Microeconomics CLEP Study
Firms in monopolistic competition compete primarily through product _____________________.
differentiation
The AVC curve generally slopes upward because of ____________________ returns.
diminishing
When a change in income affects demand , we need to decide whether the good is normal, or inferior. Consumption of an inferior good _______________________________________________. Consumption of a normal good does up when income increases.
goes down when income increases
In a perfectly competitive industry, competition is so fierce that companies have to charge a very competitive price, and _____________________.
make little profit
In the short run, a perfectly competitive firm's supply curve is the portion of the _________________ cost curve which is above the AVC curve.
marginal
The Law of Diminishing Returns is the situation in which the __________________ product of labor is greater than zero and declining as more labor is hired.
marginal
When the ___________ value is below average, the average falls. When it is above average, the average rises.
marginal
A monopolist maximizes profit by choosing the output level where marginal revenue equals _____________, and then charging the corresponding price on the demand curve at the quantity produced
marginal cost
Wage is sometimes referred to as _________________________, so a firm should hire labor until MRP=W (marginal revenue product equals wage), or MRP=ME (marginal revenue product equals marginal expenditure)
marginal expenditure (ME)
A nation has a comparative advantage in those activities in which it has the lowest _______________ costs. For example, Taiwan has a comparative advantage in electronic items.
opportunity
The ______________ of demand is a measure of the degree to which consumers alter the quantities of a product they purchase in response to changes in the price of that product.
price elasticity
A firm that is in perfect competition is called ______________.
price taker
In perfect competition, all firms must accept the market price for their product. they are ___________.
price takers
Perfect competition results in ___________________ because there are so many substitutes and little product differentiation.
price takers
In pure capitalism, the scarcest resources tend to be employed very conservatively because tend to have high _____________. surplus goods are vice-versa.
prices
A proportional tax ________________________________-- an example is sales tax; in a certain state, every person, regardless of income, pays a 7% sales tax.
stays the same as income increases
A sequential game occurs when a firm can wait and see what its rival does before deciding on its own ________________.
strategy. a situation where one firm moves first and then the other firm is able to choose a strategy based on the first firm's choices. An example is chess.
Cornflakes and Cheerios would be _____________________-- as the price of cornflakes goes up, the demand for Cheerios rise as people switch to Cheerios
substitutes
Most common goods are ____________ goods, also known as normal goods
superior
The __________ schedule shows the relationship between the quantity supplied at each price.
supply
The ___________ of children reflects the marginal cost of each child.
supply
The portion above the AVC (Average Variable Cost ) curve of the marginal cost curve is the _____________ curve. This applies to the short run.
supply
In economics, advances in technology means increased __________________.
supply For example, advances in factory machinery for producing cars would indicate increased supply, or in other words, the supply curve moves to the right.
A price is reduced, consumer _____________ is increased.
surplus
If an effective price floor is introduced, this results in a _______________.
surplus
If the U.S. government were to artificially maintain the selling price of beef above the equilibrium level, then there would be a ______________.
surplus
Increasing price above the market level results in a pure loss of both consumer and producer _______________ known as dead weight loss.
surplus
The production-possibility curve shifts outward when there is a _________________ advance
technological
Since 1900, changes in _____________ have greatly reduced the costs of growing wheat. The population also has increased. If you know that the changes in technology, had a greater effect than the increase of population, then since 1900 the price of wheat has decreased and the quantity of wheat has increased.
technology
if elasticity is greater than 1, the quantity demanded is relatively elastic, meaning _________________________________________________________
that a price change will cause an even larger change in quantity demanded
When the price elasticity of demand is less than 1, demand is said to be inelastic -- meaning __________________________________________________
that a price change will cause less of a change in quantity demanded
A negative marginal utility means ______________________________________________. For example, if you eat enough slices of pie, your marginal utility may hit zero, or it may even go negative as you suffer from each agonizing piece of pie you consume
that consuming an additional unit lowers your satisfaction or benefit
If demand is price inelastic, that means quantity demanded changes slowly compared to price. This is good if you're raising the price, because a fairly large increase in price results in a relatively small decrease in quantity -- which means the revenue grows. On the other hand, a fairly large decrease in price results in a relatively small increase in quantity -- which means _____________________.
that revenue shrinks
Almost all retail businesses are in monopolistic competition. Starting a business is relatively easy, but staying in business is not: that requires an ability to convince customers __________________________________________________________________. For ex: the services of different hairdressers.
that the product is different and better than competitors
Adam Smith, _____________________________, divided income into three types: profits, wages, and rents.
the Father of Economics
The firm's short-run shutdown price can also be where ____________________________________________________ since the MC curve always intersects with the AVC curve at its minimum point.
the MC (Marginal Cost) curve intersects with the AVC curve
A monopolist has market power, _______________________.
the ability to set prices
Consumer surplus is the difference between the max a consumer is willing to pay, and
what he does end up paying
The demand curve of the individual firm in perfect competition is a __________________ line at the market price.
horizontal
Paul M. Sweezy suggested ______________________. In particular, Sweezy said the assumption that everything else would remain unchanged if the oligopolist changed his price was unrealistic.
"It is pretty well agreed among economists that the ordinary concept of a demand curve is inapplicable to oligopoly."
A price taker is a company that possesses so little market power that it has no control of the price of the good, it must _______________________________________________________________________________.
"take" or accept the going market price
Suppose that a movie theater knows that it will sell 450 tickets per day if it charge $4.50 per ticket; If the ticket price goes up to $5.50 per ticket, the theater will only sell 350 tickets per day. ____________ is the theaters price elasticity of demand for this price range.
$1.25
If a firm has total revenues of $2000, the owner's labor in the firm is valued at $300, and the firm has explicit costs of $________, then economic profit is 900 dollars.
$800 Total revenue is the total amount of money made by the company, and doesn't take into account expenses and costs. Once you subtract the owner's labor and the explicit costs (employee wages, equipment cost, materials, etc) you are left with economic profit
Suppose that Stephanie is willing to pay $3.50 for her first order of tortilla chips and salsa, $2.50 for a second order of chips and salsa, and $1.50 for a third order of chips and salsa. If Stephanie is able to purchase all three orders of chips and salsa for $__________ each, she can realize a consumer surplus of $3 dollars.
1.50
Assume that marginal revenue equals rising marginal cost at _________ units of output. At this output level a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $4 per unit, the firm should produce 200 units.
200 Firms should produce at level where marginal revenue equals marginal cost.
A monopolist can sell 20 units of output at a price of $50 per unit. To sell 21 units, the monopolist must cut the price of all units to $49. The monopolist's marginal revenue from the twenty-first unit sold is ______ dollars.
29 Marginal revenue is the revenue gained by selling an additional unit, so the question is, how much additional revenue do you get from selling 21 units instead of 20? Initially with 20 units, you make $20 x $50= $1000. With 21 units you make $21 x $49 = 1029 (total revenue in the new case) Therefore the marginal revenue is $1029-$1000 = 29
A farm can produce 1000 bushels of wheat per year with 5 workers and 1300 bushels with 6 workers. The marginal product of the sixth worker for this farm is ________ bushels.
300
The equilibrium point is where the supply curve and the demand curve intersect. Based on the equilibrium point, we can see the equilibrium price is 60 dollars, and the equilibrium quantity is _______.
40
At point A on a production possibilities curve, there are 50 tons of rice and 60 tons of barley. At point B on the same curve, there are 40 tons of rice and ____ tons of barley. If the farmer is currently at point A, the opportunity cost of moving to point B is 10 tons of rice.
80 The opportunity cost is what you are getting less of as a result of increasing production of something else. Going from point A to B meant producing an extra 20 pounds of barley, but it also meant an opportunity cost of 10 tons of rice.
Line ________ shows a perfectly equal distribution.
A
25. Looking at the graph we can see that at $80 the demand would be for 25 units, where as the supply would be for 50 units. That results in a surplus of 25 units. on the other hand, a price of $20 would result in a demand for 70 units, but a supply of only 20 units, resulting in a shortage of only 50 units to develop.
