WGU FPC1 MicroEconomics

Key factors that change the supply of labor

Adult population, Preferences, Time in school and training

The gain or pleasure that something brings? what you are willing to give up in order to get one additional unit of it.

Benefit

Natural Monopoly

Exists when one producer can meet demand at a lower long-run average cost (LRAC) Two examples include the National Football League (NFL) and Major League Baseball (MLB)

Goods and services that are produced in one country and sold in other countries? U.S. export goods and services include the airplanes produced by Boeing that Singapore Airlines buys, the computers produced by Dell that Europeans buy, and licenses sold by U.S. film companies to show U.S. movies in European movie theaters.

Export goods and services

Complement

Is another good that is consumed with it. - Pasta and Sauce

complement in production

Is another good that is produced along with it. ***Pasta and sauce

Any arrangement that brings buyers and sellers together and enables them to get information and do business with each other?

Market

The sum of the demands of all the buyers in the market

Market demand

2. What are the different price setting strategies that can be employed by a monopolist?

In monopoly, a single producer of a good or service that has no close substitutes operates behind natural, ownership, or legal barriers to entry. A monopoly can price discriminate when there is no resale possibility. Where resale is possible, a firm charges a single price.

What is the long-run average cost curve?

In the long run, the firm can change the size of its plant. • Long-run cost is the cost of production when all inputs have been adjusted to produce at the lowest attainable cost. • The long-run average cost curve traces out the lowest attainable average total cost at each output when both the plant size and labor can be varied. • The long-run average cost curve slopes downward with economies of scale and upward with diseconomies of scale.

How do costs affect a firm's output in the short run?

In the short run, the firm can change the output it produces by changing only the quantity of labor it employs.

A reward or a penalty—a "carrot" or a "stick"—that encourages or discourages an action?

Incentive

A short-term average cost curve usually shows the lowest average cost at which it is possible to produce each output when the firm has had sufficient time to change both its plant size and labor employed.

False

Because a demand curve slopes upward, the marginal benefit of each unit of a good or service purchased exceeds the market price until an efficient allocation is reached.

False

Economies of scale nearly always occur naturally after owners increase the size and output of their business.

False

If a large city imposed a law stating that every taxi on the road must be inspected to help prevent air pollution, this would be an example of using taxes and fees.

False

In a monopolistic efficiency, marginal benefits are measured on the supply curve and marginal costs are measured on the demand curve.

False

In the short run, if market price exceeds average total cost for producers, producers will experience economic losses.

False

It is the general tendency for the marginal rate of substitution (MRS) to increase as the consumer moves down along an indifference curve.

False

Marginal benefit always equals marginal cost.

False

Marginal benefit usually increases with increased quantity.

False

Market price is the only way for an economy to allocate scarce resources.

False

Negative externalities result in underproduction.

False

Producer surplus occurs when marginal cost exceeds the market price.

False

Subsidies increase the price to consumers and result in overproduction.

False

The costs of adding to plant capacity are relevant to short-run decisions, but maximizing profit in the long run focuses on variable costs, such as labor.

False

The value of plant and equipment is not usually dependent on its intended use.

False

There are many points on a production possibilities frontier that are equally efficient in terms of value.

False

Within a perfectly competitive market, individual producers have a high level of control over the price of their products, or output.

False

constant returns to scale

Features of a firm's technology that keep average total cost constant as output increases

Constant returns to scale

Features of a firm's technology that keep average total cost constant as output increases. Output increases in a direct proportion to the scale of the production process Constant returns to scale occur when a firm is able to replicate its existing production facility including its management system. so instead of one facility, therer would be 2 exact facilities

Economies of Scale

Features of a firm's technology that make average total cost fall as output increases

Economies of scale

Features of a firm's technology that make average total cost fall as output increases. Increasing the scale of the production process gives proportionately more output .The main source of economies of scale is greater specialization of both labor and capital.

Diseconomies of scale

Features of a firm's technology that make average total cost rise as output increases. Increasing the scale of the production process gives proportionately less output Diseconomies of scale occur in all production processes but in some perhaps only at a very large output rate.

Land

Includes all things we call, the gifts of nature or natural resources, that we use to produce goods and services.

Normal Good

Income increases and the demand curve shifts right. - Macbook laptop

Inferior Good

Income increases, the demand curve shifts left - Cheap Car!!

Harry owns a clothing store. In summer, he is able to charge a higher price for the white cotton summer dress. This will:

Increase Harry's quantity supplied of white cotton dresses in summer Increase in price will increase quantity supplied (and not supply)

Low Rent

Increase demand for housing

Linda enjoys watching movies in movie theaters. During her annual review at work, she was told that her income will go up by 10% because of her above-average performance. This will result in: *

Increase in Linda's demand for movie tickets Increase in income (factor other than price) will increase demand (and not quantity demanded)

Households and firms in the U.S. economy interact with households and firms in other economies in two main ways: They buy and sell goods and services and they borrow and lend. We call these two activities?

International trade and International finance

Goods that are nonrival but excludable are goods produced by a natural monopoly

Internet Cable tv bridge or tunnel

The demand for a good is elastic if a substitute for it is easy to find.

Soft drink containers can be made of either aluminum or plastic and it doesn't matter which, so the demand for aluminum is elastic.

Consumer surplus occurs when marginal benefit exceeds the market price.

True

If each additional hour spent studying reduces time available for sleep and leisure, then at some point a student decides the additional benefit is not worth the cost.

True

In a perfect competition, marginal revenue is equal to the market price and, on a graph, represents a horizontal line.

True

Marginal benefit is the maximum price a consumer is willing to pay for an extra unit of a good or service when total utility is maximized.

True

Marginal benefit measures the opportunity cost of producing or consuming.

True

Rent-seeking raises the company's average total cost curve (ATC).

True

Subsidies reduce the cost to producers and result in overproduction. T/F

True

The U.S. cap-and-trade sets a limit on each type of air pollutants that can be emitted.

True

The marginal benefit of a good is the same as the good's demand curve.

True

The marginal cost of a good is the same as the good's supply curve.

True

If variable costs are relatively the same across the industry, typically firms will shut down in the short run.

True This is true. If the market price decreases below the variable costs per unit, then shutting down for the short run makes the most sense.

For whom?

Who gets the goods and services depends on how much people earn. A large income enables you to buy large quantities of goods and services. A small income leaves you with small quantities of goods and services.

change in quantity supplied

a change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good

Change in demand

a change in the quantity that people plan to buy when any influence other than the price of the good changes.

change in supply

a change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes.

If Wendy can produce more of all goods than Tommy in an hour, then

Wendy has an absolute advantage in all goods.

What are the three basic economic questions influence goods and services in the global economy

What do we produce? How do we produce? For Whom?

Which of the following best illustrates your marginal benefit from studying?

What you are willing to give up to study for one additional hour

When a drop in price results in higher total revenues, demand is said to be elastic .

When a drop in price results in lower total revenues, demand is said to be inelastic .

Opportunity Cost and the Slope of the PPF

When a small quantity of cell phones is produced—between points A and B—the PPF has a gentle slope and the opportunity cost of a cell phone is low. A given increase in the quantity of cell phones costs a small decrease in the quantity of DVDs. When a large quantity of cell phones is produced—between points E and F—the PPF is steep and the opportunity cost of a cell phone is high.

What is the diamond-water paradox and what does marginal utility theory tell us about it?

When consumers maximize total utility, they use resources efficiently. • Marginal utility theory resolves the paradox of value. • When we talk loosely about value, we are thinking of total utility or consumer surplus, but price is related to marginal utility. • Water, which we consume in large amounts, has a high total utility and a large consumer surplus but a low price and low marginal utility. • Diamonds, which we consume in small amounts, have a low total utility and a small consumer surplus but a high price and a high marginal utility.

negative consumption externality.

When consumption of a private good creates costs to others. Smoking in public places, loud motorcycles, and cell phones ringing in church are all costs imposed on others resulting from the personal enjoyment of private goods.

Expected Future Income and Credit

When income is expected to increase in the future, or when credit is easy to get and the cost of borrowing is low, the demand for some goods increases. When income is expected to decrease in the future, or when credit is hard to get and the cost of borrowing is high, the demand for some goods decreases.

absolute advantage

When one person (or nation) is more productive than another—needs fewer inputs or takes less time to produce a good or perform a production task

Preferences

When preferences change, the demand for one item increases and the demand for another item (or items) decreases.

Increasing Marginal returns

When the marginal product of an additional worker exceeds the marginal product of the previous worker.

Decreasing marginal returns

When the marginal product of an additional worker is less than the marginal product of the previous worker.

Unit elastic demand

When the percentage change in the quantity demanded equals the percentage change in price.

Elastic demand

When the percentage change in the quantity demanded exceeds the percentage change in price.

Inelastic demand

When the percentage change in the quantity demanded is less than the percentage change in price.

market equilibrium

Where the two lines intersect.

Which of the following classifications is correct?

White House security is a government service because it is paid for by the government.

If the price elasticity of demand is greater than 1,

demand is elastic.

If the price elasticity of demand is less than 1

demand is inelastic.

If the price elasticity of demand equals 1,

demand is unit elastic.

Our economy grows when we

develop better technologies for producing goods and services; improve the quality of labor by education, on-the-job training, and work experience; and acquire more machines to help us produce

To resolve the paradox of value, you must *

distinguish between marginal and total utility.

TC = TFC + TVC,

dividing each by the corresponding output Q gives ATC = AFC + AVC. q IS HOURS WORKED.

When a price support is set below the equilibrium price, producers ________ the quantity supplied and consumers ________ the quantity demanded.

do not change; do not change

The fact that diamonds have a much higher price than water

does not violate the rules of utility maximization because water's marginal utility is low.

How can government actions lead to more efficient outcomes when negative externalities are present?

Sometimes it is possible to overcome a negative externality by assigning a property right. When property rights cannot be assigned, governments might overcome a negative externality by using pollution limits, pollution charges or taxes, or marketable permits (cap-and-trade).

The paradox of value refers to the * (See Chapter 13, section 13.3) A) utility maximizing rule.

fact that water is vital but cheap while diamonds are relatively useless but expensive.

Assume a market is in equilibrium. There is an increase in supply, but no change in demand As a result the equilibrium price ________, and the equilibrium quantity ________.

falls; increases

An increase in the price of bottled water results in a decrease in the demand for bottled water

false

Governments spend an increasing share of a nation's gross domestic product because the marginal benefits of public goods are less than their marginal costs.

false

If the beneficiary of a public good or service does not face the marginal cost of its provision, the public good is underproduced.

false

Public provision of mixed goods is efficient if the marginal cost of public provision exceeds marginal social benefits.

false

The marginal economic benefit of a public good is equal to the point where market demand equals market supply of the good.

false

Vouchers represent a token amount granted to producers to increase the quantity of mixed goods purchased.

false

When overproduction occurs in a competitive market, efficiency can still be restored by sticking with the working of the market.

false

Average variable costs increase

faster than average fixed costs decline, causing average total costs to increase.

A rational choice is ___________.

made by comparing marginal benefit and marginal cost

A situation that arises in the ordinary course of economic life in which the one factor of interest is different and other things are equal (or similar)?

natural experiment

Producer surplus is the ________ summed over the quantity produced.

price of the good minus the marginal cost of producing it

economic experiments

puts people in a decision-making situation and varies the influence of one factor at a time to discover how they respond.

The above figure illustrates a perfectly competitive firm. If the market price is $40 a unit, to maximize its profit (or minimize its loss) the firm should * (See Chapter 15, section 15.2)

produce 40 units.

export goods and services .

produced in one country and sold in another

When an economy is producing at a point on its PPF ch oose 2)

producing a different output combination will require a trade-off. technology is being used efficiently.

Goods and services are produced by using?

productive resources

The paradox of value with respect to water and diamonds can be explained using consumer surplus because * (See Chapter 13, section 13.3)

water is cheap but provides a large consumer surplus, while diamonds are expensive with a small consumer surplus.

12) A price-discriminating monopoly is a monopoly that * (See Chapter 16, section 16.1)

sells different units of a good or service at different prices.

A situation in which the quantity demanded exceeds the quantity supplied?

shortage

The long run average cost curve *

shows the lowest average cost facing a firm as it increases output changing both its plant and labor force.

The above figure illustrates a perfectly competitive firm. If the market price is $10 a unit, to maximize its profit (or minimize its loss) the firm should * (See Chapter 15, section 15.2)

shut down.

Natural experiments

situation that arises in the ordinary course of economic life in which the one factor of interest is different and other things are equal.

An economist's goal is to answer three questions:

what, how, and for whom. EX how many smartphones get produced, how they are produced, and who gets to buy them.

Allocative efficiency occurs

when resources are used to create the greatest value, which means that marginal benefit equals marginal cost.

Three main factors influence the ability to find a substitute for a good:

whether the good is a luxury or a necessity how narrowly it is defined the amount of time available to find a substitute for it.

The capture theory says that producers have a large incentive to lobby regulators,

while most individual consumer's interests are relatively small.

And when households choose the quantities of goods and services to buy, they respond to?

the amounts they must pay to firms

When drawing a production possibilities frontier, which of the following is held constant?

the available factors of production and the state of technology

What is opportunity cost and how is it calculated?

the best thing you must give up to get something For every good that is produced, some other good cannot be.

Marginal revenue is * (See Chapter 15, section 15.1)

the change in total revenue from a one-unit increase in the quantity sold.

Economics is the social science that studies ___________.

the choices made to cope with scarcity, how incentives influence those choices, and how the choices are coordinated

When firms choose the quantities of factor services to hire, they respond to?

the rent, wages, interest, and profits they must pay to households

A normal profit is defined as *

the return to entrepreneurship.

A commonsense way of systematically checking what works and what doesn't work?

the scientific method

Economics

the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity, the incentives that influence those choices, and the arrangements that coordinate them.

Economic Growth

the sustained expansion of production possibilities.An economy grows when it develops better technology, improves the quality of labor, or increases the quantity of capital.

If marginal revenue equals marginal cost (MR = MC),

then the revenue from selling one more unit equals the cost incurred to produce that unit. Economic profit is maximized and either an increase or a decrease in output decreases economic profit. The rule MR = MC is a prime example of marginal analysis.

If marginal revenue exceeds marginal cost (MR > MC),

then the revenue from selling one more unit exceeds the cost of producing that unit and an increase in output increases economic profit.

If marginal revenue is less than marginal cost (MR < MC),

then the revenue from selling one more unit is less than the cost of producing that unit and a decrease in output increases economic profit.

For production to be efficient,

there must be full employment—not just of labor but of all the available factors of production—and each resource must be assigned to the task that it performs comparatively better than other resources can.

If a price ceiling is set above the equilibrium price, then Your Answer: C)

there will be neither a shortage nor a surplus of the good.

SOCIAL INTEREST EFFICIENCY EX.

think of efficiency as being achieved by baking the biggest possible pie.

SOCIAL INTEREST EQUITY EX.

think of equity as being achieved by sharing the pie in the fairest possible way.

If all education in the United States were provided by private, tuition-charging schools,

too little education would be consumed.

