econ exam

What is the formula for total cost

TC = FC + VC

the marginal production of labor

The additional output a firm produces as a result of hiring one more worker.

what measures the consumer surplus in the market

The area below the demand curve and above the price measures the consumer surplus in the market

what measures the producer surplus

The area below the price and above the supply curve

Marginal cost

The change in a firm ' s total cost from producing one more unit of a good or service.

Law of supply and demand

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance.

Total Cost

The cost of all the inputs a firm uses in production.

dominant strategy

a strategy that strictly dominates all other strategies regardless of which actions rivals' chose

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

buyers of the good will bear most of the burden of the tax

Opportunity cost

of an item is what you give up to obtain that item.

Suppose that there is a breakthrough new innovation that allows for greater connection speeds for smart phones. using the supply and demand diagram we would expect that

only demand would increase

Cooperative games

players can make binding agreements.

public goods

police, clean air, lighthouses, parks

what is the formula for profit

profit=total revenue-total cost

suppose there is an earthquake that destroys several corn canneries. which of the following would not be a direct result of this event?

buyers would not be willing to buy as much as before at each relevant price

Equilibrium

refers to a situation in which the price has reached the level where quantity supplied equals quantity demanded.

what are the solutions for common goods

regulations, social sanctions, privatization

the production function

shows the relationship between quantity of inputs used to make a good and the quantity of output of that good.

law of demand

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

Law of Supply

states that, other things equal, the quantity supplied of a good rises when the price of the good rises.

in the us social security is supported by a special payroll tax called FICA. by law employees and employers pay an equal percentage in FICA taxes which of the following is true

the actual burden of the tax is determined by the relative elasticity of labor supply and the elasticity of labor demand

Economies of scale

the average costs of production fall as the output of quantity increases

what is consumer surplus closely related to

the demand curve

suppose the incomes of buyers in a market for a particular normal good decrease and there is also a reduction in input prices. what would we expect to occur in this market?

the equilibrium price would decrease but the impact on the amount sold in the market would be ambiguous.

supposed that simultaneously we have new scientific studies released espousing the health benefits of pomegranate juice at the same time as new and improved fertilizers that increase pomegranate yields. what will happen to the equilibrium for pomegranate juice

the price will be indeterminate and quantity will rise

suppose that there is an influx of qualified foreign app programers what will happen to the equilibrium price and quantity of apps if the market is competitive

the price will fall and quantity will rise

at the consumer's optimum

the slope of the indifference curve is equal to the slope of the budget constraint

what is producer surplus closely related to

the supply curve

If, for two goods, the cross-price elasticity of demand is 1.25, then

the two goods are substitutes

external benefits in production

where msc<mpc

external cost in production

where msc>mpc

what is change in demand curve cause by?

change in price of the product

suppose that the cross price elasticity of demand between good x and y is negative this implies that he goods are

complements

common resources

congested highway, fish in a common lake, environment, airplane overhead space

Fixed Cost

Costs that remain constant as output changes.

Suppose that on a Sunday afternoon Darrell can either brew 2 batches of beer or he can make 3 batches of chili. What is the opportunity cost of a batch of beer?

3/2 a batch of chili

negative externality

Impact on the bystander is adverse

positive externality

Impact on the bystander is beneficial

Price Ceiling

A legal maximum on the price at which a good can be sold.

Price Floor

A legal minimum on the price at which a good can be sold.

Long run

A period of time long enough to allow a firm to vary all of its inputs, to adopt new technology, and to increase or decrease the size of its physical plant.

what is the formula for average fixed cost

AFC= fixed cost /quantity

what is the formula for average total cost

ATC= total cost/ quantity

what is the formula for average variable cost

AVC= variable cost/ quantity

formula for producer surplus

Amount received by sellers - Cost to sellers

what are the determinants of price elasticity of demand?

Availability of Close Substitutes • Necessities versus Luxuries • Definition of the Market • Time Horizon

Variable Cost

Costs that change as output changes.

which of the following best describes marginal revenue for a monopolist A. MR is greater than price because a monopolist has the power to charge a price above the demand curve B. MR is equal to the price because the monopolist's revenue goes up by the price it sells each unit for C. MR is smaller than price because a monopolist produces where the demand curve is inelastic D. MR is smaller than price because the monopolist must reduce the price to increase output

D. MR is smaller than price because the monopolist must reduce the price to increase output

Noncooperative games

Each player acts in their own self-interest and cannot credibly commit to do otherwise

what factors can change the demand curve?