A price of $80 would cause a surplus of _______ units to develop, driving the price down.
In the long run, it is the portion above the _________________ of the marginal cost curve that is the supply curve.
AC(Average Cost Curve)
An __________ curve shows average costs depending on the number of units produce.
ATC (Average Total Cost)
_______________ efficiency occurs when price equals marginal cost (P=MC). This only occurs in perfectly competitive firms.
Allocative
Monopolistic competition is a market structure in which many firms are producing a ___________ product and entry is easy.
differentiated
Bernard has noticed that every time he washes his car in the morning, it rains that afternoon. He now believes he can cause it to rain by washing his car, so he has decided to sell his services to farmers in drought-- stricken areas. This reasoning is mistaken and as such is an example of the interpretation of __________________ as causation.
Association
_______________________ is the mistaken assumption that because two events seem to occur together, one causes the other.
Association
Out of the following- Land, Automobiles, Capital, and Labor -- ____________ is not a category of resources. Automobiles are a product.
Automobiles
When a price ceiling is imposed on a product, that means that there is a limit to how much a firm can charge for a product. The limit is normally lower than the equilibrium price which would have been naturally set by the laws of supply and demand. When this occurs, the demand is greater than supply and a shortage results:
As you can see in the graph above the Price Ceiling is set at Pc-Pc intersect with the supply curve at a much lower quantity than the Demand curve. Also, it is much lower than the equilibrium point.
The short run is a period of time in which a firm uses at least one ___________ input.
fixed
____________ to entry are anything that impedes the ability of firms to enter a market in which existing firms are earning economic profits.
Barriers
______________________ may derive from several causes. legal or regulatory or other clearly political barriers to entry are historically the most common source of long-lived monopolistic or cartelized conditions in the marketplace.
Barriers to entry
______________ is the direct exchange of goods and services without the use of money.
Barter
_______________ occurs when an auto mechanic tunes up an accountant's car in exchange for the accountant's doing the mechanic's income taxes.
Barter
equilibrium
Based on the graph, the ____________ price is 60 dollars.
The term "profit" is used somewhat more narrowly by economists than the way it is used by the Internal Revenue Service or even by most businessmen and accountants. Adam Smith divided income into three types: profits, wages, and rents. The essential feature of profit is risk: _______________ is ventured in the hope of a return, and there may be a very great return, little, or none.
Capital
In the _______________ theory of government, government is viewed as acting primarily to provide benefits for special interest groups.
Capture These are just government actions that benefit some special interest group that has captured control of regulatory legislation, or governing authority.
______________________ is the mistaken assumption that what applies in the case of one applies to the case of many.
Composition
Quantity demanded goes up as price goes down. _______________________ is the difference between what a consumer is willing to pay, and what he ends up paying.On a hot day a man may be willing to pay $2.00 for a cold beer. If he can get a beer for $0.50, he may see it as a good deal and buy two or three beers.
Consumer surplus
______________________ is the removal of governmental controls from an industry or sector, to allow for a free and efficient marketplace.
Deregulation
If a firm has no ability to select the price of its product, it has a ________________ demand curve.
horizontal individual
Assume that one laborer can produce 8 units of output, two laborers 19 units, three laborers 24 units, and four laborers 28 units. __________________ returns set in when the firm hires the third worker.
Diminishing In this case, we see that the second worker results in 11 more units of production. the third worker only results in 5 additional units, and the fourth laborer only 4 additional units. The returns started diminishing with the third laborer.
________________________________ refers to the fact that once you hit a certain point, each additional unit gives you less and less return for your money.
Diminishing return
_______________________ of scale result when increases in output lead to increases in unit costs when all resources are available.
Diseconomies
Economies of scale are referred by the ___________-sloping portion of an ATC curve
Downward
The Prospective Payment System (PPS) is the use of a pre-assigned reimbursement rate by Medicare to reimburse __________ and physicians.
hospitals
____________________ is an increase in real national income usually measure as the percentage change in gross national product or gross domestic product per year. As the economy grows, naturally the PPC curve should shift outward to represent the increased capacity for production
Economic growth
_________________ of Scale occur when mass producing a good results in lower average cost.
Economies
For most goods, the more you produce at once, the lower the average cost of production. For example, it is a lot cheaper per car for Ford to mass produce thousands of cars at once, then it is for a small business to try to produce only a few hundred of the same cars.
Economies of Scale
_________________ basically tells you how much does demand change in response to a price change.
Elasticity
The formula for calculating price elasticity of demand is the proportional change in quantity divided by the proportional change in price.
Elasticity is always a positive number so drop the negative sign off of your answer.
The __________ point is where the supply and demand curves intersect.
Equilibrium
If, for a particular consumer, the MU (marginal utility) of burgers is three times as large as the MU of fries, then the consumer will be in _______________________. If the price of burgers is three times the price of fries.
Equilibrium if the MU for burgers is 3 times that of fries, that means the consumer gets 3 times the satisfaction or benefit from eating burgers that he does from eating fries. In economic terms, if the MU is three times bigger, the consumer would be willing to pay three times more.
________________ are costs or benefits of a transaction that are borne by someone not directly involved in the transaction.
Externalties
If the price elasticity of supply is 0.5, it implies that a ten percent increase in the price increases the quantity supplied by ____________________ percent.
Five. because we know that when price increases, quantity supplied increases. When price elasticity of supply is less than 1, it is inelastic. If supply is inelastic, that means that it changes at a slower pace than price, so if price changes by ten percent, then supply changes by less than 10%.
Suppose a manufacturing firm learns that its annual property tax payments will decrease. We would depict this in a graph by shifting the average __________ costs downwards
Fixed Both your AFC curve and as a result, your ATC curve, would shift down, because decrease in property tax means lower costs.
Average fixed costs go down as you produce more and more units. That's because fixed costs stay the same no matter how many units you produce, and average fixed cost is calculated by dividing the fixed cost by the number of units.
For example, if your fixed costs are $500, and you produce 5 units, your AFC is $100. If you produce 10 units, your AFC is $50.
E. First determine the profit-maximizing quantity by checking where MR=MC. that is at point F, which indicates quantity G. Next, determine the price by looking at the demand curve at quantity G -- that gives you a price of D. Point E indicates the price and quantity that maximizes the firm's profit.
For this monopolistic competitor, the profit-maximizing price and output level are indicated by point ____.
VonNeumann and Morgenstern observed that economics is much like a game in which the players anticipate one another's moves and that it therefore requires a new kind of mathematics, which they appropriately named _________________.
Game theory It is a description of oligopolistic behavior as a series of strategic moves and countermoves.
The ___________ ration provides a measure of the dispersion of family income.
Gini A ratio of 0 means all families have the same income; a ratio of 1 means that one family receives all the income
Q4 The rule is a company should produce at the point where supply and demand intersect; in this case, that would be where MR2 and MC intersect, at quantity 4 (Q4)
Given the above graph of a firm in perfect competition, if the price facing the firm is P2, then the firm should produce _________________.
Fixed. the fixed cost is 20 dollars, because that's the cost regardless of how many units you produce -- even when you produce zero units, you still pay$20. Ex of fixed costs are office rent, equipment leasing costs, fire insurance etc.
Given the chart above, the __________ cost is 20 dollars.
____________________ is a measure of concentration calculated as the sum of squares of the market share of each firm in the industry.
Herfindahl index
10
If the economy currently is producing at point B, the opportunity cost of ________ additional units of clothing is 10 units of food.
10 At point F, if you increased production of clothing by 10 units, the amount of food you can produce would drop from 35 units to zero. This chart shows how much food and clothing you can possibly produce, so a combination like 50 clothing and 50 food is not possible, because when you produce 50 clothing, 35 food is the max you can produce.
If the economy currently is producing at point F, the opportunity cost of ____ additional units of clothing is 35 units of food.