Capitol

tools, instruments, machines, buildings, and other items that have been produced in the past and that businesses now use to produce goods and services.

A free rider can enjoy the benefits of a public good because public goods are nonexcludable.

true

An increase in demand causes a shift of the demand curve to the right

true

Deadweight loss is a loss to society as a whole.

true

Market equilibrium is efficient because the sum of consumer surplus and producer surplus is the largest at the equilibrium.

true

Subsidies provide a payment to producers to lower the marginal cost of production.

true

When mixed goods are produced in efficient quantity, marginal social benefits equal marginal cost.

true

When mixed goods are underproduced, there is a deadweight loss because marginal social benefits exceed marginal costs.

true

When the marginal benefits of public goods differ between groups of voters, compromise is required to get political approval.

true

The quantity demanded is measured as an amount per?

unit of time, For example, your quantity demanded of water is 2 bottles per day

How do consumers determine the quantities goods they can consume given their budget (income) and prices?

using a budget line. Consumption possibilities are constrained by the budget and prices. Some combinations of goods are affordable, and some are not affordable. • The budget line is the boundary between what a person can and cannot afford with a given budget and given prices. • The slope of the budget line determines the relative price of the good measured on the x-axis in terms of the good measured on the y-axis. • A change in one price changes the slope of the budget line. A change in the budget shifts the budget line but does not change its slope.

A higher cost of production causes a decrease in supply

TRUE

Externalities are the result of costs or benefits that are not included in prices.

TRUE

Generally, for any given budget and any given consumer, utility is maximized when the MRS for the two goods is equal to the relative market prices.

TRUE

In the circular flow model, money flows in the opposite direction of the flows of goods and services.

TRUE

The demand curve show the negative relationship between the quantity demanded of a good and its price

TRUE

The production possibilities frontier is bowed outward because of increasing opportunity costs.

TRUE

The supply curve has a positive slope

TRUE

Governments use four sets of tools to influence international trade and protect domestic industries from foreign competition.

Tariffs Import Quotas Other import barriers Export Subsidies

Determinates of Demand

Tastes, Income, Price

Rent Seeking

The Lobbying for special treatment from the government to create economic profit or to divert consumer surplus or producer surplus away from others

Predicting Price Changes: Three Questions

To explain and predict changes in prices and quantities, we need to consider only changes in the equilibrium price and the equilibrium quantity. We can work out the effects of an event on a market by answering three questions: 1. Does the event influence demand or supply? 2. Does the event increase or decrease demand or supply—shift the demand curve or the supply curve rightward or leftward? 3. What are the new equilibrium price and equilibrium quantity and how have they changed?

The goal of the social interest theory is

To increase efficiency and reduce deadweight losses.

SHORT-RUN PRODUCTION

To increase the output of a fixed plant, a firm must increase the quantity of labor it employs. We describe the relationship between output and the quantity of labor employed by using three related concepts: • Total product • Marginal product • Average product

SHORT-RUN COST

To produce more output (total product) in the short run, a firm must employ more labor, which means that it must increase its costs. We describe the relationship between output and cost using three cost concepts: • Total cost • Marginal cost • Average cost

Average Total Cost

Total cost / (divided) by quantity = Average fixed cost

Average total cost

Total cost per unit of output, which equals average fixed cost plus average variable cost.

Average fixed cost

Total fixed cost per unit of output.

Average product also know as productivity

Total product divided by the quantity of a factor of production. The average product of labor is total product divided by the quantity of labor employed.

Average variable cost

Total variable cost per unit of output.

An exchange—giving up one thing to get something else?

Tradeoff

Rule that leads to the greatest utility from all goods and services consumed -

"1. Allocate the entire available budget. 2. Make the marginal utility per dollar equal for all goods. • If the marginal utility per dollar for water exceeds that for gum, total utility increases. • If the marginal utility per dollar for water is less than that for gum, total utility decreases. • If the marginal utility per dollar for water equals that for gum, total utility remains the same. "

Calculate Opp cost

"Calc the difference between lines, then divide the numbers. The Opp Cost of 10 tvs is 5 chairs. = 10/10 and 5/10 = The O.C. of 1 TV is ½ chairs"

If the marginal social cost of generating a kilowatt of electricity is $0.10 and the marginal private cost is $0.08, what is the marginal external cost?

$0.02

Which of the following items is not a factor of production?

A bank loan to a farmer. is not a factor of production because it is financial capital

Anti-trust law

A body of law that regulates oligopolies and prohibits them from becoming monopolies or behaving like monopolies.

To study economic growth, we must change the two goods and look at the production possibilities for a consumption good and a capital good.

A cell phone is a consumption good and a cell-phone factory is a capital good.

Change in the Quantity Demanded Versus Change in Demand

A change in the quantity demanded arises from a change in price that results in a movement along the demand curve A change in demand arises from a change in other factors that shifts the demand curve

What are the six ideas (CORE CONCEPTS) that define the economic way of thinking?

A choice is a tradeoff People make rational choices by comparing benefits and costs Benefit is what you gain from something Cost is what you must give up to get something Most choices are "how much" choices made at the margin, Choices respond to incentives

Six ideas define the economic way of thinking:

A choice is a tradeoff People make rational choices by comparing benefits and costs. Benefit is what you gain from something. Cost is what you must give up to get something. Most choices are "how much" choices made at the margin. Choices respond to incentives.

Margin

A choice on the margin is a choice that is made by comparing all the relevant alternatives systematically and incrementally.

Explicit cost

A cost paid in money.

3. Does any event (or events) illustrate the law of demand? The following events occur one at a time in the market for cell phones: • The price of a cell phone falls. • Everyone believes that the price of a cell phone will fall next month. • The price of a call made from a cell phone falls. • The price of a call made from a land-line phone increases. • The introduction of camera phones makes cell phones more popular.

A fall in the price of a cell phone (other things remaining the same) illustrates the law of demand. Figure 1 illustrates the law of demand. The other events change demand and do not illustrate the law of demand.

Price Taker

A firm that cannot influence the price of the good or service that it produces.

Price taker

A firm that cannot influence the price of the good or service that it produces.

Economic profit

A firm's total revenue minus total cost.

Prisoners' dilemma

A game between two prisoners that shows why it is hard to cooperate even when it would be beneficial to both players to do so.

Duopoly

A market with only two firms.

How do absolute advantage, comparative advantage, and specialization affect trade?

A person has a comparative advantage in an activity if he or she can perform that activity at a lower opportunity cost than someone else. People gain by increasing the production of the item in which they have a comparative advantage and trading.

When one person (or nation) is more productive than another—needs fewer inputs or takes less time to produce a good or perform a production task?

Absolute advantage

What is the difference between Absolute advantage and Comparative Advantage?

Absolute advantage is about productivity—how long does it take to produce a unit of a good. Comparative advantage is about opportunity cost—how much of some other good must be forgone to produce a unit of a good.

Producer surplus

Actual price received minus the acceptable price - Areas above the supply curve/under the price

Market

Any arrangement that brings buyers and sellers together and enables them to get information and do business with each other.

Barrier of entry

Any constraint that protects a firm from competitors - Three types:

What are examples of inefficient production?

Anything inside or outside the PPF.

Attainable and Unattainable Combinations

Because the PPF shows the limits to production, it separates attainable combinations from unattainable ones.

Strategic Behavior

Behavior that recognizes mutual interdependence and takes account of the expected behavior of others.

Tools, instruments, machines, buildings, and other items that have been produced in the past and that businesses now use to produce goods and services? Includes hammers and screwdrivers, computers, auto assembly lines, office towers and warehouses, dams and power plants, airplanes, shirt factories, and shopping malls.

Capital

Planning for long-term investments, like buildings and equipment, are known as capital investments

Capital budgeting

Which of the following statements is correct?

Capital earns interest and labor earns wages

Goods that are bought by businesses to increase their productive resources? They include items such as auto assembly lines, shopping malls, airplanes, and oil tankers.

Capital goods

The output of a production process designed to be used later in other production processes

Capital goods

Calculate marginal revenue curve=

Change in price / (divided) by the change in quantity

How does a new Starbucks in Beijing, China, influence self-interest and the social interest?

Decisions made by Starbucks are in Starbucks' self-interest but they serve the self-interest of its customers and so contribute to the social interest.

Decrease in Both Demand and Supply

Decreases the equilibrium quantity. The change in the equilibrium price is ambiguous because the: Decrease in demand lowers the price Decrease in supply raises the price.

-The relationship between the quantity demanded and the price of a good when all other influences on buying plans remain the same -demand is a list of quantities at different prices. -demand can be illustrated by a demand schedule or a demand curve. -Demand can be affected by price but also by a number of other factors. Among these are the price of substitute goods, the expectation that prices will increase at some point in the future, changes in personal income, and a change in consumers' personal preferences.

Demand

A graph of the relationship between the quantity demanded of a good and its price when all the other influences on buying plans remain the same? - A demand curve shows the same information in a graph. -An increase in demand shifts the demand curve rightward, and a decrease in demand shifts the demand curve leftward.

Demand curve

A list of the quantities demanded at each different price when all the other influences on buying plans remain the same? -A demand schedule shows information in a table.

Demand schedule

Considers the forms of and theories behind natural monopolies

Deregulations

Budget Line

Describes the limits to consumption possibilities.

A price ceiling set below the equilibrium price is binding and has several effects.

First, quantity demanded at the lower ceiling price exceeds quantity supplied. Only suppliers of the good or service with marginal costs below the price ceiling find it profitable to produce. In addition, more consumers have marginal benefits above the price ceiling than can be satisfied by the quantity supplied. The result is a shortage, lower production and a loss to society Suppliers who try charging a price above the ceiling price risk fines or imprisonment for violating the law.

Individuals or groups of people living together?

Households

OPPORTUNITY COST

IS A RATIO

How do we produce?

Land, Labor, Capital, and Entrepreneurship

Mixed goods tend to be underproduced because the marginal cost of producing them exceeds the marginal social benefits.

Mixed goods tend to be underproduced because the marginal cost of producing them exceeds the marginal social benefits.

Natural monopoly

Monopoly that arises because one firm can meet the entire market demand at a lower average total cost that two or more firms could

The best thing you must give up to get something?

Opportunity cost

The output per unit of input

Productivity

A choice that uses the available resources to best achieve the objective of the person making the choice?

Rational choice

How to figure surplus

Starts with 4000 ends with 10000 = 6000 bushel surplus / starts 4000 loses 11000 = 7000 bushel shortage

Increasing marginal returns

When the marginal product of an additional worker exceeds the marginal product of the previous worker.

For a firm, its labor costs are

a private cost.

Externalities

can be either benefits or costs.

Overproduction reduces deadweight loss.

false

The graph shows the labor market for fast-food workers in Sioux City. If the government sets a minimum wage of $7 an hour, then the labor market is ________ and marginal benefit ________ marginal cost.

inefficient; is greater than

Economists measure benefit as?

the most that a person is willing to give up to get something

What is the impact of a price ceiling on efficiency and fairness?

A price ceiling is inefficient and unfair.

Price support

A price floor in an agricultural market maintained by a government guarantee to buy any surplus output at that price.

What is the impact of a price floor on efficiency and fairness?

A price floor is inefficient and unfair.

Comparative advantage

"The fundamental force that drives international trade. Buyers of imported goods benefit from lower prices, and sellers of exported goods benefit from higher prices The winners are those whose surplus increases and the losers are those whose surplus decreases."

Labor

"The work time and work and work effort that people devote to producing goods and services.

Rational Choice

"a choice that uses the available resources to best achieve the objective of the person making the choice. We make rational choices by comparing costs and benefits."

substitute

"a good that can be consumed in place of another good. The demand for a good increases, if the price of one of it substitutes rises. The demand for a good decreases, if the price of one of its substitutes falls."

Suppose a firm's total revenue is $1,000,000. The firm has incurred explicit costs of $750,000. There is also $50,000 of forgone wages by the owner, $10,000 of forgone interest by the owner, $3,000 worth of economic depreciation, and $20,000 worth of normal profit. What is the firm's economic profit? * (See Chapter 14, section 14.1)

$167,000

If the marginal private benefit of attending college for Shelly is $40,000 and the marginal external benefit is $15,000, she will attend college if the cost of attendance is no more than

$40,000.

Real variable flows include:

(1) flows of the factors of production that go from households to firms through factor markets; and (2) flows of the goods and services from firms to households through goods markets.

When demand changes:

-The supply curve does not shift. -But there is a change in the quantity supplied. -Equilibrium price and equilibrium quantity change in the same direction as the change in demand.

Price cap regulation

A rule that specifies the highest price that a firm is permitted to set—a price ceiling.

Where Is the Global Pie Baked?

- The advanced economies produce 53 percent—20 percent in the United States, 15 percent in the Euro area, and 18 percent in the other advanced economies. -The emerging market economies produce another 8 percent. -Most of the rest of the global pie comes from Asia. China produces 13 percent of the total and other developing Asian economies produce 10 percent. The developing countries of Africa and the Middle East produce 7 percent, and the Western Hemisphere—Mexico and South America—produces the rest. -The sizes of the slices in the global production pie are gradually changing—the U.S. share is shrinking and China's share is expanding.

Governments in the Circular Flow

- governments buy goods and services from firms. -Households and firms pay taxes to governments. - Also, governments make money payments to households and firms. -Taxes and transfers are direct transactions with governments and do not go through the goods markets and factor markets. -Not part of the circular flow governments provide the legal framework within which all transactions occur. For example, governments operate the courts and legal system that enable contracts to be written and enforced.

The following events occur one at a time in the market for cell phones: • The price of a cell phone falls. • Everyone believes that the price of a cell phone will fall next month. • The price of a call made from a cell phone falls. • The price of a call made from a land-line phone increases. • The introduction of camera phones makes cell phones more popular. 1. Explain the effect of each event on the demand for cell phones.

-A fall in the price of a cell phone increases the quantity of cell phones demanded but has no effect on the demand for cell phones. -An expected fall in the price of a cell phone next month decreases the demand for cell phones today as people wait for the lower price. - A fall in the price of a call from a cell phone increases the demand for cell phones because a cell phone call and a cell phone are complements. -A rise in the price of a call from a land-line phone increases the demand for cell phones because a land-line phone and a cell phone are substitutes. - With cell phones more popular, the demand for cell phones increases.

Lumber companies make timber beams from logs. In the process of making beams, the mill produces sawdust, which is made into pressed wood. In the market for timber beams, the following events occur one at a time: • The wage rate of sawmill workers rises. • The price of sawdust rises. • The price of a timber beam rises. • The price of a timber beam is expected to rise next year. • A new law reduces the amount of forest that can be cut for timber. • A new technology lowers the cost of producing timber beams. Explain the effect of each event on the supply of timber beams.

-A rise in workers' wage rates increases the cost of producing a timber beam and decreases the supply of timber beams. - A rise in the price of sawdust increases the supply of timber beams because sawdust and timber beams are complements in production. -A rise in the price of a timber beam increases the quantity of timber beams supplied but has no effect on the supply of timber beams. An expected rise in the price of a timber beam decreases the supply of timber beams today as producers hold back and wait for the higher price. The new law decreases the supply of timber beams. The new technology increases the supply of timber beams.

in simpler terms.

