Econ Chapters 6-12
what is the midpoint formula and what is it used to calculate?
(change in quantity)/(sum of quantities/2)÷(change in price)/(sum of prices/2) elasticity of demand
a ___________ product has a coefficient of zero. a. perfectly elastic b. relatively elastic c. relatively inelastic d. perfectly inelastic
D
the principle that a firm will maximize its profit by producing the output at which marginal revenue and marginal cost are equal, provided product price is equal to or greater than average variable cost.
MR=MC rule
the lowest level of output at which it can minimize its long-run average cost.
Minimum efficient scale
what is the equation for price elasticity of supply?
Percentage change in quantity supplied of product X/Percentage change in price of product X
Which type of price elasticity of demand is occurring when a substantial price change causes only a small change in the amount purchased of that product
Price inelastic demand
list the conditions required for purely competitive markets
Produce a standardized product Do not exert control over product price free entry and exit
characteristics of a pure monopoly
Single seller No close substitutes Price maker Blocked entry Nonprice competition
list the barriers to entry that shield pure monopolies from competition
Single seller No close substitutes Price maker Blocked entry Nonprice competition
equation for total cost
TFC + TVC
equation for AFC
TFC/Q
Equation for AVC
TVC/Q
imperfect competitors include which of the following? a. pure monopolists b. pure competitors c. oligopolists d. monopolistic competitors
a,c,d
monopolists may create an entry barrier when confronted with a new entrant into the industry by______ a. making entry difficult for rival firms b. increasing product price c. reducing product price d. incurring advertising costs
a,c,d
causes people to base their estimates about the likelihood of an event not on objective facts but on whether or not similar events come to mind quickly and are readily available in their memories.
availability heuristic
output per unit of labor input
average product (AP)
the midpoint formula for calculating elasticity _______________ the two prices and the two quantities
averages
____ in price when a product is relatively price elastic will lead to a decrease in total revenue. a. a decrease b. an increase c. no change
b
total revenue will rise: a. when the price rises on a good or service with an elastic price elasticity of demand b. when the price falls on a good or service with an elastic price elasticity of demand c. when the price rises on a good or service with a unit-elastic price elasticity of demand d. when the price falls on a good or service with an inelastic price elasticity of demand
b
which of the following are conditions necessary for price discrimination? a. homogeneous market b. monopoly power c. no resale d. market segregation e. advertisement
b,c,d
suppose the price of a pair of premium socks falls from $2.00 to $1.90 and the quantity of the socks demanded increases from 110 to 118. the price elasticity of demand coefficient is: a. .10 b. 1.4 c. .71 d. 3.9
b.
attempts to explain systematic errors by combining insights from economics, psychology, and biology. Its goal is to make more accurate predictions about human choice behavior by taking into account the mental mistakes that lead to systematic errors
behavioral economics
how does a firm maximize short-run profit?
by producing the output at which total revenue exceeds total cost by the greatest amount
Economies of scale refer to ____ average total costs with added firm size a. rising b. marginal c. declining d. constant
c
We can expect a greater response, and therefore greater elasticity of supply, the: a. greater the price elasticity of demand b. less time the firm has to react to price changes c. more time the firm has to react to price changes d. more time consumers have to react to price changes
c
which of the following best defines diseconomies of scale? a. as a firm expands the size of its plant in the long-run, its total average costs fall b. as a firm expands the size of its plant in the short run, its total average costs rise c. as a firm expands the size of its plant, in the long-run, its total average costs rise d. the ease of efficiently coordinating a firm's operations as it becomes a large-scale producer
c
which of the following describes why marginal revenue is less than price in an imperfect market? a. because marginal revenue is greater than marginal cost which is less than price b. because total revenue is greater than price c. because the lower price of the extra unit of output also applies to all prior units of output d. because the lower price of the extra unit of output only applies to subsequent units of output
c
which of the following is true of the coefficient of price elasticity of demand as price increases along a linear demand curve? a. it stays the same b. it declines c. it increases
c
which of the following are reasons for a monopoly's loss of economic profit a. cost curves shifting downward due to rising prices b. decreases in fixed costs c. change in tastes reducing demand d. upward-shifting cost curves caused by escalating resource prices
c,d
equation for MC
change in TC/change in Q
marginal product equation
change in total product/change in labor input
misperceptions or misunderstandings that cause systematic errors. Most result either (1) from heuristics that are prone to systematic errors or (2) because the brain is attempting to solve a type of problem (such as a calculus problem) for which it was not evolutionary evolved and for which it has little innate capability.
cognitive biases
the human tendency to pay attention only to information that agrees with one's preconceptions.
conformation bias
the situation when a firm's average total cost of producing a product remains unchanged in the long run as the firm varies the size of its plant, and hence, its output
constant returns to scale
the ratio of the percentage change in quantity demanded of one good to the percentage change in the price of some other good. A positive coefficient indicates the two products are substitute goods; a negative coefficient indicates they are complementary goods.
cross elasticity of demand
the situation when a firm's average total cost of producing a product increases in the long run as the firm increases the size of its plant, and hence, its output
diseconomies of scale
the income elasticity of demand is calculated by ________ the percentage change in quantity demanded by the percentage change in income
dividing
income elasticity of demand measures the responsiveness of demand to a change in
earnings
total _______ profit is found by multiplying per-unit profit by profit-maximizing output
economic
the situation when a firm's average total cost of producing a product decreases in the long run as the firm increases the size of its plant, and hence, its output.