Less We determined that where the MR and the MC intersect for a certain price is the quantity produced, so at P3 that means a quantity of Q5. The MR(marginal revenue) curve tells you your revenue, and the ATC curve tells you your total cost. Looking at the dotted line for Q5, we see that the total cost is way below the total revenue. At Q4, total cost is equal to total revenue, and at Q3, total cost is much higher than the revenue.
If the price facing the firm is P3, the firm's total cost is ______________ than it's total revenue. (P1, P2, P3)
For most PPC curves, the marginal opportunity costs do not stay constant. For example, the marginal opportunity cost of going from 5 units of food to 6 units might be 5 units of clothing. On the other hand, the marginal OC of going from 9 units of food to 10 units might be 8 units of clothing. If the marginal opportunity cost stayed constant, the PPC curve would be a straight line, not a curve.
In the PPC curve above, marginal opportunity costs are increasing-- you have to sacrifice more and more houses as you increase food production.
MC
In the graph above, the 'A' curve is the ______ curve.
The price floor sets a minimum price. Assuming the price floor is above equilibrium price, the price will decrease to the equilibrium price as soon as the price floor is removed.
In the graph below, the price would drop from Pm to Po.
The production possibilities curve shows the relationship between one product and another. Here is an example of a production possibilities curve
In this curve, we can see that as you produce more homes, the amount of food you can produce goes down, vice versa
In both perfect competition and monopolistic competition, firms receive only a normal profit in the ____________ run.
long
In a perfectly competitive market in the short run, if the price of a firm's product is less than the minimum _____________ variable cost, the firm will shutdown.
average
In a perfectly competitive industry, in the ________________, entry and exit stop only when individual firms earn a normal profit.
long run
In a cartel, the firms agree to limit output. By artificially limiting the quantity supplied, they can raise the price. This price would be above the MC (marginal cost). Firms would have the incentive to increase quantity up to the point where MR=MC(the profit-maximizing point) and make more money.
Look at the graph below. The cartel restricts output to quantity M. To make the maximum possible profit, a company should produce where MC=MR, which is at quantity, An individual firm in a cartel has incentive to cheat on its agreement and increase quantity qm to qcheat.
A graph that shows the degree to which income is distributed unequally within a society is called a _________________ Curve.
Lorenz
The ________ curve always crosses the ATC curve at the minimum average cost.
MC
The goal of a monopoly, just like any other business is to maximize profit, so it follows the rule of producing _______________________________________________________.
MR=MC. This gives it the quantity to produce.
A firm decides how much labor it needs by comparing the _______________________________________________________________________________________. As the wage increases the point where MRP=W is going to be at a lower quantity of labor. Also, how much labor a firm needs depends on how much output it needs to produce. If demand for a product falls, then it needs less labor. If price for a product falls, it will output less and the demand for labor will fall.
MRP (marginal revenue product)
If the marginal utility per dollar is higher for one good than the other, that means for every dollar you spend on that one good, you are getting more utility (benefit or satisfaction). For example, let's say you get three MU from one burger, and 1 MU from an order of fries, and the burger costs $6 and the fries cost $1. __________ is the equation that tells you marginal utility per dollar, so 3/$6 - 0.5, and 1/$1 = 1. The fires are the better buy because their marginal utility per dollar is twice as high as the hamburger's.
MU/P
_________________ utility measures the extra utility derived from consuming one more unit of a good or service.
Marginal
zero Physical product measures how much product is produced. Marginal physical product, then, obviously measures how much additional product is made given additional labor. At L3, we are at the highest level of output, or physical product possible, so the marginal physical product is 0 -- adding an extra unit of labor gets you zero additional product.
Marginal physical product is _________ at labor unit level L3(i.e. L1, L2, L3, or L4)
If a rich man and a poor man are to be given $10,000 provided they can agree on how to share the money(if they fail to agree, they receive nothing), The fair solution would seem to be for each man to take half of the total or 5000. In such a case the __________ solution suggests that the threat of reaching no agreement should induce the poor man to accept a third of the $10000 and give the rich man two-thirds.
Nash The Nash solution seeks an outcome in which each player gains the same amount of utility(relative to the non-agreement outcome) and ignores such considerations as past history or the needs of the players.
_____________ is a federal program that provides health care for the elderly and those with disabilities.
Medicare. Under Medicare's PPS, hospitals receive a fixed amount for treating patients diagnosed with a given illness, regardless the length of stay or type of care received.
Luxuries have a large price elasticity of demand than do _________________.
Necessities
____________________________ is analysis of "what ought to be?" For example: Consider the equity and efficiency trade-off of an increase in the gasoline excise tax versus import restriction on foreign oil.
Normative analysis
_____________ costs are foregone opportunities or foregone benefits.
Opportunity
Public goods are an extreme case of goods with _________________ externalties. For instance, national defense.
Positive When a public good is produced, everyone in the market gets to consume it, whether or not they paid for it. Some examples of public goods are national defense mosquito abatement, and weather prediction, among others.
________________________________ is the use of theories and models to predict the impact of a choice. For example: What will be the impact of an import quota on foreign cars? What will be the impact of an increase in the gasoline excise tax?
Positive analysis
_____________________________ is a term economists use to describe how people make choices
Rational self-interest
_______________ are called factors of production or inputs. Goods used to produce other goods, i.e., land, labor, capital, entrepreneurial activity.
Resources
_______________ is part of the central problem of economics in that with limited resource and unlimited wants a choice has to be made.
Scarcity
_______________ means there is not enough of an item to satisfy everyone who wants it. Note that this technical economic definition differs greatly from the notion of scarcity as "unusual rarity" that predominates in most ordinary language
Scarcity
Adam ____________, the "Father of Modern Economics" introduced the idea that a free marketplace is "led by an invisible hand;" by pursuing our own desires we inadvertently satisfy those of others.
Smith. In a free marketplace, by trying to do what's best for ourselves, we ultimately end up doing what is best for society. That is because the only way we can earn income is by providing what other people want. Forex: a hardhearted and selfish entrepreneuer who builds a great business selling clothes or canning soup may improve the lives of millions of people while a Peace Corps volunteer may only help a few.
__________________ taxes in the United States are imposed on both workers and employers and both groups are charged the same amounts.
Social Security This tax is charged on payroll
__________________________ are goods that can be used in place of each other (as the price of one rises, the demand for the other rises). For example, if an increase in the price of Mercedes Benz cars directly results in an increase in demand for BMWs, then BMWs would be considered a substitute good for MBs. this means that when one produce gets more expensive, more people turn towards the substitute good to fulfill that same need.
Substitute goods
A list or table of prices and corresponding quantities supplied of a particular good or service. Below is a supply-demand schedule:
Take away the demand column, and you will have a supply schedule
The demand schedule shows a list or table of the prices and the corresponding quantities demanded of a particular good or service. Below is an example of a supply-demand schedule:
Take away the supply column, and you would have a demand schedule. This schedule illustrates the fact that as the price increases, the supply increases, and the demand decreases.
Harvey produces 100 glasses of lemonade with average total cost of 50 cents per glass and average variable cost of 40 cents per glass. Harvey's total fixed cost is __________ dollars.
Ten Total fixed cost is just total cost- total variable cost.
LRAC and LRMC simply stand for ________________________________________.
long run average cost and long run marginal cost
Five We know that the fixed cost is $20, because even if you produce 0 units, you still have to pay $20. The fixed cost does not change depending on number of units. To find the average fixed cost, just divide the fixed cost by the number of units ($20/4)
The average fixed costs for an output of 4 units is ______ dollars.
Five Find total variable costs and divide it by the # of units to find avg. variable costs. To find total variable cost subtract fixed costs from total cost. Total cost for 5 units is 100 dollars. Fixed cost is 20 dollars. So $80/5 gives you 16 dollars AVC(average variable costs)
The average variable cost for an output of ___________ units is 16 dollars
third. how much extra does it cost for an additional unit is marginal cost
The marginal cost for the __________ unit of output is 15 dollars.
output
The natural monopoly is unregulated. It will choose to maximize profits at a price and ________ combination indicated by point G.