-Current price change of items quantity demanded to change movement along the original demand curve --Non-price factors demand to change shift of the curve

State and Local Government Expenditures and Revenue

-Education, Public welfare benefits, Highways, and police services, garbage collection and disposal, sewage management, and water supplies. -Sales taxes and transfers from the federal government, Property taxes ,Individual income taxes , corporate income taxes , and other taxes such as those on gasoline, cigarettes, and beer and wine.

Expected Future Prices

-Expectations about future prices influence supply. -For example, a severe frost that wipes out Florida's citrus crop doesn't change the production of orange juice today, but it does decrease production later in the year when the current crop would normally have been harvested. -Sellers of orange juice will expect the price to rise in the future. -To get the higher future price, some sellers will increase their inventory of frozen juice, and this action decreases the supply of juice today.

Does this influence change the quantity supplied or does it change supply? The test is: Did the price change or did some other influence change?

-If the price of the good changed, then quantity supplied changed. - If some other influence changed and the price of the good remained constant, then supply changed.

Productivity

-Productivity is output per unit of input. - An increase in productivity lowers the cost of producing the good and increases its supply. - A decrease in productivity has the opposite effect and decreases supply. -Technological change and the increased use of capital increase productivity. -For example, advances in electronic technology have lowered the cost of producing a computer and increased the supply of computers. -Technological change brings new goods such as the iPod, the supply of which was previously zero. -Natural events such as severe weather and earthquakes decrease productivity and decrease supply. -For example, the tsunami of 2004 decreased the supply of agricultural products and seafood in many places surrounding the Indian Ocean.

Prices of Resources and Other Inputs

-Supply changes when the price of a resource or other input used to produce the good changes. - The reason is that resource and input prices influence the cost of production. -The more it costs to produce a good, the smaller is the quantity supplied of that good at each price (other things remaining the same). - For example, if the wage rate of bottling-plant workers rises, it costs more to produce a bottle of water, so the supply of bottled water decreases.

When supply changes:

-The demand curve does not shift. -But there is a change in the quantity demanded. -Equilibrium price changes in the same direction as the change in supply. -Equilibrium quantity changes in the opposite direction to the change in supply.

Opportunity Cost Is a Ratio

-The opportunity cost of a cell phone is the ratio of DVDs forgone to cell phones gained. -Similarly, the opportunity cost of a DVD is the ratio of cell phones forgone to DVDs gained. -So the opportunity cost of a DVD is equal to the inverse of the opportunity cost of a cell phone. -For example, moving along the PPF in Figure 3.4 from C to D the opportunity cost of a cell phone is 3 DVDs. -Moving along the PPF in the opposite direction, from D to C, the opportunity cost of a DVD is 1/3 of a cell phone.

Of the flows that run between households, firms, and governments in the circular flow model, which ones are real flows and which are money flows?

-The real flows are the services of factors of production that go from households to firms through factor markets and the goods and services that go from firms to households and from firms to governments through goods markets. -The money flows are factor incomes, household and government expenditures on goods and services, taxes, and transfers.

A Change in the Price of a Substitute in Production

-The supply of a good decreases if the price of one of its substitutes in production rises - and the supply of a good increases if the price of one of its substitutes in production falls. -That is, the supply of a good and the price of one of its substitutes in production move in opposite directions. -For example, a clothing factory can produce cargo pants or button-fly jeans, so these goods are substitutes in production. -When the price of button-fly jeans rises, the clothing factory switches production from cargo pants to button-fly jeans, so the supply of cargo pants decreases.

A Change in the Price of a Complement in Production

-The supply of a good increases if the price of one of its complements in production rises; -and the supply of a good decreases if the price of one of its complements in production falls. -That is, the supply of a good and the price of one of its complements in production move in the same direction. -For example, when a dairy produces skim milk, it also produces cream, so these goods are complements in production. -When the price of skim milk rises, the dairy produces more skim milk, so the supply of cream increases.

Federal Government Expenditures and Revenue

-Three items of expenditure are similar in magnitude—and large. -They are Social Security benefits, Medicare and Medicaid, and national defense and homeland security. -Other transfers to persons, which includes unemployment benefits, are also large. -The "Others" category covers a wide range of items and includes transfers to state governments, NASA's space program, and the National Science Foundation's funding of research in the universities. -The interest payment on the national debt is another significant item. The national debt is the total amount that the federal government has borrowed to make expenditures that exceed tax revenue—to run a government budget deficit. -Most of the tax revenue of the federal government comes from personal income taxes and Social Security taxes. -Corporate income taxes and other taxes are a small part of the federal government's revenue.

For Whom in the Global Economy?

-Who gets the world's goods and services depends on the incomes that people earn. -You can see that in the United States, that number is $129 a day—an average person in the United States can buy goods and services that cost $129. This amount is around five times the world average. -Canada is close to the United States at $126 a day and Japan at $116 a day. -The United Kingdom and Euro zone have average incomes of around 80 percent of that of the United States. Income levels fall off quickly as we move farther down the graph, -with Africa achieving an average income of only $4 a day and India only $3 a day.

OPPORTUNITY COSTS

-everything that is produced requires resources, and because resources are finite, everything produced has an opportunity cost. -a company manufacturing product A and product B with the same components.For every product A that is produced, it will cut down on how much product B can be produced, and vice versa. Everything has an opportunity cost. The opportunity cost of an item increases as the production quantity increases.

Breaking the goods and services down into smaller categories,

-health services is the largest category, with 17 percent of the value of total production. - Real estate services come next at 12 percent. - The main component of this item is the services of rental and owner-occupied housing. -Education is the next largest service, -followed by retail and wholesale trades and transportation and storage. -The largest category of goods—construction—accounts for only 4 percent of the value of total production, -and the next three—utilities, food, and chemicals—each accounts for 2 percent or less.

The greater the number of sellers in a market...

... the larger is the supply. - For example, many new sellers have developed springs and water-bottling plants in the United States, and the supply of bottled water has increased.

Low concentration

0% to 50%. This category ranges from perfect competition

Developing economies are the?

119 countries in Africa, Asia, the Middle East, Europe, and Central and South America that include China, India, Indonesia, and Brazil. These economies have not yet achieved high average incomes for their people. More than 5 billion people live in developing economies.

The International Monetary Fund classifies countries into what two broad groups of economies?

1. Advanced economies and 2. Emerging market and developing economies

We can find a consumer's best budget allocation by using a two-step utility-maximizing rule: Utility-maximizing rule

1. Allocate the entire available budget. 2. Make the marginal utility per dollar equal for all goods.

The PPF is a valuable tool for illustrating the effects of scarcity and its consequences. The PPF puts three features of production possibilities in sharp focus. They are the distinctions between?

1. Attainable and unattainable combinations, 2. Efficient and inefficient production, and 3. Tradeoffs and free lunches

The federal government finances its expenditures by collecting a variety of taxes. The main taxes paid to the federal government are

1. Personal income taxes 2. Corporate (business) income taxes 3. Social Security taxes

State and local governments finance these expenditures by collecting taxes and receiving transfers from the federal government. The main taxes paid to state and local governments are

1. Sales taxes 2. Property taxes 3. State income taxes

Billy has a $20 budget to spend on yogurt and cereal. Yogurt cost $2 each and cereal costs $4 each. Suppose that the quantity of yogurt is on the vertical axis and the quantity of cereal is on the horizontal axis. The budget line's vertical intercept equals ________. * (See Chapter 13, section 13.1)

10 yogurts

Emerging market economies are the?

28 countries in Central and Eastern Europe and Asia that were, until the early 1990s, part of the Soviet Union or one of its satellites

Suppose the marginal cost of the fourth unit of a public good is $20. If Mark and Judy are the only members of society, and they are willing to pay $10 and $11, respectively, for the fourth unit of the good, then the efficient quantity is A) 3 units. B) 4 or more units. C) 0 units. D) More information is needed about the marginal benefits of the first, second, and third units of the public good. E) None of the above answers is correct.

4 or more units.

8) Use the figure above to answer this question. Mary is the only veterinarian in a small town. To maximize her profit, Mary will choose to treat ________ animals per hour and charge ________ per customer in order to ________. * (See Chapter 16, section 16.2)

4; $50; maximize profit need to see graph

A country produces only apples and bananas. Moving from point A to point B along its production possibilities frontier, 5 apples are forgone and 4 bananas are gained. What is the opportunity cost of a banana?

5/4 of an apple

Medium concentration

50% to 80%. An industry in this range is likely an oligopoly.

High Concentration

80% to 100%. This category ranges from monopoly.

Externality

A cost or a benefit that arises from production and that falls on someone other than the producer; or a cost or benefit that arises from consumption and that falls on someone other than the consumer.

Lorenz curve

A curve that graphs the cumulative percentage of income (or wealth) against the cumulative percentage of households.

Long-run average cost curve

A curve that shows the lowest average total cost at which it is possible to produce each output when the firm has had sufficient time to change both its plant size and labor employed.

Because of an unexpected freeze, there are fewer strawberries on the market. This will result in:

A decrease in supply and a decrease in quantity demanded Supply curve shifts to the left, creating a shortage at the original price, raising price and decreasing quantity demanded

Private good

A good or service that can be consumed by only one person at a time and only by the person who has bought it or owns it.

Public good

A good or service that can be consumed simultaneously by everyone and from which no one can be excluded.

Excludable

A good, service, or resource is excludable if it is possible to prevent someone from enjoying its benefits.

Nonexcludable

A good, service, or resource is nonexcludable if it is impossible (or extremely costly) to prevent someone from enjoying its benefits.

Nonrival

A good, service, or resource is nonrival if its use by one person does not decrease the quantity available for someone else.

Rival

A good, service, or resource is rival if its use by one person decreases the quantity available for someone else.

Cartel

A group of firms acting together to limit output, raise price, and increase economic profit.

Market income

A household's wages, interest, rent, and profit earned in factor markets before paying income taxes.

Budget line

A line that describes the limits to consumption possibilities and that depends on a consumer's budget and the prices of goods and services. The budget line depends on the consumer's budget and on prices, so it changes when the budget or prices change.

Indifference Curve

A line that shows combinations of goods among which a consumer is indifferent.

Indifference curve

A line that shows combinations of goods among which a consumer is indifferent.

Monopolistic competition

A market in which a large number of firms compete by making similar but slightly different products. Nike, Reebok, Fila, Asics, New Balance, and many others make their own versions of the perfect shoe

Oligopoly

A market in which a small number of interdependent firms compete. Airplane manufacture is an example of oligopoly. Oligopolies might produce almost identical products, such as Duracell and Energizer batteries; or they might produce differentiated products, such as the colas produced by Coke and Pepsi.

Legal Monopoly

A market in which competition and entry are restricted by the granting of a public franchise, government license, paten, or copyright

What are the characteristics of monopoly?

A market in which one firm sells a good or service that has no close substitutes and a barrier blocks the entry of new firms.

Monopoly

A market in which one firm sells a good or service that has no close substitutes and a barrier blocks the entry of new firms. In some places, the phone, gas, electricity, and water suppliers are local monopolies—monopolies that are restricted to a given location. Microsoft has a near monopoly in producing the operating system for a personal computer.

Perfect Competition

A market in which there are many firms, each selling an identical product; many buyers; no barriers to the entry of new firms into the industry; no advantage to established firms; and buyers and sellers are well informed about prices.

Perfect competition

A market in which there are many firms, each selling an identical product; many buyers; no barriers to the entry of new firms into the industry; no advantage to established firms; and buyers and sellers are well informed about prices. Wheat farming, fishing, wood pulping and paper milling, the manufacture of paper cups and plastic shopping bags, lawn service, dry cleaning, and the provision of laundry services are all examples of highly competitive industries.

Price elasticity of demand

A measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buyers' plans remain the same.

price elasticity of demand

A measure of the responsiveness of the quantity demanded of a good* to a change in its price when all other influences on buyers' plans remain the same.

Circular flow model

A model of the economy that shows the circular flow of expenditures and incomes that result from decision makers' choices and the way those choices interact to determine what, how, and for whom goods and services are produced.

Natural monopoly

A monopoly that arises because one firm can meet the entire market demand at a lower average total cost than two or more firms could.

Single-price monopoly

A monopoly that must sell each unit of its output for the same price to all its customers.

single-price monopoly

A monopoly that must sell each unit of its output for the same price to all its customers.

Price-discriminating monopoly

A monopoly that sells different units of a good or service for different prices not related to cost differences.

Subsidy

A payment by the government to a producer.

How does a firm in a perfectly competitive market maximize profit?

A perfectly competitive firm is a price taker. • Marginal revenue equals price. • The firm produces the output at which price equals marginal cost. • If price is less than minimum average variable cost, the firm temporarily shuts down. • A firm's supply curve is the upward-sloping part of its marginal cost curve at all prices at or above minimum average variable cost (the shutdown point) and the vertical axis at all prices below minimum average variable cost.

free rider

A person who enjoys the benefits from a good or service without paying for it.

Free rider

A person who enjoys the benefits of a good or service without paying for it.

Explain how a price floor works and show how the minimum wage creates unemployment, inefficiency, and unfairness.

A price floor set below the equilibrium price has no effects. A price floor set above the equilibrium price creates a surplus and increased search activity or illegal trading. A price floor is inefficient and unfair. A minimum wage is an example of a price floor.

Proportion of Income Spent

A price rise, like a decrease in income, means that people cannot afford to buy the same quantities of goods and services as before. The greater the proportion of income spent on a good, the greater is the impact of a rise in its price on the quantity of that good that people can afford to buy and the more elastic is the demand for the good. For example, toothpaste takes a tiny proportion of your budget and housing takes a large proportion. If the price of toothpaste doubles, you buy almost as much toothpaste as before. Your demand for toothpaste is inelastic. If your apartment rent doubles, you shriek and look for more roommates. Your demand for housing is more elastic than is your demand for toothpaste.

A mixed good is

A private good with a consumption or production that creates a cost or benefit that arises from production may come with both external costs and external benefits:

Individual transferable quota (ITQ)

A production limit assigned to an individual who is then free to transfer (sell) the quota to someone else.

ITQ's

A production limit assigned to an individual who is then free to transfer(sell) the quota to someone else

the marginal cost curve of a public good slopes upward.

A public good does not create an externality, so the marginal cost is also the marginal social cost.

Import Quota

A quantitative restriction on the import of a good that limits the maximum quantity of a good that may be imported in a given period.

Earnings sharing regulation

A regulation that requires firms to make refunds to customers when profits rise above a target level.

rate of return regulation

A regulation that sets the price at a level that enables a firm to earn a specified target rate of return on its capital.

Common resource

A resource that can be used only once, but no one can be prevented from using what is available.

Expected future prices

A rise in the expected future price of a good increases the current demand for that good.A fall in the expected future price of a good decreases current demand for that good.

Lumber companies make timber beams from logs. In the process of making beams, the mill produces sawdust, which is made into pressed wood. In the market for timber beams, the following events occur one at a time: • The wage rate of sawmill workers rises. • The price of sawdust rises. • The price of a timber beam rises. • The price of a timber beam is expected to rise next year. • A new law reduces the amount of forest that can be cut for timber. • A new technology lowers the cost of producing timber beams. Does any event (or events) illustrate the law of supply?