economies of scale
When the price elasticity of demand is relatively price ______, a price decrease will increase total revenue
elastic
if total revenue changes in the opposite direction from price, the demand is
elastic
restaurant meals, filet mignon, and cadillacs are all examples of good that exhibit relatively price __________ demand
elastic
Product or resource demand whose price elasticity of demand is greater than 1, so that any given percentage change in price leads to a larger percentage change in quantity demanded.
elastic demand
the higher the price of a good relative to consumers' incomes, the greater the price ____________ of demand
elasticity
the monetary payment made by a firm to an outsider to obtain a resource
explicit costs
rental payments, insurance premiums, and interest on a firm's debts are all examples of explicit and __________ costs
fixed
any cost that in total does not change when the firm changes in output
fixed cost
occur when a change in context causes people to react differently to a particular piece of information or to an otherwise identical situation
framing effects
In general, the more that a good is considered to be a luxury rather than a necessity, the ____________ the price elasticity of demand.
greater
the larger the number of substitute goods available, the ____ the coefficient for the price elasticity of demand
greater
products with relatively ______ income elasticity coefficients are generally hit hardest by recessions
high
x-efficiency occurs when a firm operates at a cost, which is _____ (higher/lower) that the lowest cost for a particular level of output
higher
people engage in this when they retroactively believe they were able to predict past events
hindsight bias
how does perfectly elastic graph as a demand curve?
horizontal
the _______ market period is the length of time over which producers are unable to respond to a change in price with a change in quantity supplied
immediate
the monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market
implicit cost
a change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price
income effect
the percentage change in quantity demanded divided by the percentage change in income is the formula for the
income elasticity of demand
the ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income' measures the responsiveness of consumer purchases to income changes
income elasticity of demand
a good with zero cross elasticity are called
independent goods
if a 4% increase in the price of coffee leads to 2% increase in the quantity demanded, the price elasticity of demand for coffee is relatively price ______
inelastic
if total revenue changes in the same direction as price, demand is
inelastic
in the immediate market period, supply is perfectly _______, illustrated as a vertical line
inelastic
Product or resource demand for which the price elasticity of demand is less than 1, so that any given percentage change in price leads to a smaller percentage change in quantity demanded
inelastic demand
where does marginal cost fall graphically
intersect the ATC and AVC curves at their minimum points
extra, or additional, cost of producing one more unit of output.
marginal cost
relatively large number of sellers producing differentiated products. Widespread nonprice competition. Entry and exit is quite easy
monopolistic competition
since price and quantity demanded are inversely related, the price elasticity of demand coefficient would always be a ____ number
negative
bases its predictions about human behavior on the assumption that people are fully rational decision makers who have no trouble making mental calculations and no problems dealing with temptation. While some of its predictions are accurate, many are not.
neoclassical economics
in a competitive industry, can a single firm influence market price?
no
is product demand more inelastic the longer the time period under consideration?
no, it is more elastic.
only a few sellers of a standardized or differentiated product, so each firm is affected by the decision of its rivals and must take those decisions into account in determining its own price and output
oligopoly
people's tendency to be overly confident about how likely their judgments and opinions are to be correct
overconfidence effect
equation for cross elasticity of demand
percentage change in quantity demanded of product X/Percentage change in price of product Y
equation for income elasticity of demand
percentage change in quantity demanded/percentage change in income
product or resource demand in which quantity demanded can be of any amount at a particular product or resource price. elasticity coefficient is infinite
perfectly elastic
in a competitive industry, the demand curve is
perfectly elastic price equals marginal revenue horizontal on graph
When the price elasticity of demand is ________ _________, a change in price causes no change in the quantity demanded
perfectly inelastic
the price-elasticity coefficient is zero because there is no response to a change in price.
perfectly inelastic
when a change in price does not cause a change in the quantity demanded, the price elasticity of demand is considered
perfectly inelastic
the tendency people have to massively underestimate the time needed to complete a task.
planning fallacy
The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource
price elasticity of demand
the ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price; a measure of the responsiveness of producers to a change in the price of a product or resource.
price elasticity of supply
equation for total revenue
product price x quantity sold
very large number of firms producing a standardized product. New firms can enter or exit the industry very easily
pure competition
name the four basic market models
pure competition pure monopoly monopolistic competition oligopoly
one firm is the sole seller of a product or service. Entry blocked, one firm constitutes the entire industry. Single unique product
pure monopoly
equation for economic profit
revenue - explicit costs - implicit costs
people's tendency to attribute their successes to personal effort or personal character traits while at the same time attributing any failures to factors that were out of their control.
self-serving bias
the impact that a change in a product's price has on its relative expensiveness and consequently on the quantity demanded
substitution effect
In the immediate market period, the ____ curve is vertical
supply
The percentage change in quantity supplied divided by the percentage change in price measures the price elasticity of __________
supply
a pure monopolist has no ____ curve
supply
states that beyond a certain quantity, additional units of a specific good will yield declining amounts of extra satisfaction to a consumer
the law of diminishing marginal utility
the proportion of income allocated to a particular good or service is a determinant of
the price elasticity of demand
A buyer's responsiveness to price changes is measured by
the price elasticity of demand coefficient
equation for AP
total product/units of labor
the amount the seller receives from selling a product during some period of time
total revenue
Demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or quantity supplied is equal to the percentage change in price.
unit elasticity
if total revenue does not change when price changes, demand is
unit-elastic
assumes that the typical consumer is rational and acts on the basis of well-defined preferences.
utility maximization model
the principle that to obtain the greatest total utility, a consumer should allocate money income so that the last dollar spent on each good or service yields the same marginal utility
utility-maximizing rule
a cost that increases when the firm increases its output and decreases when the firm reduces its output
variable cost