EC 200 quiz 2 / Exam 2

Carol Anne makes candles. If she charges $20 for each candle, her total revenue will be

$500 if she sells 25 candles.

Perfect Competition examples from class

* Price Taker - many buyers and sellers -good is identical -free entry and exit (wheat, corn, agriculture) - Gold, silver

Monopolistic competition examples

- advertising - many buyers and sellers - Product Differentation

Oligopoly

- few firms * mutual interdependence - examples: operating systems, gas stations, airliners merging together, cell companies merging together, Disney channel buying out ABC, Cable companies merging together

decrease in demand = ______________ equilibrium price, and equil'm quantity goes _______

decrease price , decrease quantity

Increase in supply = _________ equil'm price, and equil'm quantity ___________

decrease price, increase quantity

An increase in the price of a good will

decrease quantity demanded.

Implicit costs

do not require a cash outlay, the opportunity cost of the owners time

Fixed costs (FC)

do not vary with the quantity of output produced

When economists refer to intangible items, they are referring to such things as

hair styling and dental care, and the value of such items is included in GDP.

Accounting profits ignores

implicit costs, so its higher than economic profit

Gross domestic product measures

income and expenditures.

If people expect their incomes to rise, their demand for meals at expensive restaurants may

increase now

Decrease in supply = _________ equil'm price, and equil'm quantity ___________

increase price, decrease quantity

increase in demand = ________ equilibrium price, and equilibrium quantity goes ________

increase price, increase quantity

a competitive firm can keep

increasing its output without affecting the market price, so each (1 unit) increases in Q causes revenue to rise by P. MR = P is only true for firms in competitive markers

supply shifters (examples)

input prices, technology, number of sellers, expectations,

average fixed cost

is a fixed cost per unit divided by quantity of output

Marginal Cost

is the change in TC from producing 1 unit

Diseconomies of scale occur when a firm's

long-run average total costs are increasing as output increases.

Characteristics of Perfect Competition

many buyers and sellers the goods offered for sale are largely the same firms can freely enter or exit the market

The firm will make the most profits if it produces the quantity of output at which

marginal revenue equals marginal cost.

demand for an inferior good is

negatively related to income

Suppose that when income rises, the demand curve for doctor's visits shifts to the right. In this case, we know doctor's visits are

normal goods

How ATC changes as the scale of production changes Diseconomies...

of scale are due to coordinating problems in large organizations. example: management becomes stretched, can't control costs. More common where Q is HIGH

How ATC changes as the scale of production changes economies...

of scale occur when increasing production allows greater specialization: workers are more efficient when focusing on a narrow task. More common when Q is LOW.

Competitive Market

one with many buyers and sellers, each has a negligible effect on price

The highest form of competition is called

perfect competition

MR = P is only true for the ...

perfect competition (competitive firm)

Demand for a normal good is

positively related to income

Double shift

price of something rises and the other reduces production costs (chapter 4, example 3, a shift in both supply and demand) (another scenario is, price could remain the same due to supply and demand. or supply increase, demand decrease and prices decrease)

Explicit costs

require an outlay of money (paying wages to workers)

Production Function

shows relationship between the quantity of inputs used to produce a good and the quantity of output of that good it can be represented by a table, equation, graph

AVC

smiley face

Shape: Average Variable Cost

smiley mouth (decrease, rock bottom, increase)

short run

some inputs are fixed (factories, land) The costs of these inputs are FC

Shapes: Production Function

starts at 0 and goes up like a rollercoaster then starts to go down. like a sideways hill.

AFC curve

starts high (tail) then decreases

Shape: Average Fixed cost

starts high or moderately high then falls

Shape: Marginal cost curve

starts low then increases

Marginal cost curve

starts low then skyrockets up

in this formula what do we assume? profit = Total Revenue - Total cost

that the firms goal is to maximize profit

why MPL dimishes

the MPL of an input declines as the quantity of the input increases (other things equal)

In the following formula what does TR mean? profit = Total Revenue - Total cost

the amount a firm receives from the sale of its output

Quantity Demanded

the amount of any good that buyers are willing and able to purchase

Marginal Revenue

the change in TR from selling one more unit

Law of Demand

the claim that the quantity demanded of a good falls when the price of the good rises, other things equal

When managers of firms in a competitive market observe falling profits, they may infer that the market is experiencing

the entry of new firms.