A rise in the price of a beam, other things remaining the same, is the only event that illustrates the law of supply—see Figure 2.

Average cost pricing rule

A rule that sets price equal to average total cost to enable a regulated firm to avoid economic loss.

Marginal cost pricing rule

A rule that sets price equal to marginal cost to achieve an efficient output.

Because of an unexpected freeze, there are fewer strawberries on the market. This will result in:

A shortage at the original market equilibrium point When we consider the new supply curve, quantity demanded exceeds quantity supplied at the original equilibrium point

Distinquishing features of oligopoly

A small number of firms compete/natural or legal barriers prevent the entry of new firms

Payoff matrix

A table that shows the payoffs for each player for every possible combination of actions by the players.

Negatie income tax

A tax and redistribution scheme that provides every household with a guaranteed minimum annual income and taxes all earned income at a fixed rate.

Tariff

A tax that is imposed on a good when it is imported

Tradeoffs and free lunches

A tradeoff occurs when you give up one thing to get something else.

Dr. Khan starts his own dental practice after quitting his $150,000 job at The Mall Dental Clinic. His revenues for the first year are $500,000. He paid $90,000 in rent for the dental office, $60,000 for his office manager's salary, $24,000 for the dental hygienist, $150,000 for insurance, and $6,000 for other miscellaneous costs. The normal profit from running his business is $20,000. * (See Chapter 14, section 14.1)

A) His explicit costs are $330,000. B) His implicit costs are $170,000. C) His economic profit is zero. D) Only answers A and C are correct. E) Answers A, B, and C are correct.

) Which of the following statements are true of Monopolistic Competition? (Choose 2

A) firms receive zero economic profits in the long-run., C) market prices are higher and output is lower than under perfect competition.

2) Which of the following must a firm be able to do to successfully price discriminate? * i. divide buyers into different groups according to their willingness to pay ii. prevent resale of the good or service iii. identify into which group (high willingness to pay or low willingness to pay) a buyer falls (See Chapter 16, section 16.4)

A) ii only B) i and ii C) i and iii D) iii only E) i, ii, and iii E) i, ii, and iii

If a monopolistically competitive seller's marginal cost is $3.56, the firm will decrease its output if

A) its marginal revenue is less than $3.56.

9) Which of the following characteristics are use by economists to describe a public good (Choose 2). * (See Chapter 11, section 11.1) A) its use by one person does not decrease the quantity available for someone else. B) it is produced by a government entity. C) it can be provided efficiently by the market when rate of return regulation is applied. D) it is possible to prevent someone from enjoying its benefits. E) it is not possible to prevent someone from enjoying its benefits.

A) its use by one person does not decrease the quantity available for someone else. E) it is not possible to prevent someone from enjoying its benefits.

A budget line (Choose 2) (See Chapter 13, section 13.10

A) shifts outward with no change in its slope if the budget increases and prices don't change., C) has a slope equal to the opportunity cost

Economies of scale are a result of ________. (Choose 2) * (See Chapter 14, section 14.4)

A) spreading total fixed cost over a larger output. B) increasing marginal returns to labor inputs. C) specialization of labor D) specialization of capital E) the difference between economic costs and accounting costs. c & d are correct.

Which of the following is an explicit cost of production? * (See Chapter 14, section 14.1)

A) wages paid to workers B) the electric bill C) purchases of raw material D) Only answers A and B are explicit costs because the purchases of raw material is only an opportunity cost. Answers A, B, and C are all correct.

13) Which of the following is an example of price discrimination? * (See Chapter 16, section 16.1)

Albert pays 25 percent less on prescription drugs because he is a senior citizen.

Strategies

All the possible actions of each player in a game.

What conditions affect the efficient allocation of scarce resources?

Allocative efficiency occurs when resources are used to create the greatest value, which means that marginal benefit equals marginal cost.

What conditions must be satisfied for an allocation of productive resources to be efficient?

Along the PPF, the opportunity cost of x (the item measured on the x-axis) is the decrease in y (the item measured on the y-axis) divided by the increase in x. • The opportunity cost of Y is the inverse of the opportunity cost of X. • The opportunity cost of producing a good increases as the quantity of the good produced increases.

Signal

An action taken by an informed person (or firm) to send a message to less-informed people.

Resale price maintenance

An agreement between a manufacturer and a distributor on the price at which a product will be resold.

Tying arrangment

An agreement to sell one product only if the buyer agrees to buy another, different product.

Nash equilibrium

An equilibrium in which each player takes the best possible action given the action of the other player.

Public Franchise

An exclusive right granted to a firm to supply a good or service - Example: US Postal service

Copyright

An exclusive right granted to the author or composer of a literary, musical, dramatic, or artistic work. Patents and copyrights are valid for a limited time period that varies from country to country. In the United States, a patent is valid for 20 years.

Patent

An exclusive right granted to the inventor of a product or service

In winter, the quantity supplied of snow shovels increased. This could be because of:

An increase in demand for snow shovels An increase in demand will shift the demand curve to the right, thus increasing pirce and quantity supplied

What are the effects of a change in demand and a change in the quantity demanded?

An increase in demand increases both the price and the quantity; a decrease in demand decreases both the price and the quantity.

Increase in Demand and Decrease in Supply

An increase in demand or a decrease in supply raises the equilibrium price, so combined, these changes raise the price. But an increase in demand increases the quantity, and a decrease in supply decreases the quantity.

What are the effects of a change in supply and a change in the quantity supplied?

An increase in supply increases the quantity but decreases the price A decrease in supply decreases the quantity but increases the price.

________ in consumer surplus occurs when the price of a good ________. * (See Chapter 13, section 13.3)

An increase; decreases and consumers can buy more of the good at the lower price

Free Transferable quota

An individual who is free to transfer the quota to someone else

Implicit cost

An opportunity cost incurred by a firm when it uses a factor of production for which it does not make a direct money payment.

Economic Depreciation

An opportunity cost of a firm using capital that it owns—measured as the change in the market value of capital over a given period.

Economic depreciation

An opportunity cost of a firm using capital that it owns—measured as the change in the market value of capital over a given period.

Labor union

An organized group of workers that aim to increase wages and influence other job conditions of its members

Substitute

Another good that can be consumed in its place. - Apples or oranges

Many Americans are selling their used cars and buying new fuel-efficient hybrids. Other things remaining the same, in the market for used cars, ________ and in the market for hybrids ________.

Answer: A. supply increases and the price falls; demand increases and the price rises Selling their used cars increases the supply of used cars. Buy-ing new hybrids increases the demand for hybrids.

Law of decreasing returns

As a firm uses more of a variable factor of production, with a given quantity of fixed factors of production, the marginal product of the variable factor eventually decreases.

law of decreasing returns, which states that

As a firm uses more of a variable factor of production, with a given quantity of fixed factors of production, the marginal product of the variable factor eventually decreases.

3 features of PPF

Attainable/unattainable, Efficient/inefficient, Tradeoffs/Free lunches

If an increase in the daily price of "Animal world" zoo tickets causes an increase in demand for the neighboring "Animal Safari" daily tour tickets, then we can conclude that: A. Buyers consider "Animal World" zoo and "Animal Safari" tours as inferior goods B. Buyers consider "Animal World" zoo and "Animal Safari" tours as complementary goods C. Buyers consider "Animal World" zoo and "Animal Safari" tours as substitute goods D. Buyers consider "Animal World" zoo and "Animal Safari" tours as unrelated goods

Buyers consider "Animal World" zoo and "Animal Safari" tours as substitute goods Substitute goods are competing goods in the market

Emissions from all new vehicles must be cut from 354 grams to 250 grams. To meet this new standard, the price of a new vehicle will rise by $1,300. Calculate the opportunity cost of reducing the emission level by 1 gram.

By spending $1,300 extra on a new car, you forgo $1,300 of other goods. With a new car, your emissions fall from 354 grams to 250 grams, a reduction of 104 grams. The opportunity cost of a 1-gram reduction in emissions is $1,300 of other goods divided by 104 grams, or $12.50 of other goods.

A change in the quantity that people plan to buy when any influence on buying plans other than the price of the good changes

Change in demand

A change in the quantity of a good that people plan to buy that results from a change in the price of the good with all other influences on buying plans remaining the same?

Change in quantity demanded

A change in the quantity of a good that suppliers plan to sell that results from a change in the price of the good

Change in quantity supplied

A change in the quantity that suppliers plan to sell when any influence on selling plans other than the price of the good changes?

Change in supply

A model of the economy that shows the circular flow of expenditures and incomes that result from decision makers' choices and the way those choices interact to determine what, how, and for whom goods and services are produced?

Circular flow model

Substitute goods

Coke/Pepsi - Price of coke goes up = Demand for Pepsi goes up

Exists when one producer can meet demand at a lower long-run average cost (LRAC) Two examples include the National Football League (NFL) and Major League Baseball (MLB) Local Monopoly

Common in small towns Most common type of monopoly

The ability of a person to perform an activity or produce a good or service at a lower opportunity cost than anyone else?

Comparative advantage

Which of the following is a positive statement?

Competition among cell phone providers across the borders of Canada, Mexico, and the United States has driven roaming rates down.

A good that is consumed with another good?

Complement

A good that is produced along with another good?

Complement in production

Complementary goods

Computer/software - Price of computer goes up = Demand for software goes down

In the summer of 2008, the price of gasoline increased greatly. If the demand curve for gasoline did not shift, which of the following occurred?

Consumer surplus decreased.

Describe the flows in the circular flow model in which consumption expenditure, purchases of new national defense equipment, and payments for labor services appear. Through which market does each of these flows pass?

Consumption expenditure flows from households to firms through the goods market. Purchases of national defense flow from governments to firms through the goods market. Payments for labor services flow from firms to households through the factor market.

Goods and services that are bought by individuals and used to provide personal enjoyment and contribute to a person's quality of life? They include items such as housing, SUVs, bottled water, chocolate bars, movies, downhill skiing lessons, and doctor and dental services.

Consumption goods and services

Of the four groups of goods and services which has the largest share and a share that doesn't fluctuate much?

Consumption goods and services

We place the goods and services produced into what four large groups?

Consumption goods and services Capital goods Government goods and services Export goods and services

What do we produce?

Consumption goods and services Capital goods Government goods and services Export goods and services Capital goods Government goods and services Export goods and services

Government license

Controls entry into particular occupations, professions, and industries. Example: Texaco station - Rhode island

The tendency for the values of two variables to move together in a predictable and related way?

Correlation

Demand Curve

Downward sloping - "D" for down!! "D" for Demand!!!

If tuition at a college is $30,000 and the external benefit of graduating from this college is $10,000, then * i. in the absence of any government intervention, the number of students graduating is less than the efficient number. ii. the government could increase the number of graduates by giving the college a $10,000 subsidy per student. iii. the government could increase the number of graduates by giving the students $10,000 vouchers. (See Chapter 10, section 10.2) A) i only B) i and ii C) i and iii D) ii and iii E) i, ii, and iii

E) i, ii, and iii

SOCIAL INTEREST HAS TWO DIMENSIONS

EFFICIENCY AND EQUITY

A cost is something you give up to get something in return, which is the benefit. Comparing the costs and benefits to make a rational choice is called making a choice on the margin, which involves weighing all the relevant pros and cons. Incentives are valuable because they help form decisions. Positive incentives act as rewards, and negative incentives act as penalties.

EX: Marginal cost is something you give up while marginal benefit is something you get. For example, you walk into Burger King and bought a burger. You paid $3.75. This is your marginal cost. The marginal benefit would be the satisfaction from eating that burger.

The sustained expansion of production possibilities.

Economic growth

A description of some feature of the economic world that includes only those features assumed necessary to explain the observed facts?

Economic model

How are equilibrium output, price, and economic profit determined in a perfectly competitive market in the long-run?

Economic profit induces entry, which increases market supply and lowers price and profit. Economic loss induces exit, which decreases market supply, raises price, and lowers the losses. • In the long run, economic profit is zero and there is no entry or exit. • An increase in demand increases the number of firms and increases the equilibrium quantity. • An advance in technology that lowers the cost of producing a good increases market supply, lowers the price, and increases the quantity. • Perfect competition is efficient because it makes marginal benefit equal marginal cost, and it is fair because trade is voluntary, consumers pay the lowest possible prices, and entrepreneurs earn normal profit.

Includes the surplus created in market exchanges

Economic rent

The social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity, the incentives that influence those choices, and the arrangements that coordinate them?

Economics

Economics as a policy tool

Economics provides a way of approaching problems in all aspects of our lives: personal, business, and government.

Equilibrium where marginal benefits received equal marginal costs of resources

Efficiency

The human resource that organizes labor, land, and capital to produce goods and services? They are creative and imaginative.

Entrepreneurship

The price at which the quantity demanded equals the quantity supplied

Equilibrium price

The figure shows the effects of an increase in demand and a decrease in supply. An increase in demand shifts the demand curve rightward; a decrease in supply shifts the supply curve leftward

Equilibrium price rises. Equilibrium quantity might increase, decrease, or not change.

The quantity bought and sold at the equilibrium price

Equilibrium quantity

A decrease in demand shifts the demand curve leftward; a decrease in supply shifts the supply curve leftward

Equilibrium quantity decreases Equilibrium price might rise or fall.

An increase in demand shifts the demand curve rightward; an increase in supply shifts the supply curve rightward.

Equilibrium quantity increases Equilibrium price might rise or fall.

Summary of Externalities

External costs are costs of production that fall on people other than the producer of a good or service. Marginal social cost equals marginal private cost plus marginal external cost. Producers take account only of marginal private cost and produce more than the efficient quantity when there is a marginal external cost. External benefits are benefits that are received by people other than the consumer of a good or service. Marginal social benefit equals marginal private benefit plus marginal external benefit. External benefits from education arise because better-educated people are better citizens, commit fewer crimes, and support social activities. Vouchers or subsidies to private schools or the provision of public education below cost can achieve a more efficient provision of education

Along the production possibilities frontier, the opportunity cost of producing one more unit of a good is the quantity of another good gained.

FALSE

An increase in the price of bottled water results in an increase in the supply of bottled water

FALSE

Demand is the relationship between the quantity demanded of a good and a buyer's income

FALSE

If money is being lost on an accounting basis, then typically economists will consider how much money they are losing in their accounting profit or loss.

FALSE

Supply is the relationship between the quantity supplied of a good and a supplier's cost

FALSE

The demand curve has a positive slope

FALSE

The supply curve shows the negative relationship between the quantity supplied of a good and its price

FALSE

An economist uses a set of rules and procedures to measure profit.

FALSE Economists focus on opportunity costs, the value of the next best alternative use of a scarce resource.

How does Facebook influence self-interest and the social interest?

Facebook serves the self-interest of its investors, users, and advertisers. It also serves the social interest by enabling people to share information.

Markets in which the services of factors of production are bought and sold?

Factor markets

The productive resources that are used to produce goods and services? Includes land, labor, capital, and entrepreneurship.

