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Economics

the study of how people choose to allocate scarce resources

In economics, the cost of something is

what you give up to get it

A rational decision maker

takes an action only if the marginal benefit is greater than the marginal cost

The gains from trade

are a result of more efficient resource allocation

If a good is normal

then an increase in income will result in an increase in the demand for the good

An example of an inferior good might be

Ramen noodles

If the price of a substitute to good x increases

then the demand for good X will increase

Two goods are complements

if a decrease in the price of one good raises the demand for the other good

What would not shift the demand curve for a good or service?

A change in the price of the good or service

A leftward shift in supply is

a decrease in supply

A decrease in resource costs to firms in a market will result in

a decrease in equilibrium price and an increase in equilibrium quantity

An early frost in the vineyards of Napa Valley would cause

a decrease in in the supply of wine, increasing price

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?

Price will fall and the effect on quantity is ambiguous

Beef is a normal good. You observe that both the equilibrium price & quantity of beef has fallen over time. What is consistent with this observation?

consumer tastes have changed so as to prefer beef less than before

Demand for a good would tend to be more inelastic

the fewer the available substitutes

Suppose the price of Twinkies is reduced from $1.45 to $1.25 and as a result, the quantity of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, the price of demand for Twinkies in the given price range is

.64

If the price elasticity of demand for a good is 4.0, then a 10% increase in price would result in

a 40% decrease in quantity demanded

When demand is inelastic a decrease in price will cause

a decrease in total revenue

An example of an implicit cost of production would be

the income an entrepreneur could have earned working for someone else.

Accounting profit is equal to

total revenue minus the explicit cost

Economic profit

will never exceed accounting profit

Economists normally assume that the goal of a firm is

to maximize its profit

The marginal product of labor can be defined as

a change in output/change in labor

When adding another unit of labor lead to an increase in output that is smaller than increases in output that resulted from adding previous units of laor

we have the property of diminishing marginal product

Which of these assumptions is often realistic for a firm in the short run?

The firm can vary the number of workers it employs but not the size of its factory

If marginal cost is rising

marginal product must be falling

When marginal cost is less than average total cost

average total cost is falling

In the long run inputs that were fixed in the short run

become variable

Economies of scale occur when

minimum average total costs fall as the scale of output increases.

In a competitive market

no single producer can influence the market price because many other sellers are offering a product that is essentially identical.

When a profit-maximizing firm in a competitive market has zero economic profit

accounting profit is positive

The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Wheat Farm maximizes its profit

by choosing the quantity at which market price is equal to the farm's marginal cost of production

The short-run supply curve for a firm in a perfectly competitive market

is its marginal cost curve (above the average variable cost)

When profit maximizing firms in perfectly competitive markets are earning profits

new firms will enter the market

The fundamental cause of monopoly is

barriers to entry

The practice of selling the same goods to different customers at different prices is known as

price discrimination

The prisoner's dilemma

provides insights into the difficulty of maintaining cooperation

The likely outcome of the prisoners' dilemma

is that both prisoners confess

In a two-person repeated game, a tit-for-tat strategy starts with cooperation and then

each player mimics the other player's last move

Consumer surplus

measures the amount of a product a consumer can buy at a price below equilibrium price

We can say that the allocation of resources is efficient

if total surplus is maximized

The minimum wage is an example of

a price floor

A newly imposed minimum wage set above the equilibrium wage in a labor market will cause

some workers to get a raise and some workers to lose their job

Internalizing an externality refers to

making buyers and sellers take into account the external effects of their actions

A positive externality will cause

a private market to produce less than is socially desirable

A tax imposed on a market with an inelastic demand and an elastic supply will cause

buyers to pay the majority of the tax

Correct statement about tax burdens

A tax burden falls most heavily on the side of the market that is inelastic

The amount of deadweight loss from taxes depends on

the price elasticity of demand and supply

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