Economics Final
How does marginal revenue compare to price for a seller with market power?
Beyond the first unit sold, marginal revenue is less than price.
Rational rule implies economic surplus is maximized when:
marginal benefits equal marginal costs.
The movement from Point E to Point F represents:
A decrease in quantity supplied.
Prisoner's Dilemma
A game in which players act in rational, self interested ways that leave everyone worse off.
An inferior good is:
A good whose demand has a negative relationship with changes in income.
Which of the following is correct about this market between points A and B?
The demand curve is inelastic, and thus the seller gains revenue by raising the price from 1.50 to 1.75.
An external benefit is:
a benefit accruing to bystanders
If the social cost of producing a good or service exceeds the private cost
a negative externality exists
Market failure occurs when market forces lead to:
an inefficient outcome
In economics, the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called
game theory
If you can complete a task at a lower opportunity cost than anyone else, then you:
have a comparative advantage at the task.
When people focus on their comparative advantage and then trade for other things, they:
improve their standard of living or increase their leisure time.
What standard is used to determine the most efficient economic outcome?
largest economic surplus
The marginal benefit of consuming an item:
the additional benefit from buying one more unit of the item.
Marginal revenue product for a perfectly competitive seller is equal to
the change in total revenue that results from hiring another worker
The phrase "demand has decreased" means that
the demand curve has shifted to the left
A price floor is:
the minimum price that a seller can charge in a market.
The law of supply refers to:
the positive relationship between price and quantity supplied.
price discrimination can be successful only if
the product cannot be resold
Without the tariff in place, the United States consumes
the quantity at world price
something that has the most inelastic demand:
the smallest number
The rational rule for employers implies that they keep hiring until
the wage equals the marginal revenue product of the last worker hired.
An increase in price for substitutes can cause supply for substitutes:
to decrease.
Average cost=
total cost divided by output
Price discrimination
when some customers pay a higher price and some pay a lower price
consumer surplus=
(1/2)*(base)*(height)
Total revenue=
(Price)*(Quantity)
Marginal revenue product=
(marginal revenue)*(price)
If there is international trade in a market:
1000-400=600
Two jewelers can devote their time to making bracelets and necklaces. Haley can make 9 bracelets and 12 necklaces. What is Haleys opportunity cost of making a necklace?
3/4 of a necklace. (Divide 9 by 12=3/4)
Positive economic statement:
A statement that is not opinionated or (can be a proven fact)
How profitable can a restaurant be in the long run?
It will experience zero economic profits
Price-Marginal Cost=
Producer surplus of a unit sold.
A perfect competitor cannot:
Raise the market price of a product.
Sell an extra unit of a product as long as price is:
at least as high as marginal private cost.
long run=
average cost curve=demand curve
When trade is voluntary, who benefits?
both the buyer and the seller, but not necessarily equally
economic surplus=
cs+ps ((1/2)(base)(height)+(1/2)(base)(height))
A firm that can effectively price discriminate will charge a higher price to
customers who have the more inelastic demand for the product
An equilibrium price is:
determined by the intersection of the demand and supply curves.
Dominant strategy
is one that is the best for a firm, no matter what strategies other firms use.
An import is a good or service:
purchased from a foreign seller.
Sunk costs are costs that are incurred:
regardless of which decision is made.
A tax collected from sellers shifts the:
supply curve to the left
A tariff is a:
tax on imported goods
identical goods=
perfect competition
monopolistic competition=
sellers that offer differentiations of the same product
The price of milk at the local grocery store rises by 25%, and the quantity of milk demanded falls by 10%. The absolute value of the price elasticity of demand for milk is? and demand is?
0.4 and the demand is inelastic. (10 divided by 25=0.4)
External Cost:
A cost imposed on bystanders.
If there is a technological advance in the production of the Amazon Echo smart speaker, then you would expect to see ________ in the market for Amazon Echos.
An eventual fall in the equilibrium price.
What would cause demand to shift to the right?
An increase in the price of a substitute product.
Profit margin=
Average revenue-Average costs (total revenue/quantity)-(fixed costs+variable costs/quantity)
Marginal Revenue=
Change in Total revenue from (1 to 2)(2 to 3)(3 to 4) etc..
Buyers bear a smaller incidence (share) of a tax when:
Demand is more elastic than supply.
Socially optimal quantity and price
Equilibrium of marginal social cost
What attracts new sellers into a market?
Existing sellers in the market earning economic profits.
What makes price discrimination difficult?
High competition
Marginal external cost=
Marginal social cost - Marginal private cost (MEC=MSC-MPC)
If the opportunity costs of production for two goods is different between two countries, then
Mutually beneficial trade is possible
How does gov regulation affect market efficiency?
Some regulations correct for market failure; other regulations cause inefficient outcomes
Which of the following is the size of a corrective tax to resolve a negative externality problem?
The tax is equal to the marginal external cost.
If a new company enters a monopolistically competitive market, what will happen to the existing companies in the market?
Their demand curves shift to the left.
When trade is based on comparative advantage:
both trading partners end up better off.
The Prisoner's Dilemma shows how markets
can deliver inefficient outcomes.
According to the marginal principle, keep increasing quantity until the marginal benefit of an additional item is
equal to the marginal cost of an additional item.
When externalities are present, the socially optimal outcome occurs where the
marginal social benefit equals the marginal social cost.
efficient outcomes:
may not make everyone happy
When calculating marginal costs, they should include:
only variable costs.