Factors of production

Total revenue test for the price elasticity of deman

Fall in price increases total revenue, demand is elastic; fall in price decreases total revenue, demand is inelastic - Implies that when demand is elastic, marginal revenue is positive/ when demand is inelastic, marginal revenue is negative

2. Use a graph to illustrate the effect of each event. The following events occur one at a time in the market for cell phones: • The price of a cell phone falls. • Everyone believes that the price of a cell phone will fall next month. • The price of a call made from a cell phone falls. • The price of a call made from a land-line phone increases. • The introduction of camera phones makes cell phones more popular.

Figure 1 illustrates the effect of a fall in the price of a cell phone as a movement along the demand curve D. Figure 2 illustrates the effect of an increase in the demand for cell phones as the shift of the demand curve from D0 to D1 and a decrease in the demand for cell phones as the shift of the demand curve from D0 to D2. FIGURE 2

The institutions that organize the production of goods and services?

Firms

The circular flow model is useful in showing us some key aspects of the economy:

Firms produce the goods and services and households consume, and households provide firms with the factors of production. Goods and services flow in one direction while money payments flow in the other. Total expenditures equal total outcomes.

How do we calculate economic profit given revenue and cost data?

Firms seek to maximize economic profit, which is total revenue minus total cost.

Marginal Cost

Firms will not produce more unless price increases.

Goods that are rival and excludable are private goods

Food and drink car house

substitute in production

For a good is another good that can be produced in its place. Ramen Vs Fettecini

Governments circular flow

Governments buy goods and services from firms. In the circular flow model, this expenditure is the flow running from governments through the goods market to firms.

4 Topics that generate a lot of heat

Globalization The Information Age Climate change A Social Security time bomb

The federal government's major expenditures provide?

Good and services, Social Security and welfare payments, and Transfers to state and local governments

The state and local governments' major expenditures are to provide?

Goods and services and Welfare benefits

capital goods

Goods bought by businesses to add to their resources and capacity (financial capital, like money, stocks and bonds, is not capital. These items enable people to run businesses, but they are not used to produce goods and services.)

Markets in which goods and services are bought and sold?

Goods markets

Goods and services that are bought by governments? Governments purchase missiles and weapons systems, travel services, Internet services, police protection, roads, and paper and paper clips. fifth of total production and export goods around one tenth.

Government goods and services

ITQ

Highest cost/ marginal social benefit that someone will pay (minus) the Marginal Cost

Circular Flows in the Global Economy

Households and firms in the U.S. economy also interact with households and firms in other economies. These activities are called international trade and international finance.

What are the basic economic questions that every society must answer?

How do choices end up determining what, how, and for whom goods and services get produced? When do choices made in the pursuit of self-interest also promote the social interest?

The knowledge and skill that people obtain from education, on-the-job training, and work experience?

Human capital

MARGINAL BENEFIT

IS EQUAL TO DEMAND DOWNWARD SLOPE As the quantity of a good increases, the benefit of having one more unit of that good decreases.

MARGINAL COST

IS EQUAL TO SUPPLY UPWARD SLOPE Opportunity costs generally increase as output increases.

Decrease in Both Supply and Demand

If both the demand and the supply of a good decrease, both the supply and demand curves shift leftward. As a result, the quantity unambiguously will decrease but the effect on the price is ambiguous. If the decrease in demand is greater than the decrease in supply, the price will decrease. If the decrease in demand is the same size as the decrease in supply, the price will not change. If the decrease in demand is less than the decrease in supply, the price will increase.

rival

If its use by one person decreases the quantity available for someone else.

nonrival

If its use by one person does not decrease the quantity available for someone else.

Income Effect

If price goes down, enables consumers to buy more.

Substitution Effect

If price goes down, people will buy more.

When to Shut Down

If the decision is to shut down, the firm receives no revenues and incurs none of its variable costs. Fixed costs continue for the near term, until fixed assets can be sold and fixed commitments (leases, insurance, salaries of managers, and so forth) expire. The economic loss resulting from fixed costs is the total loss. If the firm continues to produce when total revenues are less than total costs, the economic loss equals total revenue less fixed costs less variable costs. f total revenues are greater than variable costs, then some of the fixed costs are being met, even though the firm is experiencing an economic loss. In this case, the firm is clearly losing less than it would by shutting down.

Effects of change in demand

If the demand for a good increases, the demand curve shifts rightward. As a result, both equilibrium price and equilibrium quantity increase. If the demand for a good decreases, the demand curve shifts leftward. As a result, both the equilibrium price and equilibrium quantity decrease. The figure illustrates an increase in demand. In this figure, the original equilibrium point is where demand curve D0 intersects the supply curve S. The equilibrium price is $3 and the equilibrium quantity is 15 units per day. Now, an increase in demand causes the demand curve to shift rightward from D0 to D1. If the price stays at $3, a shortage will occur. As a result, the equilibrium price rises from $3 toward the new equilibrium where the supply curve S intersects the new demand curve D1. At this new equilibrium, the equilibrium price is $4 and the equilibrium quantity is 20. The figure below shows that an increase in demand raises both the equilibrium price and equilibrium quantity. A supply-demand graph showing how an increase in demand raise both the equilibrium price and equilibrium quantity.

Law of supply

If the price goes up the quantity supplied goes up.

Law of Supply

If the price of a good rises, the quantity supplied of that good increases. If the price of a good falls, the quantity supplied of that good decreases.

Changes in Prices

If the price of one good rises when the prices of other goods and the budget remain the same, consumption possibilities shrink. If the price of one good falls when the prices of other goods and the budget remain the same, consumption possibilities expand.

Effects of changes in supply

If the supply of a good or service increases, the supply curve shifts rightward. As a result, the equilibrium price falls and the equilibrium quantity increases. If the supply of a good or service decreases, the supply curve shifts leftward. As a result, the equilibrium price rises and the equilibrium quantity decreases. The figure illustrates an increase in supply. In this figure, the original equilibrium point is where demand curve D intersects the supply curve S0. The equilibrium price is $3 and the equilibrium quantity is 30 units per month. Now, an increase in supply causes the supply curve to shift rightward from S0 to S1. If the price stays at $3, a surplus will occur. As a result, the equilibrium price falls from $3 toward the new equilibrium where the demand curve D intersects the new supply curve S1. At this new equilibrium, the equilibrium price is $2 and the equilibrium quantity is 40. The demand curve does not shift; there is a movement along the demand curve. The figure shows that an increase in supply lowers the equilibrium price but raises the equilibrium quantity.

What in the Global Economy?

Imagine that each year the global economy produces an enormous pie. In 2011, the pie was worth about $70 trillion!

Negative externality

Imposes an external cost

Lumber companies make timber beams from logs. In the process of making beams, the mill produces sawdust, which is made into pressed wood. In the market for timber beams, the following events occur one at a time: • The wage rate of sawmill workers rises. • The price of sawdust rises. • The price of a timber beam rises. • The price of a timber beam is expected to rise next year. • A new law reduces the amount of forest that can be cut for timber. • A new technology lowers the cost of producing timber beams. Use a graph to illustrate the effect of each event.

In Figure 1, an increase in the supply shifts the supply curve from S0 to S1, and a decrease in the supply shifts the supply curve from S0 to S2. In Figure 2, the rise in the price of a beam creates a movement along the supply curve.

Harry owns a clothing store. He sells two dresses that are similar expect that one of the dresses is pink and the other one is blue. He notices that he is able to sell the pink dress at a higher price as compared to the blue dress. Using this information, Harry will:

Increase quantity supplied for the pink dress and decrease supply for the blue dress Price affects quantity supplied of the pink dress; the blue and pink dresses are substitutes in production Then for blue dress, it will be decrease in SUPPLY because it's not change in the price of blue dress. Blue dress and pink dress are substitute goods. price change of pink dress will cause supply of blue dress to change. Just consider 2 separate markets for each dress.

Increase in Both Demand and Supply

Increases the equilibrium quantity. The change in the equilibrium price is ambiguous because the: Increase in demand raises the price. Increase in supply lowers the price.

An HHI more than 1800

Indicative of 0ligopoly

An HHI less than 1800

Indicative of monopolistic competition

An HHI close to 0

Indicative of perfect competition

A good for which demand decreases when income increases and demand increases when income decreases?

Inferior good

Income paid for the use of capital?

Interest

The work time and work effort that people devote to producing goods and services? It includes the physical and mental efforts of all the people who work on farms and construction sites and in factories, shops, and offices.

Labor

Market for factors of Production: 4 factors of production

Labor, Capital, Land(natural resources), Entrepreneurship

The "gifts of nature," or natural resources, that we use to produce goods and services? It includes minerals, energy, water, air, and wild plants, animals, birds, and fish. Some of these resources are renewable, and some are non-renewable.

Land

Goods and services are produced using four factors of production:

Land, Labor, Capital, and Entrepreneurship

Property rights

Legally established titles to the ownership, use, and disposal of factors of production and goods and services that are enforceable in the courts.

Governments have three methods to deal with external costs:

Limits or quotas Fees or taxes Marketable permits

Demand Schedule

List of the quantities demanded at each different price when all the other influences on buying plans remain the same.

Supply Schedule

Lists the quantities supplied at each different price when all the other influences on selling plans remain the same.

Capital

Long-term commitment of funds or other resources, for example, a long-term investment of funds in the equity or debt of corporations

Decrease in Demand and Increase in Supply

Lowers the equilibrium price. so combined, these changes lower the price. The change in the equilibrium quantity is ambiguous because the: Decrease in demand decreases the quantity. Increase in supply increases the quantity.

3) To maximize its profit, a perfectly competitive firm produces so that ________ and a single-price monopoly produces so that ________. * (See Chapter 16, section 16.2)

MR = MC; MR = MC

Which of the following equations is correct? *

MSC = MC + marginal external cost

Product competition

Making a product that is slightly different from the products of competing firms.

A choice that is made by comparing all the relevant alternatives systematically and incrementally?

Margin

The opportunity cost that arises from a one-unit increase in an activity. It is what you MUST GIVE up to get one additional unit of it?

Marginal Cost

Marginal Social Cost =

Marginal Private cost (Marginal Cost) + Marginal External Cost

The benefit that arises from a one-unit increase in an activity. It is measured by what you are WILLING TO GIVE UP to get one additional unit of it?

Marginal benefit

How are equilibrium output, price, and economic profit determined in a perfectly competitive market in the short-run?

Market demand and market supply determine price. • Firms choose the quantity to produce that maximizes profit, which is the quantity at which marginal cost equals price. • In short-run equilibrium, a firm can make a positive economic profit, make zero economic profit, or incur an economic loss.

When the quantity demanded equals the quantity supplied—buyers' and sellers' plans are in balance

Market equilibrium

Disposable Income

Market income plus cash benefits paid by the government minus taxes.

Money income

Market income plus cash payments to households by the government.

The sum of the supplies of all the sellers in the market

Market supply

Goods markets

Markets in which goods and services are bought and sold.

Zero Economic Profit

Means the business earns normal profit from running a business

Money flows move in the opposite direction of real variable flows.

Money flows include: (1) payments made in exchange for the services of factors or production; and (2) expenditures on goods and services.

In the following three news items, find examples of the what, how, and for whom questions: "With more research, we will cure cancer"; "A good education is the right of every child"; "Congress raises taxes to curb the deficit."

More research is a how question, and a cure for cancer is a what question. Good education is a what question, and every child is a for whom question. Raising taxes is a for whom question.

Which of the following statements about U.S. production is correct?

Most of what the United States produces is goods not services.

The total amount that the federal government has borrowed to make expenditures that exceed tax revenue—to run a government budget deficit?

National debt

Goods that are nonrival and nonexcludable are public goods

National defense The law flood-control levees

Non-renewable natural resources

Natural resources that can be used only once and cannot be replaced once they have been used.

4 types of externalities

Negative production/Positive production/Negative consumption/ Positive consumption

Invention

New products and production methods.

In the market for cell phones, which of the following events increases the supply of cell phones?

New technology lowers the cost of making a cell phone Answers B and D decrease the supply of cell phones; answer C affects the demand for cell phones

productivity

Output per unit of input.

A good for which demand increases when income increases and demand decreases when income decreases?

Normal good

Disagreements that can't be settled by facts? Statements about what ought to be, depend on values and cannot be tested. It doesn't assert a fact that can be checked. Economists as social scientists try to steer clear of these statements.

Normative statements

The demand for a good is inelastic if a substitute for it is hard to find.

Oil has poor substitutes (imagine a coal-fueled car), so the demand for oil is inelastic.

Governments also interact with households and firms in other ways.

On one hand . . . governments make money payments or transfers to households and firms. These payments include Medicare and Medicaid, and Social Security benefits. On the other hand . . . households and firms pay taxes to governments, including personal income taxes, corporate income taxes and Social Security taxes. These money flows of transfers and taxes are direct transactions with governments, so that they do not go through goods market or factor markets.

What causes a change in the quantity demanded?

Other things remaining the same, the quantity demanded increases as the price falls and decreases as the price rises—the law of demand.

What causes a change in the quantity supplied?

Other things remaining the same, the quantity supplied increases as the price rises and decreases as the price falls—the law of supply.

Price of Elasticty of Demand

Percentage change in quantity demanded/Percentage change in price Measures the responsiveness to price changes

Price elasticity of supply

Percentage change in quantity supplied/ percentage change in price

Cross elasticity of demand

Percentage change in quantity/Percentage change in price of product

3 methods government uses to cope with external costs

Pollution limits/ Pollution charges or taxes/ marketable pollution permits (cap-n-trade)

Which of the following is not a key idea in the economic way of thinking?

Poor people are discriminated against and should be treated more fairly.

Disagreements that can be settled by facts? Statements about what is. It might be right or wrong and we can discover which by careful observation of facts. It could be right or wrong, and it can be tested.

Positive statements

Obstacles to efficiency that bring market failure and create deadweight losses are

Price and quantity regulations • Taxes and subsidies • Externalities • Public goods and common resources • Monopoly • High transactions costs

Perfect price discrimination

Price discrimination that extracts the entire consumer surplus by charging the highest price that consumers are willing to pay for each unit.

Income Elasticity of Demand

Price elasticity formula: Ey = percentage change in Quantity demanded / percentage change in Income

A price support wherein the government buys any surplus output

Price floor

Law of Demand

Price goes down, the quantity demand goes up.

Revenue Implications

Price increases, the more supplied

Which of the following will change current demand? A. Expected future cost B. Expected future price C. Price of a substitute in production D. Price of a complement in production

Price of a complement in production Answer D is correct because buyers make current purchases in anticipation of future. Other three options affect supply

Main influences of selling plans

Price of related goods - prices of resources - Expected future prices - number of sellers - productivity

What are the main influences on buying plans that change demand?

Prices of related goods, Expected future prices, Income, Expected future income and credit, Number of buyers, and Preferences

What are the main influences on selling plans that change supply?

Prices of related goods, Prices of resources and other inputs, Expected future prices, Number of sellers, and Productivity

Main influences of buying plans

Prices of related goods, expected future prices, Income, Expected future income and credit, Number of buyers, Preferences

When US imposes an import quota

Producers of the good gain, Consumers of the good lose, Importers of the good gain, Consumers lose more than others gain.