In the following formula what does TC mean? profit = Total Revenue - Total cost

the market value of the inputs a firm uses in production

what is the delta symbol and what does it mean?

triangle, means change in...

A shortage is the same as an excess demand.

true

An increase in the price of ink will shift the supply curve for pens to the left.

true

Assume Jack received all As in his classes last semester. If Jack gets all Bs in his classes this semester, his GPA may or may not fall.

true

At the equilibrium price, quantity demanded is equal to quantity supplied.

true

Changes in inventory are included in the investment component of GDP.

true

Economic profit is always lower than accounting profit (true or false)

true

If consumption is $7000, exports are $600, government purchases are $2000, government transfers are $900, imports are $800, and investment is $1000, then GDP is $9,800.

true

If the value of an economy's imports exceeds the value of that economy's exports, then net exports is a negative number.

true

In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

true

Law of supply: the claim that the quantity supplied of a good rises when the price of the good rise, other things equal (true or false)

true

Supply refers to the position of the supply curve, whereas the quantity supplied refers to the amount suppliers wish to sell.

true

The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

true

The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are.

true

a fall in input prices makes production more profitable at each output price, so firms supply a larger quantity at each price, and the S curve shifts to the right (true or false)

true

the quantity supply of any good is the amount that sellers are willing and able to sell? (true or false)

true

Shape: ATC and MC

two U shapes with tail. line A starts higher than the other line (B). Then line A decreases, balances and slightly rises. Line B starts lower than line A, starts moderately high, then spikes up.

variable costs (VC)

vary with the quantity produced

what are examples of input prices

wages, prices of raw materials

shortage

when quantity demanded is greater than quantity supplied

Surplus

when quantity supplied is greater than quantity demanded

Monopoly

1 seller, many buyers * price maker - Market Power - NO entry

3 steps to analyzing changes in equilibrium to determine the effects of any event

1. decide whether the event shifts S curve, D curve, or both 2. Decide in which direction the curve shifts 3. use supply - demand diagram to see how the shift changes equilibrium price and quantity

why is ATC curve U shaped?

AFC brings is down, AVC brings it up it is both of these combined to make ______ curve

Perfect Competitive Market

All goods exactly the same, buyers and sellers so numerous that no one can affect market price, each is a price taker.

Equilibrium

The quantity supplied and demanded at the equilibrium price

GDP is not a perfect measure of well-being; for example,

GDP excludes the value of volunteer work. GDP does not address the distribution of income. GDP does not address environmental quality.

MPL is

Marginal product of labor

why is MPL important?

Principle 3: Rational people think at the margin applies here. think of costs rise or lowers, output rises or lowers and comparing these can be the deciding factor

what does demand curve shifter mean? (what are "other things")

Shows how the price affects quantity demanded, other things being equal. Other things are: non-price things that are demanded. Things that determine buyers demand for a good, other than the goods price. Example: taste or flavor

Shape: Average Total Cost

Starts very high (tail that steeply decreases then balances and slightly goes up) (it is fixed cost and variable cost combined) (professor says its U shaped)

Formula for Economic profit

TT= TR-EC - IC

Formula for accounting profit

TT=TR-EC

What are some demand curve shifters

Tastes, Expectations, prices of goods, prices of related goods, Income, number of buyers,

Market

a group of buyers and sellers of a particular product

Demand Schedule

a table that shows the relationship between the price of a good and the quantity demanded

Long run

all inputs are variable. (firms can build more factories or sell existing ones)

the Marginal Product of

any input is the increase in output arising from an additional unit of input, holding all other inputs constant

If a seller in a competitive market chooses to charge more than the going price, then

buyers will make purchases from other sellers.

Shape: LRATC

can be one LONG bowl U shape or more U shapes combined(ATC). small, medium, small (the bottom of the 3 connecting is the LRATC)

Example........ if you see delta symbol with a L next to it, it could mean? depending on scenario

change in labor

example: ....if you see delta symbol and Q next to each other it could mean.. depending on scenario

change in output

Household spending on education is included in

consumption, although it might be argued that it would fit better in investment.

Product Differentation

Different things about products that make it stand out

if the economy sours and people worry about their future job security, demand for new autos may

fall now