Some goods are non-exclusive but rival Ex: _________
a lake from which people cannot be excluded, but people are rivals for the fish in the lake
In the long run, the price must at least be equal to the minimum ATC (average total cost) -- that is the
long-run shutdown point
____________ is the benefit or satisfaction a consumer receives upon consuming a good. It is hard to measure, being a subjective concept.
Utility
___________________________________ is the total quantity of output produced by a firm for a given quantity of inputs. it's a fancy term for total product.
Total physical product
Perfect competition will have the ___________ price, and the highest quantity in the long run.
lowest
__________________ is the tendency of firms not faced with competition to become inefficient.
X- inefficiency This quantity describes the need to face competition to remain efficient.
In monopolistic competition, _________________________________________________________. In other words, products are differentiated and none are seen as perfect substitutes by consumers.
a group of firms sell closely related, but not homogenous products
To achieve productive efficiency, firms must produce goods at the _________________ possible cost.
lowest
When income increases, as superior goods' demand increases, and when income decreases, ______________________. This is exactly the opposite of how demand works with an inferior good.
a superior good's demand decreases
The firm's long-run shutdown price is the minimum point of the ____________- total-cost curve. (ATC)
average That's the point at which total costs equal total revenue -- the break even point
Marginal product is the additional product produced by ____________________ (in this case additional labor)
additional input
Economic efficiency requires both productive and _______________________.
allocative efficiency
The MC (Marginal Cost) curve usually slopes upward, and _________________________________________. We know which curve is the ATC (Average Total Cost) curve because it shaped like a 'U'.
always intersects with the ATC curve at its lowest point
______________________ is a commodity for which consumption decreases when income goes up, intercity railway transportation goes down as people use automobiles and airplanes instead.
an inferior good
As you increase quantity, marginal revenue decreases, __________________________________. Therefore, decreasing quantity would increase MR, thereby increasing profit.
and marginal cost increases
When judging the ____________ effects of a merger between businesses, the government relies primarily on the Herfindahl index.
anti competitive. The Herfindahl index measures concentration in a market
Moral hazard occurs when people alter their behavior from what was ___________ when a transaction was made.
anticipated
In terms of limiting certain types of business activities through ______________ laws, the United States is more restrictive than other countries.
antitrust
The goal of ________________ laws, such as the Sherman Act, are to prevent firms from engaging in anti-competitive behavior.
antitrust
The Sherman Act (1890), Clayton Antitrust Act (1914), and the Federal Trade Commission Act (1914) are major _____________ laws in the United States.
antitrust These are government policies and programs designed to control the growth of monopolies and enhance competition.
Differentiated products __________________________________________________________, so they do not see them as perfect substitute. This allows demand to remain less elastic than in a perfect competition.
are products that consumers perceive to be different from one another
Ideally, a firm should produce ____________________________________________________. If they go or above or below that level, they are losing profits.
at the level where MR equals MC
The only way a firm will have economic profit in the long run is if there are _______________ to protect economic profits. that is why a monopoly actually makes economic profits in the long run -- no firms can enter the market!
barriers to entry
Price is not a sure thing. If the demand curve does not change, then the equilibrium price will be lower, ___________________________________. However, if the demand curve changes as well, the price depends on the specific situation.
because for the same demand, if there's a bigger supply, then price falls
A positive externality occurs if an activity creates _________ for uninvolved people.
benefits For example-- people who get vaccinations against a communicable disease reduce other people's chances of getting the disease. People who improve their property may create benefits for their neighbors by creating a more pleasing neighborhood and increasing property values
In the long run, a monopolistic competitor
breaks even
The difference between the accounting definition of costs and the economic definition of costs is -- economists include the opportunity costs of the owner's __________ used in the business and accountants don't.
capital
The payment one pays for acquiring ____________ is called interest.
capital
If an increase in the price of beef causes an increase in the sales of ___________ the beef and chicken are substitute goods.
chicken
The greatest cost of having _____________ is most likely the opportunity cost of the time required to care for a child.
children The opportunity cost is the highest valued alternative that must be forgone when a choice is made.
Suppose an economy is operating at a point on ts production possibilities curve showing clothing and food. If the economy desires to produce additional _______________ it must reduce its output of food.
clothing
Public goods are non-rival and non-exclusive. They are also called _________________ goods.
collective
A production possibilities curve shows the ___________ of two products that an economy is capable of producing with its finite resource stock.
combinations For example, it may demonstrate the relationship between how much cheese vs. how much beef a firm produces. The more beef a company produces, the less cheese its capable of producing. A production possibilities curve shows this relationship between amount of beef produced and amount of cheese produced.
A ______________________ is the ability to produce a good or service at a lower opportunity cost than someone else. For example, China has a comparative advantage when it comes to making electronics.
comparative advantage
To decide which of two goods is the better buy, a consumer should ______________ the products' marginal utility per dollar.
compare
People specialize according to their ________________ advantage.
comparitive
The government tries to maintain a _________________ marketplace through antitrust laws.
competitive
If an individual decides to save more, he or she can save more. Therefore, if society as a whole decides to save more, it will be able to save more. This reasoning is faulty and as such is an example of the fallacy of _____________________.
composition
If demand is elastic, demand changes at a faster rate than price, so if you drop the price, __________________________________________________________________.
demand rises so much that you come out ahead in terms of total revenue
The type of decision-making behavior that occurs when firm X's best choice _______ on firm Y's actions, and firm Y's best choice depends on firm X's actions, is called strategic behavior.
depends
In the United States, ___________ has been seriously advocated since the early 1980s
deregulation
The point at which the marginal utilities per dollar spent on each good purchased are equal is called _____________ equilibrium.
consumer
To reach ____________________________, the marginal utility divided by the price (MU/P) for each good should be the same. For example, one consumer gets three times the MU from hamburgers as he does fries. If hamburger's MU is 3, and the fries MU is 1, then when the fries cost $0.50, each burger must cost $1.50 (3 x 0.50). 3/1.50 is equal to 1/$0.50, so consumer equilibrium is established
consumer equilibrium
A person who has been working in the hot sun may be willing to pay as much as $2.00 for a can of cold soda, but if he can buy it for only $0.50, he thinks he has found a good deal and may buy two or three. The difference between the maximum a person would pay and the actual amount that he does pay is _______________________.
consumer surplus
Stephanie was willing to pay a total of $7.50 for all three orders of chips and salsa, but she was able to purchase them for a total of $4.50. the difference in what she was willing to pay and what she actually ended up paying equals the ______________________________.
consumer surplus
Not only do firms need to differentiate their product, they must try to ______________________________________________________.
convince consumers that their product is better in some way.
A bicycle is planning on increasing the price of one of the bicycles it sells. The bicycle shop would hope that the price of complement goods would ___________________.
decrease
If the price floor, which is set above the equilibrium point, is removed, the price will _____________.
decrease
A paper manufacturer can produce notebook paper or wedding invitations. If the selling price of wedding invitations skyrockets, we can expect the supply of notebook paper to ________________.
decrease Obviously, the manufacturer will try to produce a product with a higher return; in this case, the manufacturer stands to make more money producing invitations rather than notebook paper.