When US imposes a tariff on import

Producers of the good gain, Consumers of the good lose/ Consumers lose more than US Producers gain

A situation in which the economy is getting all that it can from its resources and cannot produce more of one good or service without producing less of something else?

Production efficiency

Income earned by an entrepreneur for running a business?

Profit (or loss)

3 methods used to achieve efficient use of a common resource

Property rights/ Production quotas/ individual transferable quotas ITQ's

Positive externality

Provides an external benefit

In the areas of public education and health care, government action can provide additional resources to increase the quantity of these goods and services while also increasing their social benefit. Three approaches have been used to make the allocation more efficient:

Public provision Subsidy Voucher

Four market structure

Pure Competition, Monopolistic Competition, Oligopoly, Pure Monopoly

9) If the market was a monopoly, the quantity would be ________ and the price would be ________; if the market tis perfectly competitive, the quantity would be ________ and the price would be ________. * (See Chapter 16, section 16.3)

Q1; P2; Q2; P1 need to see graph

Inelastic supply

Qty supplied does not respond strongly to price change

Elastic supply

Qty supplied resounds strongly to changes in price

-The amount of any good, service, or resource that people are willing and able to buy during a specified period at a specified price? -Quantity demanded represents the cost of one specific quantity at one specific price. - Quantity demanded is affected by price, but demand itself can be influenced by a variety of factors.

Quantity demanded

equilibrium price

Quantity demanded equals the quantity supplied.

For a single-price monopoly, price is * (See Chapter 16, section 16.2)

greater than marginal revenue.

-The amount of any good, service, or resource that people are willing and able to sell during a specified period at a specified price - For example, when the price of spring water is $1.50 a bottle, a spring owner decides to sell 2,000 bottles a day. The 2,000 bottles a day is the quantity supplied of spring water by this individual producer. -represents a specific good at a specific price. -Quantity supplied is affected by price, but supply itself can be affected by several factors. Among those factors are the cost of related goods, the prices of resources (such as what it costs to manufacture the item), the number of sellers, and worker productivity. -one quantity at one price.

Quantity supplied

Administered by government agencies to influence an industry

Regulations

Income paid for the use of land?

Rent

Obtaining special treatment by the government to create economic profit or divert surplus away from others

Rent seeking

Factors of production are paid incomes:

Rent, Wages, Interest, Profit (or loss)

The incomes for those factors of production are:

Rent: Income for the use of land Wages: Income for the use of labor Interest: Income for the use of capital Profit: Return on a running business

3 Anti-trust policy debates

Resale Price maintenance, Predatory pricing, Tying Arrangement

Marginal Revenue > Marginal cost

Revenue from selling one more unit exceeds the cost of producing that unit and an increase in output increases economic profit

Regulation

Rules administered by a government agency to influence prices, quantities, entry, and other aspects of economic activity in a firm or industry.

Three features of all games

Rules, Strategies, payoffs

What countries are considered Emerging market economies?

Russia is the largest of these economies. Others include the Czech Republic, Hungary, Poland, Ukraine, and Mongolia. About 500 million people live in emerging market economies.

Samantha has a budget of $40 and buys beef jerky and fried pork rinds. Her budget does not change and the price of both beef jerky and fried pork rinds increases. As a result,

Samantha's consumption possibilities have decreased. Samantha's budget line shifts inward.

change in quantity demanded

Same line, but a change in the quantity demanded. - Dots on the line

quantity supplied

Same line, but a change in the quantity demanded. - Dots on the line..

Provide three examples of wants in the United States today that are especially pressing but not satisfied.

Security from international terrorism, cleaner air in our cities, better public schools.

Predatory pricing

Setting a low price to drive competitors out of business with the intention of setting a monopoly price when the competition has gone.

A payment by the government to producers to lower their cost of production

Subsidy

A good that can be consumed in place of another good?

Substitute

A good that can be produced in place of another good

Substitute in production

Marginal social benefit for a private good

Sum the individual marginal benefit curves horizontally

Marginal social benefit for a public good

Sum the individual marginal benefit curves vertically

-The relationship between the quantity supplied and the price of a good when all other influences on selling plans remain the same -is a list of quantities at different prices. Supply can be illustrated by a supply schedule, a table, or a supply curve.

Supply

A list of the quantities supplied at each different price when all the other influences on selling plans remain the same

Supply schedule

Benefits of PPF

The PPF helps us understand the concept of tradeoffs as a result of scarcity. The figure of production possibilities shows three distinctions: -Attainable and unattainable production combinations Efficient and inefficient production Tradeoffs and free lunches

What countries are considered Advanced economies?

The United States, Japan, Italy, Germany, France, the United Kingdom, and Canada belong to this group. So do four new industrial Asian economies: Hong Kong, South Korea, Singapore, and Taiwan. The other advanced economies include Australia, New Zealand, and most of the rest of Western Europe. Almost 1 billion people live in advanced economies.

Markup

The amount by which price exceeds marginal cost.

Excess capacity

The amount by which the efficient scale exceeds the quantity that the firm produces.

Average Product

The average product of labor is total product ÷ by the quantity of labor employed.

Marginal external benefit

The benefit from an additional unit of a good or service that people other than the consumer of that good or service enjoy.

Marginal External Benefit

The benefit from an additional unit of a good or service that people other than the consumer of the good or service enjoy.

Marginal Private Benefit

The benefit from an additional unit of a good or service that the consumer of that good or service receives.

Marginal private benefit

The benefit from an additional unit of a good or service that the consumer of that good or service receives.

Benefit

The benefit of something is the gain or pleasure that it brings.

Utility

The benefit or satisfaction that a person gets from the consumption of a good or service.

Marginal benefit

The benefit that arises from a one unit increase in an activity. The marginal benefit of something is measured by what you are WILLING to give up to get one additional unit of it.

Production Possibilities Frontier

The boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology

What is the production possibilities frontier (PPF)?

The boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.

Marginal Product

The change in total product that results from a one-unit increase in the quantity of labor employed.

Marginal product

The change in total product that results from a one-unit increase in the quantity of labor employed.

Marginal revenue

The change in total revenue that results from a one-unit increase in the quantity sold.

Marginal Utility

The change in total utility that results from a one-unit increase in the quantity of a good consumed.

Marginal utility

The change in total utility that results from a one-unit increase in the quantity of a good consumed.

Social Interest

The choices that are best for society as a whole

Self-Interest

The choices that are best for the individual who makes them

Scarcity

The condition that arises because wants exceeds the ability of resources to satisfy them.

Total cost

The cost of all the factors of production used by a firm.

Marginal external cost

The cost of producing an additional unit of a good or service that falls on people other than the producer.

Marginal private cost

The cost of producing an additional unit of a good or service that is borne by the producer of that good or service.

Total fixed cost

The cost of the firm's fixed factors of production—the cost of land, capital, and entrepreneurship. It is constant

Total variable cost

The cost of the firm's variable factor of production, the cost of labor.

Rational ignorance

The decision not to acquire information because the marginal cost of doing so exceeds the marginal benefit.

Derived demand

The demand for a factor of production, which is derived from the demand for the goods and services that it is used to produce.

The demand for a good and the price of one of its complements move in opposite directions.

The demand for a good decreases if the price of one of its complements rises and increases if the price of one of its complements falls. For example, the demand for wrist guards decreases when the price of in-line skates rises.

The demand for a good and the price of one of its substitutes move in the same direction.

The demand for a good increases if the price of one of its substitutes rises and decreases if the price of one of its substitutes falls. For example, the demand for cheesecake increases when the price of chocolate cake rises.

What factors cause a change in demand?

The demand for a good is influenced by the prices of related goods, expected future prices, income, expected future income and credit, the number of buyers, and preferences. A change in any of these influences changes the demand for the good.

3. How does a single-price monopoly set price?

The demand for a monopoly's output is the market demand, and a single-price monopoly's marginal revenue is less than price. • A monopoly maximizes profit by producing the quantity at which marginal revenue equals marginal cost and by charging the maximum price that consumers are willing to pay for that quantity.

4. How do equilibrium price and output differ in monopoly versus a perfectly competitive market?

The demand for a monopoly's output is the market demand, and a single-price monopoly's marginal revenue is less than price. • A monopoly maximizes profit by producing the quantity at which marginal revenue equals marginal cost and by charging the maximum price that consumers are willing to pay for that quantity.

Narrowness of Definition

The demand for a narrowly defined good is elastic. For example, the demand for a Starbucks latte is elastic because a New World latte is a good substitute for it. The demand for a broadly defined good is inelastic. For example, the demand for coffee is inelastic because tea is a poor substitute for it.

Relative Price

The price of one good in terms of another good—an opportunity cost. It equals the price of one good divided by the price of another good.

Increase in Both Supply and Demand

The figure illustrates an increase in both demand and supply: the demand curve shifts from D0 to D1 and the supply curve shifts from S0 to S1. In this figure, the original equilibrium point is where demand curve D0 intersects the supply curve S0. The equilibrium price is $3 and the equilibrium quantity is 15 units per day. Now, an increase in demand causes the demand curve to shift rightward from D0 to D1 at the same time an increase in supply causes the supply curve to shift rightward from S0 to S1. Because the shifts are the same size, the equilibrium price does not change and the equilibrium quantity increases from 15 units to 25 units per day.

Which of the following statements will NOT be true for the perfectly competitive firm in the long-run? (Choose 2) * (See Chapter 15, section 15.3)

The firm's average fixed costs are declining. The firm's marginal costs exceed their average costs and the profit maximizing level of output.

In the circular flow model, which of the following items is a real flow?

The flow of labor services from households to firms, real flow because it is a labor service.

Diminishing marginal utility

The general tendency for marginal utility to decrease as the quantity of a good consumed increases.

Diminshing marginal utility

The general tendency for marginal utility to decrease as the quantity of a good consumed increases.

Human Capital

The knowledge and skill that people obtain from education, on-the-job training, and work experience.

How do changes in demand and supply affect market equilibrium?

The law of market forces brings market equilibrium, the equilibrium price and equilibrium quantity at which buyers and sellers trade. The price adjusts to maintain market equilibrium, to keep the quantity demanded equal to the quantity supplied. A surplus brings a fall in the price to restore market equilibrium. A shortage brings a rise in the price to restore market equilibrium.

Time Elapsed Since Price Change

The longer the time that has elapsed since the price of a good changed, the more elastic is the demand for the good. For example, when the price of gasoline increased steeply during the 1970s and 1980s, the quantity of gasoline demanded didn't change much because many people owned gas-guzzling automobiles—the demand for gasoline was inelastic. But eventually, fuel-efficient cars replaced gas guzzlers and the quantity of gasoline demanded decreased—the demand for gasoline became more elastic.

Slope of the PPF

The magnitude of the slope of the PPF measures opportunity cost.

Factor Prices

The prices of the services of the factors of production.

Deregulation

The process of removing regulation of prices, quantities, entry, and other aspects of economic activity in a firm or industry.

Marginal social benefit

The marginal benefit enjoyed by society—by the consumer of a good or service and by everyone else who benefits from it. It is the sum of marginal private benefit and marginal external benefit. MSB=MB+MARGINAL EXTERNAL BENEFIT

Marginal Social Benefit

The marginal benefit enjoyed by the consumer of a good or service and by everyone else who benefits from it. It is the sum of marginal private benefit and marginal external benefit. MSB = MB + MEB

Marginal social cost

The marginal cost incurred by the entire society—by the producer and by everyone else on whom the cost falls. It is the sum of marginal private cost and marginal external cost. MSC=MC+MARGINAL EXTERNAL COST

Marginal utility per dollar

The marginal utility from a good relative to the price paid for the good.

Marginal Benefit

The marginal utility of a good or service is the gain from an increase or loss from a decrease in the consumption of that good or service

Related to the paradox of value, which of the following statements is correct? * (See Chapter 13, section 13.3)

The marginal utility of water is small but the total utility is enormous.

Calculating the Marginal Utility per Dollar

The marginal utility per dollar equals the marginal utility from a good divided by the price of the good. For example, if Tina buys 2 packs of gum, her marginal utility from gum is 16 units. At a price of 50¢ a pack, her marginal utility per dollar from gum is 16 units divided by 50¢, which equals 32 units of utility per dollar.

Identify the cases where the market output is efficient.

The market produces the quantity where supply and demand are equal The marginal cost to producers is equal to the marginal benefit of the good to consumers.

Factor markets

The markets in which the services of the factors of production are traded.

Diminishing marginal utility

The more you have, the less you want.

Opportunity cost of a cell phone

The opportunity cost of a cell phone is the decrease in the quantity of DVDs divided by the increase in the number of cell phones as we move along the PPF.

Opportunity Cost

The opportunity cost of something is the best thing you must give up to get it.

Marginal cost

The opportunity cost that arises from a one-unit increase in an activity. The marginal cost of something is what you MUST give up to get one additional unit of it.

Transactions costs

The opportunity costs of conducting a transaction.

Tragedy of Commons

The overuse of a common resource that arises when its users have no incentive to conserve it and use it sustainably.

Tragedy of the commons

The overuse of a common resource that arises when its users have no incentive to conserve it and use it sustainably.

Four-Firm concentration ratio

The percentage of the total revenue in an industry accounted for by the four largest firms in the industry.

Shutdown point

The point at which price equals minimum average variable cost and the quantity produced is that at which average variable cost is at its minimum.

Production Possibilities Frontier (PPF)

The production possibilities frontier (PPF) is the boundary between those combinations of goods and services that can be produced and those that cannot.

How can we analyze production to determine if it is efficient or inefficient and to understand the tradeoffs involved?

The production possibilities frontier, PPF, describes the limits to what can be produced by using all the available resources efficiently. Points inside and on the PPF are attainable. Points outside the PPF are unattainable. production at any point on the PPF achieves production efficiency. Production at a point inside the PPF is inefficient. When production is efficient—on the PPF—people face a tradeoff. If production is at a point inside the PPF, there is a free lunch.

Explain and illustrate the concepts of scarcity, production efficiency, and tradeoff using the production possibilities frontier.

The production possibilities frontier, PPF, describes the limits to what can be produced by using all the available resources efficiently. • Points inside and on the PPF are attainable. Points outside the PPF are unattainable. • Production at any point on the PPF achieves production efficiency. Production at a point inside the PPF is inefficient. • When production is efficient—on the PPF—people face a tradeoff. If production is at a point inside the PPF, there is a free lunch.

Coase theorem

The proposition that if property rights exist, only a small number of parties are involved, and transactions costs are low, then private transactions are efficient and the outcome is not affected by who is assigned the property right.

Coarse Therorem

The proposition that if property rights exist, only a small number of parties are involved, and transactions costs are low, then private transactions are efficient.

Efficent scale

The quantity at which average total cost is a minimum

equilibrium quantity

The quantity bought and sold at the equilibrium price.

