic box will be bigger.

cross-price elasticity of demand

the price of one good is affecting the quantity demanded of a different good. Equation % change in Qd of Good A/ %change in price of good B

Normal goods

Goods for which demand goes up when income is higher and for which demand goes down when income is lower.

Josh's weekly budget for lunch is $24. He eats only pizza and burgers. Each pizza costs $6 and each burger costs $3. Josh knows that 2 pizzas and 4 burgers will give him a utility of 8. What is Josh's utility-maximizing point?

2 pizzas and 4 burgers

why does the marginal cost of each unit initially fall then increase as more units are produced? Curve that looks like a nike swoosh

Law of diminishing marginal return