When the price of pies increases, the marginal utility per dollar of pies ________________, because MU per dollar is MU/P. As P gets bigger, MU per dollar gets smaller. Also, as you keep eating more and more slices of pie, eventually marginal utility drops to zero. In other words, there comes a point where eating another piece of pie will not give you additional satisfaction.
decreases
If a firm is producing at an output level for which marginal revenue is below marginal cost, then the firm could increase profits by ________________ output.
decreasing
If supply is perfectly inelastic, that means no matter the price, the quantity supplied stays the same. Likewise, if _____________ is perfectly inelastic, no matter the price, the quantity demanded stays the same.
demand
If the price of barley, an ingredient in beer, increases, the ______________ for beer will decrease.
demand
The curve that shows average revenue is the _____________ curve.
demand
If demand is inelastic, that means that even if you drop the price, ______________________________________________________________________
demand doesn't change that much, so you end up losing money
Complements are goods that are used together (as the price of one rises, the demand for the other falls). This is the opposite of substitutes, where a rise in the price of one results in a _______________________________.
demand for the other
The principle of _________________ marginal utility says that the marginal utility of additional units consumed decreases. For example, the first slice of pie will have a high marginal utility. the second will have less, and the third will have even less, until eventually you hit a number of slices of pie where you're getting zero, or negative marginal utility.
diminishing
AFC goes down as the number of units produced increases, because the fixed cost does not change. However, AVC starts sloping upward because of ______________________________________________.
diminishing returns and the law of increasing costs
A business knows that it has two sets of customers, one of which has a much more elastic demand than the other. If the business uses price ____________, the set with the more elastic demand should receive a lower price.
discrimination
The total expenditures made on a product by a group of buyers is found by multiplying price times quantity bought. Charging different customers different prices for the same product is called price _____________________.
discrimination. In this case some buyers pay a different price for the same product.
An ATC curve is shaped like a 'U'. Economies of scale refer to the fact that as you mass produce more and more units, your average total cost goes down, however, once you pass a certain point, you start to get ___________________________, where the ATC (average total cost) starts going up.
diseconomies
Cartels normally accomplish their function by agreeing on a relatively high common asking price for their product that none of the member firms may simply agree to _____________________________________________________________________ without necessarily enforcing a price uniform structure.
divide the market geographically and grant each other local monopolies
Virtually all resources are scarce. However, public goods ____________________________-- when one household partakes of the commodity's benefits, it does not diminish the benefits received by all other consumers of the commodity.
do not exhibit scarcity
The demand curve for all firms slopes ___________, except for firms in a perfectly competitive market structure.in perfect competition, the demand curve is horizontal.
downward In most firms. the demand curve slopes from the upper left of the graph to the lower right
Demand curves slope _______________ because of the inverse relationship between price and quantity.
downwards
Complements are goods that are related in a way that when the price of one rises, the demand for the other ___________.
drops
If the price is below minimum point, shutdown point, that means ___________________________________. As seen in the graph below, the shutdown price is P2, selling at P1 would put the company out of business. Remember, this refers to the long-run, the business needs to make a profit, not just equal its variable costs
each unit sold would not cover the variable cost per unit
The term ___________ refers to the point where no additional units of output can be produced without decreasing the output of another good.
economic efficiency A situation where no one in society can be made better off without making someone else worse off.
A perfectly ____________ demand curve is a horizontal line.
elastic
When demand is price ____________, an increase in price results in a decrease in total revenue.
elastic
If the price of ladies handbags is reduced by 10 percent and the quantity demanded increases by 20 percent demand is ______________.
elastic Divide percentage change in quantity by percentage change in price, so 20/10= 2. 2 is greater than 1, so demand is elastic -- demand changes at a greater rate than price
Expenses that must be paid no matter how many goods or services are offered for sale are called ________________-- these include things such as the rent for your office, fire insurance, and the lease on a delivery truck.
fixed costs
In the long run all costs are considered variable -- there are no ____________________. So. the short run would include at least one fixed input, or cost.
fixed costs
Complement goods are goods that are used together ( as the price of one rises, the demand for the other falls). That means, when the price of the bicycle is raised, the demand for the complement goods will ____________. If they want to prevent that, they need to lower the price of the complement goods, because when prices go down, demand goes up.
go down
By differentiating their products from those of competitors, firms try to make demand less ____________.
elastic.
Mathematically, the price _____________ of demand is a straight line.
elasticity
In the long run, the typical monopolistic-ally competitive firm makes zero-economic profits. This is because just like in a perfectly competitive market, as long as economic profits remain, new firms will _________________________________.
enter the market until there is zero economic profit.
Resources are goods used to produce other goods, i.e., land, labor, capital, ____________________________.
entrepreneurial ability
According to the supply rule, firms should produce and offer for sale the quantity at which marginal revenue ________ marginal cost.
equals
Normally when you raise the price for a product, demand drops. However, that is referring to an artificially raised price. When demand goes up on its own, the price goes up, because the supplier can sell each unit for more. At the same time, the manufacturer increases the quantity supplied in response to the increased price. Eventually, a new ___________________ is reached, where the final price and quantity supplied is higher than it originally was before demand went up.
equilibrium
When an effective price ceiling is imposed on a product, the price is kept below the __________ price, which results in a shortage.
equilibrium
Business firms can be acquire capital through debt and through _____________________.
equity
A good is non-exclusive if people cannot be ___________ from consuming it.
excluded
When companies drop below the minimum point on the ATC curve, firms start __________________________, because they are not making an economic profit.
exiting the market
In any firm, when marginal revenue is greater than marginal cost, a firm should ___________ production.
expand
The opportunity cost of a college education is the other goods or opportunities you must sacrifice plus any ____________ costs.
explicit
Opportunity cost consists of implicit costs, which don't involve a money payment or a market transaction, and explicit costs. How much does it cost to go to college for a year? We could add up the direct costs like tuition, books, school supplies, etc. These are examples of _________________, i.e., costs that require a money payment.
explicit costs
The term economists use to refer to all types of businesses is ________________.
firm
A firm increases volume of production, its average ____________ cost gets lower and lower.
fixed
In other words, when a good becomes less expensive, a consumer's purchasing power _________-- he can buy more goods with the same amount of money. The opposite happens when the price goes up. This is the income effect of a price change -- it has a direct effect on demand, since when price goes down, demand goes up.
goes up
The three ways a business can become a monopoly are 1) a patent, 2) the sole-ownership of a resource, or 3) the ____________ giving the business the power to become a monopoly thereby making it illegal for other people to compete in the market with that business. These are the three ways a business can gain the power of a monopoly.
government
Rent-seeking behavior occurs when firms expend resources to acquire monopoly power by hiring lawyers, lobbyists, etc. in an attempt to receive __________________ granted monopoly power.
governmentally
In monopoly, price is _________ than marginal revenue; in perfect competition, price is equal to marginal revenue
greater
Only in perfectly competitive firms does Price equal Marginal Cost. In monopolistic-ally competitive firms, oligopolies, and monopolies, price is ________________ than marginal cost. Note that perfect competition is also referred to as pure competition.
greater
Economic ____________ would be depicted by an outward shift of the production possibilities curve.
growth
One factor price elasticity of demand depends on is how readily consumers can switch their purchases from one product to another. For example, for concert tickets for U2, the price elasticity is low -- consumers will not switch to another product. The band could jack up the price, and it would have a relatively small effect on demand. on the other hand, if Burger King doubled the price of its burger, alot of customers would go to McDonalds instead -- price elasticity is __________________________________.
high, because there is a lot of competition
Sheila is trying to decide whether to buy a doughnut or bran muffin for tomorrow's breakfast. the doughnut costs $2 and has a marginal utility of 30. The muffin costs $1 and has a marginal utility of 20. She should buy the muffin because it has a ______________ marginal utility per dollar.
higher
In the long run, the market structure with the __________ price will be the monopoly.
highest
If you are producing under, instead of on, the production possibilities curve (PPC), then some resources are unemployed or unused, and this is considered inefficient. Look at the following PPC curve, for example:
if you produce anywhere *on* the curve, I.e. 37 houses and 2 food, or 20 houses and 5 food, that is maximum use of resources. If you produce somewhere under the curve, i.e. 20 houses and 4 food, then you have extra resources you are not using.