If the price of movie tickets decreases, what might we expect on the demand side for movie tickets and popcorn at the movie theater complex? A. The demand for movie tickets and demand for popcorn increases B. The demand for movie tickets increases and quantity demanded for popcorn increases C. The quantity demanded of movie tickets and quantity demanded of pocorn both increase D. The quantity demanded for movie tickets increases and demand for popcorn increases

The quantity demanded for movie tickets increases and demand for popcorn increases The change in price will cause a movement along the demand curve for movie tickets; this will increase demand for popcorn, which is a complementary good (watching movies and eating popcorn go together)

Marginal Rate Of Substitution

The rate at which a person will give up good y (the good measured on the y-axis) to get more of good x (the good measured on the x-axis) and at the same time remain on the same indifference curve.

Marginal rate of sustitution

The rate at which a person will give up good y (the good measured on the y-axis) to get more of good x (the good measured on the x-axis) and at the same time remain on the same indifference curve.

If input and output increase proportionally,

The result is constant returns to scale, which can double production.

Normal profit

The return to entrepreneurship. Normal profit is part of a firm's opportunity cost because it is the cost of not running another firm.

Marginal revenue = Marginal cost

The revenue from selling one more unit equals the cost incurred to produce that unit.

Marginal revenue < Marginal cost

The revenue from selling one more unit is less than the cost of producing that unit and a decrease in output increases economic profit

Herfindahl Hirschman Index

The square of the percentage market share of each firm summed over the 50 largest firms (or summed over all the firms if there are fewer than 50) in a market.

Macroeconomics

The study of the aggregate (or total) effects on the national economy and the global economy of the choices that individuals, businesses, and governments make.

Microeconomics

The study of the choices that individuals and businesses make and the way these choices interact and are influenced by governments.

What are the effects of subsidies on efficiency and fairness?

The subsidies received by U.S. farmers are paid not only by U.S. taxpayers and consumers but also by poor farmers in the developing economies.

Market Demand

The sum of the demands of all the buyers in a market.

market supply

The sum of the supplies of all the sellers in the market

What factors cause a change in supply?

The supply of a good is influenced by the prices of related goods, prices of resources and other inputs, expected future prices, the number of sellers, and productivity. A change in any of these influences changes the supply of the good.

Principle of minimum differentiation

The tendency for competitors to make themselves identical to appeal to the maximum number of clients or voters.

Correlation

The tendency for the values of two variables to move together in a predictable and related way.

Median Voter Theory

The theory that governments pursue policies that make the median voter as well off as possible.

Social interest theory

The theory that regulation achieves an efficient allocation of resources.

Capture theory

The theory that the regulation serves the self-interest of the producer and results in maximum profit, under-production, and deadweight loss.

Long run

The time frame in which the quantities of all resources can be varied. Long-run decisions are not easily reversed

Short run

The time frame in which the quantities of some resources are fixed. In the short run, a firm can usually change the quantity of labor it uses but not its technology and quantity of capital. Decisions are easily reversed.

Game Theory

The tool that economists use to analyze strategic behavior

Total Utility

The total benefit that a person gets from the consumption of a good or service. Total utility generally increases as the quantity consumed of a good increases.

Total utility

The total benefit that a person gets from the consumption of a good or service. Total utility generally increases as the quantity consumed of a good increases.

Total Product

The total quantity of a good produced in a given period.

Total product

The total quantity of a good produced in a given period.

Value of Marginal product

The value to a firm of hiring one more unit of a factor of production, which equals the price of a unit of output multiplied by the marginal product of the factor of production.

Any constraint that protects a firm from the arrival of new competitors is a barrier to entry.

There are three types of barrier to entry: • Natural • Ownership • Legal

The movie theater complex where Linda usually watches movies is selling its tickets at a 20% discount to students and senior citizens. This will result in: *

There is a movement down the demand curve for movie tickets at that complex The discount will increase quantity demanded of movie tickets resulting in a movement down the demand curve

Why is Financial Capital, like money, stocks and bonds not Capital?

These items are financial capital, and they are not productive resources. They enable people to provide businesses with financial resources, but they are not used to produce goods and services.

Technological change creates temporary economic profits to consumers in the form of higher quality and lower prices.

This is false. Though technological change does bring permanent profit to consumers, it often can provide temporary economic profits to producers, if they can succeed in lowering costs and increasing output.

This is true. Consumers value the goods produced much more than the price paid.

This is true. Consumers value the goods produced much more than the price paid.

Income paid for the services of labor?

Wages

Which of the following describes the reason why scarcity exists?

Wants exceed the resources available to satisfy them.

Luxury Versus Necessity

We call goods such as food and housing necessities and goods such as exotic vacations luxuries. A necessity has poor substitutes—you must eat—so the demand for a necessity is inelastic. A luxury has many substitutes—you don't absolutely have to go to the Galapagos Islands this summer—so the demand for a luxury is elastic.

How in the Global Economy?

Who gets the world's goods and services depends on the incomes that people earn. How are incomes distributed around the world? Today the average income per day in the United States is the highest among all countries in the world, followed closely by the United Kingdom, Japan and, the Euro Area. The number then falls off rapidly to less than half in other countries, such as Russia, China, and Africa.

Consumer surplus

Willingness to pay minus the actual price paid. = Areas below the demand curve/above the price. Willing to pay $30 only cost $20 consumer surplus of $10

Efficient and Inefficient Production, Tradeoffs, and Free Lunches

With inefficient production, the economy might be producing 3 million cell phones and 5 million DVDs at point H. With an efficient use of the economy's resources, it is possible to produce at a point on the PPF such as point D or E. At point D, there are more DVDs and the same quantity of cell phones as at point H. And at point E, there are more cell phones and the same quantity of DVDs as at point H. At points D and E, production is efficient.

In perfect competition , total surplus is shared by consumers and producers.

With perfect price discrimination , the producer captures the entire surplus.

What is human capital?

Your professor's knowledge of the economy

Independent

Zero - No correlation between goods

Change in quantity demanded

a change in the quantity of a good that people plan to buy that results from a change in the price of the good

government goods and services

bought by governments, which include weapons

If there are two items that Brad wants to buy, like a cheeseburger or a sub

a decrease in the price of either good moves the budget line out, which leads to an increase in the consumption possibilities available for the same budget amount.

economic model

a description of some feature of the economic world that includes only those features assumed necessary to explain the observed facts.

To increase output in the short run,

a firm must increase the quantity of variable factors it uses. Labor is usually the variable factor of production.

What economics call a gift—getting something without giving up something else?

a free lunch

inferior good

a good for which the demand decreases if income increases and demand increases if income decreases.

normal good

a good for which the demand increases if income increases and demand decreases if income decreases.

complement

a good that is consumed with another good. Ex icecream and fudge sauce - The demand for a good increases, if the price of one of its complements falls.The demand for a good decreases, if the price of one of its complements rises.

Demand curve

a graph of the relationship between the quantity demanded of a good and its price when all other influences on buying plans remain the same

supply curve

a graph of the relationship between the quantity supplied and the price of the good when all other influences on

demand Schedule

a list of the quantities demanded at each different price when all the other influences on buying plans remain the same.

supply schedule

a list of the quantities supplied at each different price when all other influences on selling plans remain the same

Positive/Direct Relationship

a relationship between two variables that move in the same direction.

Linear Relationship

a relationship that graphs as a straight line.

incentive

a reward or a penalty—a "carrot" or a "stick"—that encourages or discourages an action.

Production Efficienty

a situation in which we cannot produce more of one good or service without producing less of something else.

7) An example of a common resource is * (See Chapter 11, section 11.3) A) a bridge. B) a non-crowded movie theater. C) a tuna in the ocean. D) national defense. E) All of the above answers are correct.

a tuna in the ocean.

Jennifer owns a pig farm near Salina, Kansas. Last year she earned $39,000 in total revenue while incurring $38,000 in explicit costs. She could have earned $27,000 as a teacher in Salina. These are all her revenue and costs. Therefore Jennifer earned an * (See Chapter 14, section 14.1)

accounting profit of $1,000 but incurred an economic loss of $26,000.

If it does not shut down, a perfectly competitive firm produces where marginal cost is equal to the marginal revenue * (See Chapter 15, section 15.2)

always to maximize its profit.

Trade-off

an exchange—giving up one thing to get something else.

Supposing chocolate cake and cheesecake are substitutes, an increase in the price of chocolate cake increases the demand for cheesecake

an increase in the price of chocolate cake increases the demand for cheesecake

A firm faces a small number of competitors. This firm is competing in

an oligopoly.

If an industry has an HHI of 2,500, the market structure is that of

an oligopoly.

11) Which of the following describes a barrier to entry? * (See Chapter 16, section 16.1)

anything that protects a firm from the arrival of new competitors

The two categories of implicit cost

are economic depreciation and the cost of the resources of the firm's owner.

Goods and services

are the objects (goods) and actions (services) that people value and produce to satisfy human wants.

Which of the following influence the price elasticity of demand? (Choose 2)

availability of substitutes, proportion of income spent on good

Why does the paradox of value between diamonds and water arise? * (See Chapter 13, section 13.3)

because water has a low price and a low marginal utility, while diamonds have a high price and a high marginal utility

A price floor is a price

below which a seller cannot legally sell.

We make rational choices by comparing?

benefits and costs

An effective price support ________ producers and ________ a deadweight loss.

benefits; creates

The production possibilities frontier is the

boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.

The value of a good or service is measured

by how much it increases our total satisfaction or total utility.

Differences in the total value of production between advanced and developing economies

can be explained by differences in human capital .

A state of allocative efficiency

can be reached when the quantity of goods or services being produced are at the best proportions to achieve the highest level of efficiency. Producing more of one product would mean producing less of another. This will also disrupt the balance of efficient allocation.

A company that expands, for example,

can benefit from economies of scale, in which output increases more than input and overall profit increases.

4) In contrast to competitive firms, single-price monopolies (See Chapter 16, section 16.3)

can make an economic profit indefinitely.

Production is possible with

capital (production machinery, tools, and factories); natural resources; human labor; and entrepreneurship (to provide inspiration).

financial capital

is not a factor of production.

A change in the demand for apples could result from any of the following EXCEPT

change in the price of an apple.

A central idea of economics is that by observing changes in incentives, we can predict how?

choices change

To calculate the benefits, or the marginal social benefit, you

combine marginal private benefit (from private goods) with marginal external benefit (the benefits that accrue to the public).

8) Fish in the ocean are an example of ________ because they are ________. * (See Chapter 11, section 11.1) A) public good; nonexcludable and nonrival B) public good; rival and excludable C) common resource; rival and nonexcludable D) common resource; nonrival and nonexcludable E) private good; caught by private fishermen

common resource; rival and nonexcludable

The largest share of total goods and services produced in the United States are of this type:

consumption .

Rent controls

create a deadweight loss. benefit people who live in rent controlled apartments

When demand changes in the short run, the immediate effects impact existing firms by increasing equilibrium prices,

creating economic profits if demand increases , and decreasing equilibrium prices, creating economic losses if demand decreases .

Which of the following increases the supply of gasoline?

decrease in the price of a resource used to produce gasoline, such as crude oil

The opportunity cost of producing one more unit of a good is calculated by dividing the

decrease in the quantity of the other good by the increase in the quantity of the good whose opportunity cost we're calculating.

Which of the following events illustrates the law of demand: Other things remaining the same, a rise in the price of a good will ________ . A. decrease the quantity demanded of that good B. increase the demand for a substitute of that good C. decrease the demand for the good D. increase the demand for a complement of that good

decrease the quantity demanded of that good The law of demand is the inverse relationship between the price of a good and the quantity demanded.

Other things remaining the same, a fall in the price of peanuts will ________.

decrease the quantity supplied of peanuts A fall in the price of the good creates a movement along the supply curve and decreases the quantity supplied.

The long-run average cost curve is U-shaped because of which of the following? *

economies and diseconomies of scale

The long-run average cost curve is U-shaped because of which of the following? * (See Chapter 14, section 14.4)

economies and diseconomies of scale

If there is unemployment in an economy, then the

economy is producing at a point inside the production possibilities frontier.

The social interest has what two dimensions?

efficiency and equity

When market prices decrease below the normal level in the short run, a producer's economic losses

equal the difference between average total costs and marginal revenues.

Slope

equals the change in the value of the variable measured on the y-axis divided by the change in the value of the variable measured on the x-axis.

marginal private benefit (the benefits that the individual gains) plus marginal external benefit (the benefits that accrue for the public)

equals what is called the marginal social benefit. These goods would be under produced without intervention from another source, such as the government. Two examples of this are education and health care.

7) Which of the following are characteristics of monopoly? (Choose 2) * (See Chapter 16, sections 16.1)

firm produces a unique product there are barriers to entry in the market

Goods and resources that are rival but nonexcludable are common resources

fish in ocean atmosphere national parks

Advertising is a ________ cost that is incurred by ________.

fixed; monopolistically competitive firms

We call the distribution of income among the factors of production the?

functional distribution of income

Export Goods/services

goods and services produced in one country and sold in other countries. U.S. export goods and services include the airplanes produced by Boeing that Singapore Airlines buys, the computers produced by Dell that Europeans buy, and licenses sold by U.S. film companies to show U.S. movies in European movie theaters.

Government goods/services

goods and services that are bought by governments. Governments purchase missiles and weapons systems, travel services, Internet services, police protection, roads, and paper and paper clips.

Consumption goods/services

goods and services that are bought by individuals and used to provide personal enjoyment and contribute to a person's standard of living. They include items such as housing, SUVs, bottled water and ramen noodles, chocolate bars and Po' Boy sandwiches, movies, downhill skiing lessons, and doctor and dental services.

Capital Goods

goods that are bought by businesses to increase their productive resources. They include items such as auto assembly lines, shopping malls, airplanes, and oil tankers.

A circular flow model shows the interrelationship between the ________ market and the ________ markets.

goods; factor

Marginal cost (MC) can decline when a(n)

higher amount of labor leads to an increase in the marginal product output by a now larger workforce. If wages of these additional workers do not increase, the result is lower MC.

Capital also includes inventories of unsold goods or of partly finished goods on a production line. And capital includes what is sometimes called infrastructure capital, such as?

highways and airports

Which of the following are correct statements about implicit and explicit costs? *

i. Normal profit is an implicit cost. ii. Economic depreciation is an explicit cost. iii. Wages are an explicit cost. (See Chapter 14, section 14.1) A) ii and iii B) i and iii C) iii only D) i, ii, and iii E) i only ANSWER IS A

-Demand is the relationship between the price of a good and how much of that good consumers want to purchase (all elements being equal). -Supply is the relationship (with all elements being equal) between the price of a good and how much of that good is produced or available. - Quantity demanded and quantity supplied represent specific amounts at a specific price.

in simpler terms.

For most goods, the rate of increase

in utility with each additional unit consumed tends to decrease

The use of vouchers for education * A) decreases the demand for education and increases the equilibrium quantity. B) increases the demand for education and increases the equilibrium quantity. C) increases the deadweight loss for those who can't afford schooling. D) decreases the quantity provided to the efficient level. E) decreases the demand for education and decreases the equilibrium quantity.

increases the demand for education and increases the equilibrium quantity.