Expectations Preferences Income Price of other goods

Your boss has asked you whether or not your company should expand its operations the proposed expansion will cost $1 million dollars if the company makes the expansion then profits will be $600,000 higher in one year and $600,000 higher in two years. After that there will be no effect if the interest rate is 10% what should you recommend?

Go ahead with the expansion

what are the types of income taxes

Graduated Tax • Marginal Tax rate vs. average tax rate • Deductions vs. Credits • Taxes on non-labor income

what are the types of taxes

Income Tax Capital Gains and Dividends Sales Tax - Unit - Ad valorem Property Tax FICA taxes

what factors changes the supply curve

Input prices Technology Expectations Number of sellers

What are some examples of normal goods

Laptops, Cars

negative externality

Markets - produce a larger quantity than is socially desirable

Positive externality

Markets - produce a smaller quantity than is socially desirable

Monopoly

One seller, and seller controls price

what are the problems with common goods

Over used, poorly managed

subsidy

Part of the price is paid by the government

formula for price elasticity of demand

Percentage change in quantity demanded divided Percentage change in price

suppose that in the price of corn feed used to raise pigs increases what will happen in the market for bacon

Price will rise and quantity will fall

Perfect Competition

Products are the same • Numerous buyers and sellers so that each has no influence over price • Buyers and Sellers are price takers

what are the solutions for public goods

Public Provision, Exclusion mechanism (club goods), Social Sanctions, Altruism

Inelastic of demand

Quantity demanded does not respond strongly to price changes. Price elasticity of demand is less than one

Elastic Demand

Quantity demanded responds strongly to changes in price. Price elasticity of demand is greater than one.

what are examples of Inferior Goods

Ramen Noodles Keystone Ice Yugos

Short Run

The period of time during which at least one of the firm ' s inputs is fixed.

Equilibrium Price

The price that balances quantity supplied and quantity demanded. On a graph, it is the price at which the supply and demand curves intersect.

law of diminishing returns

The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable to decline.

Equilibrium Quantity

The quantity supplied and the quantity demanded at the equilibrium price. On a graph it is the quantity at which the supply and demand curves intersect

Externality

The uncompensated impact of one person's actions on the well-being of a bystander

price elasticity of demand

a measure of how much the quantity demanded responds to a change in price

what are the problems with public goods

Under provided because of the free rider problem

formula for consumer surplus

Value to buyers - Amount paid by buyers

complements

When a fall in the price of one good increases the demand for another good, the two goods are called

Substitutes

When a fall in the price of one good reduces the demand for another good, the two goods are called

when demand is inelastic within a certain price range, then within that price range

an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less that the increase in price

economic profit

as total revenue minus total cost, including both explicit and implicit costs.

diseconomies of scale

average cost increases as output of quantity increases

constant returns to scale

average total cost stays the same as output of quantity increases

as one moves down a typical indifference curve the marginal rate of substitution

decreases

in the long run in a perfectly competitive market why do firms produce at the minimum of the ATC curve

entry and exit forces the profits to zero, which can only occur when price is equal to minimum of the ATC curve

Elasticity of demand is closely related to the slope of the demand curve. the more responsive buyers are to a change in price the

flatter the demand curve will be

Inferior Goods

income goes up and demand for the good decreases

Normal Goods

income goes up and demand for the good increases

Who pays the tax

inelastic pays the tax

Internalizing an externality

involves altering incentives so that people take account of the external effects of their actions.

demand curve

is a graph of the relationship between the price of a good and the quantity demanded.

production possibilities frontier

is a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.

competitive market

is a market in which there are many buyers and sellers so that each has a negligible impact on the market price.

Producer Surplus

is the amount a seller is paid for a good minus the seller's cost.

Quantity demanded

is the amount of a good that buyers are willing and able to purchase.

Quantity supplied

is the amount of a good that sellers are willing and able to sell.

Consumer surplus

is the buyer's willingness to pay for a good minus the amount the buyer actually pays for it.

Profit

is the firm's total revenue minus its total cost.

supply curve

is the graph of the relationship between the price of a good and the quantity supplied.

tax incident

is the manner in which the burden of a tax is shared among participants in a market.

Willingness to pay

is the maximum amount that a buyer will pay for a good. It measures how much the buyer values the good or service.

what is the formula for marginal cost

marginal cost = the change in total cost/ the change in quantity