When a price floor is imposed, the supply exceeds the demand, resulting ______________________.
in a surplus
When an increase in _________ results in a decrease in demand for a product, that product is said to be inferior good.
income
The change in quantity demanded that occurs when the purchasing power of income is altered as a result of a price change.
income effect of a price change
A normal good is a commodity for which consumption increases when ______________________; if your income goes up, consumption of that good goes up.
income increases
A technological advance creates more possibilities in the production of the product. It also leads to an increase in supply for the good. In other words, technological advances ______________ the capacity for production.
increase
An increase in demand (upward shift of demand curve) results in both the commodity's equilibrium price and quantity ____________.
increase
Economics defines technology as ways of combining resources to produce output. Increase in technology equates to an __________________ in quantity supplied, and an increase in population equates to an increase in quantity demanded. If the supply increases faster than the demand, then obviously the price will drop.
increase
If demand is inelastic, that means that demand changes at a slower rate than price. Demand would have to be inelastic for an increase in tuition to mean an ___________ in total revenue. if it was elastic, then demand would drop so fast when they increase the price that they would lose money, not gain money.
increase
The manager of the City Playhouse is contemplating an ______________ in ticket prices to help boost revenue. His accountant believes that a rise in ticket prices would reduce the firm's revenue, not increase it. Apparently, the manager believes the demand is inelastic.
increase
Total revenue will _________________ if price is reduced and demand is elastic.
increase
When there is a surplus, that means there is more of a product than is in demand. Therefore, the price of the product will drop, and the demand for the product will ________________ because the price is lower. At the same time, the quantity supplied by the manufacturer will drop to match demand, because it doesn't make sense to produce more than people will buy. Eventually, it will reach an equilibrium point, where the quantity supplied equals the quantity demanded, and the price will stop dropping and be at equilibrium.
increase
With inelastic demand, quantity changes slowly relative to price, so increased price means ______________________.
increased total revenue
Average fixed costs go down as the number of units produced ________________.
increases
Generally, the demand curve slopes downward -- as the price gets lower, demand _________________, and vice-versa
increases
If the price of a good decreases then the demand for that good _________________.
increases
Many factors can affect the demand for labor. When the wage ________________, the demand for labor decreases.
increases
Surpluses eventually lead to decreases in price and quantity supplied and _____________ in quantity demanded.
increases
A progressive tax, like the income tax in the United States, _____________________.
increases as income increases
A bowed-out production possibilities curve illustrates ________________ marginal opportunity costs.
increasing
The equilibrium point __________________________________________________-- assuming there are no artificial price ceilings, cartels, etc.
indicates the price and quantity a firm will produce in a free market
Microeconomics includes the study of how an _______ firm decides the price of its product. The study of the economic behavior of individual decision-making units such as consumer and business firms.
individual
The market demand curve is obtained by swimming ______________ demand curves
individual
In the United States today, the demand for health care is usually inelastic because the ___________ consumer does not pay much of the cost of healthcare.
individual In other words, demand for healthcare is not greatly affected by changes in price.
The President of an Ivy League College just requested an increase in tuition rates in order to earn additional revenue to help defray rising expenses. Apparently, the President believes that the demand for an Ivy League education is _________________.
inelastic
When either the supply or the demand curve is perfectly _________________, that means it will be a straight vertical line.
inelastic
A point that lies _____________ the production possibilities curve indicates that resources are not being fully or efficiently used.
inside
If a society is operating _______________ its production possibilities curve for guns and butter, then some economic resources are unemployed.
inside
Incentives for individual firms to break the agreement account for the ______________ of cartels.
instability.
The number of firms in oligopoly must be small enough that firms are ______________ in decision-making.
interdependent
The notion that government actions are undertaken to protect the best ________ of society is called the public interest theory of government.
interests. According to this theory the government intervenes in business actions to improve the will-being of the general public.
In the long run, there are no variable costs. There is only average cost, not an AVC or AFC. The firm's shutdown point in the long run is where the MC ________________ with the AC.
intersects
In the short run, the supply curve starts above the AVC curve, because the point where MC __________________ with AVC is the shut down point.Below the AVC, the firm produces zero units and goes out of business.
intersects
Price and demand are _____________ related. When one goes up, the other goes down. As the price for a product goes up, the number of units demanded goes down.
inversely
Firms are interdependent in an oligopoly. In monopolistic competition and perfect competition, __________________________________________. In an oligopoly, entry is difficult.
it is easy for a new firm to enter the market
_______________ demand curve occurs when other firms follow price cuts but not price increases.
kinked
A variable resource is like a variable cost, something that changes depending on the number of units you produce. an example of a variable resource is _________-- you need more workers to produce more product.
labor
Compared with a perfectly competitive industry, a monopoly firm gets ____________ profits and generates a smaller consumer surplus.
larger
The study of the economy as a whole is called macroeconomics. As opposed to microeconomics, it deals with the ____________ picture.
larger
Compared with a perfectly competitive market structure a monopoly market structure produces ____________ output at a higher price.
less
Relative to a competitive market with the same cost and market demand, a monopolist will produce ________ output.
less
When demand is elastic, it changes quickly relative to price. When you raise the price a little, your quantity drops a lot, meaning _____________________. When you lower your price a little, your quantity sold increases a lot, meaning more total revenue. When demand is elastic, you're better off decreasing the price, because that increases total revenue.
less total revenue
A _________ monopoly is a firm that has a monopoly within a limited geographic area.
local
MRP stands for _________________________, and is the additional revenue from adding one unit of labor -- ow much money comes in from hiring an additional worker. If the additional revenue gained from hiring another worker is less than the wages you have to pay him, then you do not hire another worker.
marginal revenue product
_____________________ is the extra utility (benefit or satisfaction) derived from consuming one more unit of a good or service. If marginal utility is zero, that means you are at your maximum utility -- consuming more of a product will not increase the utility.
marginal utility
If John is in equilibrium, we know that the marginal utility per dollar he got for both the peanuts and the soft drinks must be the same. In that case, if he is paying twice as much for the peanuts as the soft drinks, he must be getting twice as much ______________________ from the peanuts.
marginal utility (satisfaction)
Consumer surplus is the difference between what a consumer is willing to pay and the _____________ price of the good.
market
The ______________________ would be the demand curve for an entire market --- i.e. the entire market for computers. For example, to find the market demand curve for the United States market for computers, you might add up the demand curves for the different regions of the United States.
market demand curve
Economists' models of the behavior of business firms assume that firms try to ____________ profit.
maximize
When marginal utility is zero, total utility is at its ____________________.
maximum
For instance, ________________________ may look at an individual firm, whereas macro-economics looks at analysis of aggregate issues like Economic growth, inflation, and unemployment.
microeconomics
The long-run equilibrium point occurs for a perfectly competitive firm when average total costs are at a ___________________.
minimum The point at which quantity demanded and quantity supplied are equal at a particular price.
The _______________________ scale is the output level at which the cost per unit is lowest or the minimum point on the long-run average-cost curve.
minimum efficient
It's not possible to produce a good any cheaper than at the ____________________________, because it achieves production of a good at the lowest possible opportunity cost.
minimum efficient scale
The shutdown point indicates the ______________________________________________________________________________-- Otherwise, staying in operation increases losses. Also indicates the minimum variable cost for producing each unit of product.
minimum selling price for the firm to stay in business
Recognize a problem. Develop a ___________ of the problem. test the hypothesis. These are three of the five steps in the scientific method.
model
In ______________competition, many firms produce differentiated products.
monopolistic
Following U.S. Justice Department guidelines, a Herfindahl index of 10,000 would indicate an industry that is considered a _______________, whereas an index approaching zero would indicate an industry that is considered purely competitive.
monopoly
A person who discovers that he or she has a serious illness and then purchases insurance is creating a _______________________.
moral hazard
It is possible to produce _____________ of one good without giving up units of another good if society is producing inside its production possibilities curve. This means that more resources are available than are being used. It is not possible to produce outside of the PPC curve, because the PPC curve indicates the maximum use of resources.
more
When a good becomes less expensive, it yields _______________ satisfaction per dollar, so consumers buy more of it and less of other goods, This is called the substitution effect of a price change.
more It is the tendency of people to purchase less expensive goods that serve the same purpose as a good whose price is risen.
If with the purchase of additional goods, the total utility is falling, then marginal utility is ___________________.
negative
A ________________ externality occurs if an activity creates costs (harm or discomfort) for uninvolved people.
negative For example- cars and factories generate air pollution that affects people's health Cars entering congested freeways impose time costs on other drivers, as all cars slow down as a result.