10) The figure above shows that monopoly is ________ because it produces a level of output at which ________. * (See Chapter 16, section 16.3)

inefficient; marginal benefit exceeds marginal cost need to see graph

Consists of the jobs and businesses that produce and use computers and equipment powered by computer chips?

information economy

negative production externality.

is a cost and is caused by the production of a good and imposes an internal cost. Examples are air and noise pollution. A power plant that pollutes the air or a river is creating a negative production externality, a cost to society.

positive production externality.

is created by the production of private goods is a and provides an external benefit in the natural world, an ocean reef created by coral provides a rich habitat for many forms of ocean life other than the coral itself. In the economic realm, the concentration of advertising firms in New York City or movie companies in Los Angeles creates rich pools of talent that benefit the firms that congregate there.

5) Once a monopoly has determined how much it produces, it will charge a price that * (See Chapter 16, section 16.2)

is determined by its demand curve.

6) The cost of producing an additional unit of a good or service that is borne by the producer of that good or service * (See Chapter 10, section 10.1) A) always equals the benefit the consumer derives from that good or service. B) equals the cost borne by people other than the producer. C) is the marginal private cost. D) is the external cost. E) is the marginal social cost.

is the marginal private cost.

For a product with an external cost, the supply curve

is the same as the marginal private cost curve.

The marginal social benefit of national defense

is the sum of the marginal benefits of all the people in the economy.

Economic growth

is the sustained expansion of production possibilities.

When new firms enter,

it decreases market prices, and consequently profit will fall.

What is a fundamental feature of marginal benefit?

it diminishes

Calculating the Cost

it is a ratio, example: At point B, the economy produces 250 computers and 100 cameras. At point C, the economy produces 150 computers and 200 cameras. To gain 100 cameras by moving from point B and point C, the economy gives up 100 computers, so the opportunity cost of one camera is one computer. another example is At point D, the economy produces 300 cameras and no computers. To gain 100 cameras by moving from point C to point D, the economy loses 150 computers. The opportunity cost of one camera is now 1.5 computers.

Quantities where marginal benefits (MB) exceed marginal costs (MC) are

less than efficient because one more unit increases value (marginal benefits less marginal costs is positive

Nadir and Nina consume the same goods. If Nadir has more income than Nina, then Nina's budget line will *

lie to the left of Nadir's budget line.

Statistical investigations

looks for a correlation. Correlation is the tendency for the values of two variables to move together in a predictable and related way.

Which of the following increases the supply of a product?

lower prices for the resources used to produce the product

The distribution of income among households?

personal distribution of income

To determine the efficient quantity of a public good to supply, * (See Chapter 11, section 11.2)

marginal benefit and marginal cost are equated, the same as is done to determine the efficient quantity of a private good.

Consumer surplus is equal to

marginal benefit minus price summed over the quantity consumed.

When a person receives a flu vaccination, the ________ is the additional benefit the person receives from getting the shot.

marginal private benefit

A firm maximizes its profit by producing the amount of output such that * (See Chapter 15, section 15.1)

marginal revenue equals marginal cost.

In perfect competition,

marginal revenue equals price.

A perfectly competitive firm maximizes its profit by producing at the point where * (See Chapter 15, section 15.1)

marginal revenue is equal to marginal cost.

If a government action is designed to achieve efficiency, then the action must have the market produce the amount of output so that the

marginal social cost equals the marginal social benefit.

One reason why the price of diamonds is so high is because the * (See Chapter 13, section 13.3)

marginal utility of diamonds is high.

when firms leave the market during times of economic loss,

market prices will increase, and losses will go down for the companies that remain.

The production possibilities frontier illustrates the

maximum combinations of goods and services that can be produced.

The flows of payments made in exchange for the services of factors of production and of expenditures on goods and services?

money flows

Quantities where marginal cost exceeds marginal benefit are

not efficient because total value is reduced (marginal benefits less marginal costs is negative

If a society moves from a period of time with significant unemployment to a time with full employment, its production possibilities frontier will

not shift because the society moves from a point inside the frontier to a point on the frontier

The quality of labor depends on what?

on how skilled people are

The quantity supplied is one quantity at

one price

6) We define a monopoly as a market with * (See Chapter 16, section 16.1)

one supplier with barriers to entry.

Price is the actual sum

or amount for which something is bought, sold, or offered.

As long as the marginal benefit exceeds or equals the marginal cost,

our choices are rational.

Diseconomies of scale occur when

output increases less than input. This can happen when plants become so large that they become difficult to manage and running them becomes less cost-efficient.

The flows of the factors of production that go from households through factor markets to firms and of the goods and services that go from firms through goods markets to households?

real flows

In the circular flow model, there are two types of flow:

real variable flows and money flows.

If marginal social cost exceeds marginal social benefit,

resources can be used more efficiently by decreasing the quantity of the public good.

If marginal social benefit exceeds marginal social cost,

resources can be used more efficiently by increasing the quantity of the public good.

For a syrup producer in central Vermont, profit is maximized at the level of output for which total * (See Chapter 15, section 15.1)

revenue exceeds total cost by the largest amount.

Advanced economies are the?

richest 29 countries (or areas)

In the market for jeans, which of the following events increases the demand for a pair of jeans?

rise in the price of a denim skirt (a substitute for jeans) The other factors listed change the supply; only answer B increases the demand.

When floods wiped out the banana crop in Central America, the equilib-rium price of bananas ________ and the equilibrium quantity of bananas ________.

rose; decreased

- is a graph of the relationship between the quantity supplied of a good and its price when all the other influences on selling plans remain the same. -The upward slope of the supply curve illustrates the law of supply. -Along the supply curve, when the price of the good rises, the quantity supplied increases.

supply curve

A graph of the relationship between the quantity supplied of a good and its price when all the other influences on selling plans remain the same?

supply curve

A situation in which the quantity supplied exceeds the quantity demanded?

surplus

A decrease in the demand for chocolate with no change in the supply of chocolate will create a ________ of chocolate at today's price, but gradually the price will ________.

surplus; fall

Cost is what is given up to get something. I

t can be measured in dollars or, in a more general sense, as opportunity cost (the value of the next best alternative foregone).

Value can be expressed in

terms of both marginal utility and total utility.

comparative advantage

the ability of a person to perform an activity or produce a good or service at a lower opportunity cost than someone else.

With an external cost,

the allocation is efficient when marginal benefit equals marginal social cost.

quantity demanded

the amount of a good, service, or resource that people are willing and able to buy during a specified period at a specified price

Similarly, when firms choose the quantities of goods and services to produce and offer for sale in goods markets, they respond to?

the amounts that they receive from the expenditures that households make

5) A marginal external cost of a product is equal to * (See Chapter 10, section 10.1) A) what the producer has to pay to hire resources to produce another unit. B) the cost someone other than the producer incurs when another unit is produced. C) the cost the producer incurs to produce another unit. D) what the consumer must pay when he or she buys the good or service. E) None of these answers describes a marginal external cost.

the cost someone other than the producer incurs when another unit is produced.

A marginal external cost of a product is equal to

the cost someone other than the producer incurs when another unit is produced.

positive consumption externality.

the creation or consumption of a private good creates benefits for others for which they do not pay Depending on your tastes, you may consider a professional sports team a positive benefit to you for which you need not pay. The skyline of New York or Chicago may be an enjoyable sight to residents or visitors, all because of the private transactions between investors, building owners, and tenants that made the skyscrapers possible.

The solution to the paradox of value is found by looking at which of the following? * (See Chapter 13, section 13.3)

the difference between marginal utility and total utility

Production efficient

the economy cannot produce more of one good without providing less of another good. If we want to produce more computers, we must give up the production of some cameras. For production to be efficient, there must be full employment.

Globalization

the expansion of international trade and the production of components and services by firms in other countries

Entrepreneurship

the human resource that organizes labor, land, and capital.

When households choose the quantities of services of land, labor, capital, and entrepreneurship to offer in factor markets, they respond to?

the incomes they receive—rent for land, wages for labor, interest for capital, and profit for entrepreneurship

Government expenditures

the largest part is Education, Highways, and public welfare benefits

-Other things remaining the same, if the price of a good rises, the quantity demanded of that good decreases; and if the price of a good falls, the quantity demanded of that good increases. - if the price of an iPhone falls, people will buy more iPhones; or if the price of a baseball ticket rises, people will buy fewer baseball tickets.

the law of demand

When there is a surplus, the price falls; and when there is a shortage, the price rises?

the law of market forces

Other things remaining the same, if the price of a good rises, the quantity supplied of that good increases; and if the price of a good falls, the quantity supplied of that good decreases

the law of supply

Physical Capital Differences

the major feature of an advanced economy that differentiates it from a developing economy is the amount of capital available for producing goods and services.

The marginal social cost of catching fish is

the marginal private cost plus the marginal external cost. Both of its components increase as the quantity caught increases, so marginal social cost also increases with the quantity of fish caught.

A good or service with a positive externality is one which

the marginal social benefit exceeds the marginal private benefit. there will be underproduction of the good.

If the price floor is set above the equilibrium price,

the price floor is binding

A relative price is

the price of one good in terms of another good. If the price of gum is 50¢ a pack and the price of water is $1 a bottle, the relative price of water is 2 packs of gum per bottle. It is calculated as the price of water divided by the price of gum ($1 a bottle ÷ 50¢ a pack = 2 packs per bottle). Another name for an opportunity cost is a relative price.

Factors of production

the productive resources used to produce goods and services - Land, Labor, Capital, Entrepreneurship

Human capital improves?

the quality of labor and increases the quantity of goods and services that labor can produce

Other things remaining the same,

the quantity demanded of a good decreases as the price of the good increases .

A price ceiling in the market for gasoline that is below the equilibrium price will lead to

the quantity demanded of gasoline exceeding the quantity supplied.

Monopolistic competition is a market structure in which

• A large number of firms compete. • Each firm produces a differentiated product. • Firms compete on price, product quality, and marketing. • Firms are free to enter and exit.

Explain how a price ceiling works and show how a rent ceiling creates a housing shortage, inefficiency, and unfairness.

• A price ceiling set above the equilibrium price has no effects. • A price ceiling set below the equilibrium price creates a shortage and increased search activity or a black market. • A price ceiling is inefficient and unfair. • A rent ceiling is an example of a price ceiling.

Explain how a price support in the market for an agricultural product creates a surplus, inefficiency, and unfairness.

• A price support increases the quantity produced, decreases the quantity consumed, and creates a surplus. • To maintain the support price, the government buys the surplus and subsidizes the producer. • A price support benefits the producer but costs the consumer/taxpayer more than the producer gains—it creates a deadweight loss. • A price support is inefficient and is usually unfair.

Explain the free-rider problem and how public provision might help to overcome it and deliver an efficient quantity of public goods.

• A public good creates a free-rider problem—no one has a private incentive to pay her or his share of the cost of providing a public good. • The efficient level of provision of a public good is that at which marginal social benefit equals marginal social cost. • Competition between political parties, each of which tries to appeal to the maximum number of voters, can lead to the efficient scale of provision of a public good and to both parties proposing the same policies—the principle of minimum differentiation. • Bureaucrats try to maximize their budgets, and if voters are rationally ignorant, they might vote to support taxes that provide public goods in quantities that exceed the efficient quantity.

The influences on the price elasticity of demand fall into two groups:

• Availability of substitutes • Proportion of income spent

There are three average cost concepts:

• Average fixed cost • Average variable cost • Average total cost All divided by quantity

when a firm changes the size of its plant, it might experience

• Economies of scale • Diseconomies of scale • Constant returns to scale

Explain the main ideas about fairness and evaluate the fairness of the alternative methods of allocating scarce resources.

• Ideas about fairness divide into two groups: fair results and fair rules. • Fair rules require private property rights and voluntary exchange, and fair results require income transfers from the rich to the poor.

Evaluate the efficiency of the alternative methods of allocating resources.

• In a competitive equilibrium, marginal benefit equals marginal cost and resource allocation is efficient. • Price and quantity regulations, taxes, subsidies, externalities, public goods, common resources, monopoly, and high transactions costs lead to market failure and create deadweight loss.

The methods that governments use to support farms vary, but they almost always involve three elements:

• Isolate the domestic market from global competition • Introduce a price floor • Pay farmers a subsidy

Distinguish between value and price and define consumer surplus.

• Marginal benefit is measured by the maximum price that consumers are willing to pay for another unit of a good or service. • A demand curve is a marginal benefit curve. • Value is what people are willing to pay; price is what they must pay. • Consumer surplus equals the excess of marginal benefit over price, summed over the quantity consumed.

Distinguish between cost and price and define producer surplus.

• Marginal cost is measured by the minimum price producers must be offered to increase production by one unit. • A supply curve is a marginal cost curve. • Opportunity cost is what producers must pay; price is what they receive. • Producer surplus equals the excess of price over marginal cost, summed over the quantity produced.

Resources might be allocated by using any one or some combination of the following methods:

• Market price • Command • Majority rule • Contest • First-come, first-served • Sharing equally • Lottery • Personal characteristics • Force

Distinguish between quantity demanded and demand, and explain what determines demand.

• Other things remaining the same, the quantity demanded increases as the price falls and decreases as the price rises—the law of demand. • The demand for a good is influenced by the prices of related goods, expected future prices, income, expected future income and credit, the number of buyers, and preferences. A change in any of these influences changes the demand for the good.

2. Distinguish between quantity supplied and supply, and explain what determines supply.

• Other things remaining the same, the quantity supplied increases as the price rises and decreases as the price falls—the law of supply. • The supply of a good is influenced by the prices of related goods, prices of resources and other inputs, expected future prices, the number of sellers, and productivity. A change in any of these influences changes the supply of the good.

The four market types are

• Perfect competition • Monopoly • Monopolistic competition • Oligopoly

The two main influences on the price elasticity of supply are

• Production possibilities • Storage possibilities

The three main methods that might be used to achieve the efficient use of a common resource are

• Property rights • Production quotas • Individual transferable quotas (ITQs)

The U-shape of the average total cost curve arises from the influence of two opposing forces:

• Spreading total fixed cost over a larger output • Decreasing marginal returns

Explain what makes production possibilities expand.

• Technological change and increases in capital and human capital expand production possibilities. • The opportunity cost of economic growth is the decrease in current consumption. 4. Explain how people gain from specialization and trade. • A person has a comparative advantage in an activity if he or she can perform that activity at a lower opportunity cost than someone else. • People gain by increasing the production of the item in which they have a comparative advantage and trading.

3. Explain how demand and supply determine price and quantity in a market, and explain the effects of changes in demand and supply.

• The law of market forces brings market equilibrium—the equilibrium price and equilibrium quantity at which buyers and sellers trade. • The price adjusts to maintain market equilibrium—to keep the quantity demanded equal to the quantity supplied. A surplus brings a fall in the price to restore market equilibrium; a shortage brings a rise in the price to restore market equilibrium. • Market equilibrium responds to changes in demand and supply. An increase in demand increases both the price and the quantity; a decrease in demand decreases both the price and the quantity. An increase in supply increases the quantity but decreases the price; and a decrease in supply decreases the quantity but increases the price.

Law of market forces

•When there is a shortage, the price rises.- When there is a surplus, the price falls.