When a price is artificially raised, (i.e. by government regulation). Artificially raising the price means ______________________________________-- the equilibrium point never changed. On the other hand, if supply goes down or demand goes up, that will result in an increased price naturally, due to a higher equilibrium point.
neither supply or demand has changed
When companies are above minimum point on their ATC curve, or zero economic profit, or normal profit, _____________________________________ -- they are attracted by the economic profit being made by current firms.
new firms enter the market
If consumers' income goes up, and that ultimately results in price going up for a product, then it must be a ________________ good.
normal
Last year, Emmet purchased 20 pounds of bacon when her income was $20,000. This year, her income was $30,000, and she purchased 25 pounds. Based on this information, bacon is a ______________ good.
normal
Zero economic profit is also known as __________________.
normal profit
The amount of one good or service that must be given up to ___________ one additional unit of another good or service is called the marginal opportunity cost.
obtain Ex: if for every extra car you produce, you must produce three less motorcycles, then the marginal opportunity cost of producing one extra car is three motorcycles. The key thing to remember is, resources (number of workers, raw materials, etc) are scarce -- there is a limited number of products you can make. Making more of one product often means making less of another.
An __________________ is a market dominated by a few producers all of who have some control over the market. Firms here have to consider each other's reaction in deciding their price strategy (interdependence).
oligopoly
The defining characteristic of the _________ type of market structure is interdependence among the firms.
oligopoly
There are two types of market structures in which freedom of entry for new firms is restricted. These two types are the monopoly, and the ________________.
oligopoly
In perfect competition, the product is homogenous, or undifferentiated. Products such as cabbages and carrots are homogenous-- _________________________________________________________________.
one company's carrots are not going to differ much from another company's carrots
Economic regulation refers to the prescription of price and ___________ for a particular industry.
output
When a cartel is successful at raising price above marginal cost, individual members have incentives to cheat on the argument by expanding ______________.
output
The Social Security system is financed by a _____________ tax on both employers and workers.
payroll
John is purchasing peanuts and soft drinks at the baseball game, and he is in equilibrium. The prices of the last units of peanuts and soft drinks are $2 and $1 respectively. It can be concluded that John liked the last unit of ______________ twice as much.
peanuts
Under the ____________ Rule, actions that could be anti-competitive are intrinsically illegal.
per se
Rule of reason states that a business having a monopoly over its field is not in itself a violation of antitrust laws. Under this rule, a company is only in violation of antitrust laws if it is actively engaging in anticompetitive behavior. In other words, all monopolies are not illegal. The Rule of Reason replaced the _______________.
per se rule.
When you calculate price elasticity of demand, you are just dealing with one good, and you divide percentage change in quantity by _________________________________________________.
percentage change in price for that one good
The distinctive characteristic of the ______________ competition type of market structure is that the product is homogenous.
perfect
The simplest game of any theoretical interest is the finite two-person zero-sum game of ___________ information. Examples of such games include chess, checkers, and the Japanese game go.
perfect such games have a predetermined outcome (assuming rational play) and each player can, by choosing the right strategy obtain an amount at least equal to this outcome no matter what the other payer does. This predetermined outcome is called the value of the game
The four types of market structure are _______________________________________.
perfect competition, monopoly, monopolistic competition, and oligopoly
The total _____________________(TPP) is the maximum output that can be produced when successive units of a variable resource are added to fixed amounts of other resources.
physical product
Analysis that does not impose the value judgement of one individual on the decisions of others is called _____________ analysis.
positive
If an increase in the use of a variable resource increases the total product, the marginal physical product is _______________.
positive The total product increases, the marginal physical product must be positive. The total product would go down, not up
Generally speaking, economics is a set of ____________________________ applied to the study of individuals and group choice.
practical models
A demand schedule shows the relationship between quantity demanded of a commodity over a given period of time and the ________________ of the commodity.
price
Given two different products, if the __________ of one good increases when the demand for the other good increases, then the goods are considered substitute goods.
price
If the demand curve for product X shifts to the right, that means demand has risen. If the demand for X increases as a result of increase in _____________ of product Y, then X and Y are substitute products for each other.
price
To calculate marginal utility per dollar, divide the marginal utility by the ___________________.
price (MU/P)
Using ___________ firms to perform certain government functions is called contracting out.
private Hiring a private firm to provide a product or service for a government entity.
The difference between what firms would have been willing to accept for their products and the price they actually receive is called ______________________.
product surplus
An organization of independent firms whose purpose is to control and limit _____________ and increase profits and prices is a cartel.
production
If the tax rate increases along with income, then that tax is a _______________ tax.
progressive
When a government artificially raises prices of foreign cars through a quota, or an unregulated monopoly raises prices and lowers quantity these all result in
pure loss known as dead weight loss
If demand increases and supply remains constant, the equilibrium price and ______________ will rise.
quantity
No matter what, we know that if the supply curve shifts to the right, ___________________.
quantity goes up
When a good becomes less expensive, consumers' ____________ incomes increase and consumers purchase more of all goods. this is called the income effect of a price change
real
When the Supreme Court rules that it is the intent to abuse monopoly control, not monopoly control alone, that is illegal, it is following the rule of ____________.
reason
Since the mid-1980s in the United States, antitrust policy have followed the rule of _______________.
reason government policies and programs are designed to control the growth of monopoly and enhance competition
__________ tax tends to increase income inequality. It is a tax whose rate decreases as the tax base changes.
regressive
A _________________________ is a tax that tends to take a larger percentage of the incomes of lower income citizens than it takes from the incomes of higher income citizens. Examples: poll tax, a flat percentage tax on only the first so many dollars of income ( like the social security tax) or a sales tax on consumption items of a common necessity (like groceries)
regressive tax
The percentage change in the quantity demanded of one product divided by the percentage change in the price of a ___________________ product is called the cross-price elasticity of demand.
related
The demand curve for children slopes down, indicating that a decrease in the ________ price of children increases the quantity demanded.
relative
Ignoring the plus or minus sign, an elasticity greater than 1 is referred to as
relatively elastic
A very gently sloping demand curve shows that a given percentage increase in price will produce a still larger percentage decrease in quantity demanded.
relatively elastic demand
An elasticity less than 1 is referred to as
relatively inelastic
In terms of a graph, a very steeply sloping demand curve (that is, almost straight up and down) indicates that a given percentage increase in price will only induce a comparatively smaller percentage decrease in the quantity of the commodity that potential customers wish to buy
relatively inelastic demand
If demand is inelastic, demand is affected _______________________ when the price is increased. An example is a U2 concert, where demand is so inelastic that they could increase the cost of a ticket by ten or twenty dollars, and still sell out.
relatively little
The payment for land is called _________.
rent
When a firm creates output that is more valuable than the ______________ used to create the output, economists say that the firm is adding value.
resources
Entry into an oligopoly is ________________, and difficult.
restricted
Entry into a monopoly is ______________________, whether it's through a patent, or some kind of government protection.
restricted or completely blocked
Holding all else constant, Social Security benefits speed up _____________________.
retirement We see that due to more benefits after retirement, people retire earlier.
If total _____________ rises when price rises, the demand curve is inelastic.
revenue
When demand is price inelastic, an increase in price increases total ________________.
revenue
When the supply curve shifts to the ________________, the equilibrium point will be at a higher quantity.
right
Consider a manufacturing firm which uses natural gas to generate its own electricity. The electricity is used to run its manufacturing equipment. If the price of natural gas _________________ this would lead to an upward shift in the marginal cost, average variable cost, and average total cost curves.
rises AVC, ATC, and MC would all be affected by a change in natural gas prices b/c natural gas is running the machines, that makes it a variable cost, b/c the more units you produce, the more natural gas you use.
Price discrimination is charging different customers different prices for the __________ products.
same
In economics-- the shortage that exists when less of something is available than is wanted at a zero price. Virtually all resources are __________, meaning that there are not enough of them to satisfy the desires of all people.
scarce
A manner of analyzing issues that involves five steps: recognition of the problem, assumptions, model building, predictions, tests of model. The first and most important step in the ____________________________ is to identify what the problem or question is.
scientific method
Rational __________ explains why people give money to charitable organizations.
self-interest
The firm's _________-run shutdown price is the minimum point of the AVC curve.
short
In the _____________, a perfectly competitive firm's supply curve is that portion of the marginal-cost-curve above the minimum point on the average-variable-cost curve.
short-run
In the short run in a perfectly competitive market, the price must at least be equal to the minimum AVC -- that is considered the
short-run shutdown point
If a _______________ develops, then the existing price (current price) is below the equilibrium price.
shortage
A theory, or model, is a ___________________ that is used to explain an event.
simplification
If the price of a T-shirt is $11 and the price of a pair of designer jeans is $66, the relative price of designer jeans is _________ t-shirts.
six The relative price of designer jeans would be 6 t-shirts, because you could buy 6 t-shirts for the price of one pair of jeans.
A monopoly has no competition -- it can charge whatever is the maximum a consumer is willing to pay. When dealing with monopoly consumer surplus is
small or non-existent
In an oligopoly market structure, a few firms produce either a ________________ or differentiated product, and entry is possible but not easy.
standardized
Marginal value is very similar to marginal utility -- it is _________________________________________________________. Obviously, if the amount you get out of an additional orange is lower than the average value, the average will go down.
the additional value you get from an additional unit of consumption
An example of complements are milk and cornflakes. As the price of milk rises, ___________________________________________.
the demand for cornflakes will fall
Goods that can be used in place of each other (as the price of one rises, ___________________________________). As the price of beef rises, more people are substituting chicken for beef, making chicken a substitute good.
the demand for the other rises
Capital consists of the buildings and machinery that are used to produce output. Be sure not to confuse this definition of capital with the concept of "financial capital", _________________________________.
the funds that are used to purchase capital
The law of demand states that, other things being held constant, the lower the price of a good (or service), _____________________________.
the greater the quantity of it that will be demanded by purchasers at any given time.
In monopoly, the firm charges _________________.
the highest price the consumer will pay
Opportunity is more specifically, __________________________________________. For example, the opportunity cost of spending $7 on a movie ticket would be the next best use to which you could have put the money, perhaps pursuing a paperback on economics. Another example-- the opportunity cost of spending more money on customer support might be the benefit you could have gotten from spending that on newer office computers.
the highest- valued alternative that must be foregone when a choice is made
The more elastic a customer's demand is , the more fickle he is to a change in price. A customer with a less elastic demand is more tolerant of a change in price or a higher price, so naturally you would charge a lower price to the more elastic customer, and a higher price to _____________________________________.
the less elastic customer
The more and the closer substitutes there are for a product, __________________________________________________. The more elastic the demand is, the greater the effect a change in price will have (i.e. raising the price a little results in a big drop in demand )
the more elastic the demand for that product is
Variable costs change with ____________________________________________. Examples are wages of workers, electricity for running machines, and raw materials.
the number of products offered for sale
With related goods, you may want to know the cross-price elasticity of demand, in which you divide the percentage change in quantity for item 1 by _________________________________________________.
the percentage change in price for item 2
Economic regulation of transportation began because large fixed costs limited industry, however, since the 1970s, ____________________________.
the transportation industry has largely deregulated
At zero economic profit, which means firms are at the bottom of their ATC curve, ________________________.
there is no entry or exit
In a monopoly, it is not possible for a new firm to enter the market -- _________________________.
there is only one firm.
An oligopoly is the only market structure in which _______________________________________________________. If one firm lowers their price, then it can result in a price war, as other firms change their price in response.
there is significant interdependence among firms with regard to their pricing and output decisions.
The essential feature of profit is risk: Capital is ventured in the hope of a return, and _________________________________________. There is no guarantee of a profit in any enterprise.
there may be a very great return, or little, or none
By differentiating its product, a firm is trying to portray it as having no substitute -- __________________________.
thereby making demand less elastic
In a competitive market, an individual firm has no capacity to influence market conditions. Therefore, it has __________________________________, constant and uniform in nature. In that case, price stays the same, so the demand curve would be a horizontal line.
to take market price as given
Let's say a product is at the equilibrium point, then a shortage develops. That basically means that the supply curve shifts _________________. Assuming the demand curve has not shifted as well, the equilibrium point (intersection between supply & demand) will be at a higher price.
to the left
The short-run under perfect competition is the period which there is ______________________________.
too little time for new firms to enter the industry.
If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, it can be concluded that the indicated price reduction will increase the firm's ____________ revenue
total
Marginal cost is defined as the increase in __________ cost resulting from an increase in one unit of output.
total output can be services, goods -- whatever product a firm is producing or providing
Relative to the amount workers and their employers paid in social security taxes during working years, the average retired worker receives more than ____________ as much money back in social security benefits, even when the accumulated interest is included.
twice This encourages early retirement
An elasticity precisely equal to 1 is termed ____________________.
unit elasticity
Entry into perfect competition or monopolistic competition is ______________________>
unlimited
An ATC (Average Total Cost) curves shows the average cost over a period of time for various levels of production. An ATC Curve is _____________________________. That means up to a certain number of units of production, the average total cost is dropping, but once you pass that point, the average total cost starts rising.
usually shaped like a 'U'
In the context of consumer choice theory, ______________ means satisfaction.
utility
Average ____________ costs generally go up as the number of units produced are increased.
variable
Total costs are the sum of total fixed costs and total __________ costs.
variable
Fixed costs stay the same, __________________ go up as you decide to increase production.
variable costs
"There should be a higher tax on cigarettes, alcohol, and other '_________' items to discourage people from buying them." is a Normative statement
vice
A firm should continue to hire labor up to the point where the MRP of labor equals the ____________.
wage
The payments to the owners of land, labor, capital, and entrepreneurship are respectively- rent, ___________, interest, and profits.
wages
Rent-seeking activities do not benefit society as a whole and divert resources away from productive activity. Examples of rent-seeking --
when U.S. automakers lobby to obtain quotas on Japanese imports; physicians in Florida obtain rules that make it difficult for physicians from other states to practice medicine there.
A larger price elasticity of demand means that when the price of luxuries change, it has a large effect on demand. On the other hand, necessities have a low price elasticity -- ____________________________________________________________________________.
whether the price changes or not, demand will not be affected as much because people still need to buy it.
A monopolist can control the price to increase its profits, and relative to a competitive market, _____________________________.
will go for less output at a higher price.
The AFC(average fixed costs) gets lower as _____________________________, because you are dividing the fixed cost, which does not change, over a large quantity of production. For example, a huge law firm with hundreds of lawyers might save clients money over a smaller law firm because they have a low overhead due to a low AFC.
you increase input
In any firm. the profit-maximizing point of production is where marginal revenue equals marginal cost. As you increase quantity, MR goes down, and MC goes up. If your current MR is greater than MC, _________________________.
you should increase quantity until MR=MC.
Average variable costs generally go up -- that's why you hit a point on the ATC (Average Total Cost) Curve where your average costs go up -- your AFC (Average Fixed Costs) are going down,
your AVC (average variable costs) are going up, and eventually the AVC overcomes the AFC:
If the demand curve is price inelastic, that means that the demand changes at a slower rate than price. As long as demand isn't dropping as fast as the price is rising, ____________________________.
your total revenue is going up
In competitive markets, as long as firms are making an economic profit, new firms will enter. New firms will keep on entering the market until it is so competitive that economic profit is ____________.
zero
In the long run, competitive firms have an economic profit of ______________.
zero
A good is non-rival if for any given level of production, the marginal cost of providing it to an additional consumer is _________.
zero Some goods are exclusive but non-rival. Ex: a bridge other than at rush hour.
Normal profit is the level of profit just sufficient enough to persuade firms to stay in the industry, but not high enough to attract new firms. It is also equal to ________________________. In perfect and monopolistic competition firms receive only normal profit in the long run.
zero economic profit
Normal profit means _________________________.
zero economic profit