How can we help?

You can also find more resources in our Help Center.

363 terms

Econ. - Final Exam Study Guide

STUDY
PLAY
Introduction to Economics and the Economy
Chapter 1
the social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity.
economics
a viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.
economic perspective
the amount of other products that must be forgone or sacrificed to produce a unit of a product.
opportunity cost
the want-satisfying power of a good or service; the satisfaction of pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services).
utility
the comparison of marginal ("extra" or "additional") benefits and marginal costs, usually for decision making.
marginal analysis
the procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles, and laws.
scientific method
a widely accepted generalization about the economic behavior of individuals or institutions.
economic principle
the assumption that factors other than those being considered are held constant; ceteris paribus assumption.
other-things-equal assumption
the part of economics concerned with decision making by individual units such as a household, a firm, or an industry and with individual markets, specific goods and services, and product and resource prices.
microeconomics
the part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy.
macroeconomics
a collection of specific economic units treated as if they were one. for example, all prices of individual goods and services are combined into a price level, or all units of output are aggregated into gross domestic product.
aggregate
the analysis of facts or data to establish scientific generalizations about economic behavior.
positive economics
the part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.
normative economics
the choices necessitated because society's economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce).
economizing problem
a line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products' prices.
budget line
the land, labor, capital, and entrepreneurial ability that are used in the production of goods and services; productive agents; factors of production.
economic resources
natural resources ("free gifts of nature") used to produce goods and services.
land
people's physical and mental talents and efforts that are used to help produce goods and services.
labor
human-made resources (buildings, machinery, and equipment) used to produce goods and services; goods that do not directly satisfy human wants; also called capital goods.
capital
spending for the production and accumulation of capital and additions to inventories.
investment
the human resource that combines the other resources to produce a product, makes nonroutine decisions, innovates, and bears risks.
entrepreneurial ability
economic resources: land, capital, labor, and entrepreneurial ability.
factors of production
products and services that satisfy human wants directly.
consumer goods
(see capital.)
capital goods
a curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed.
production possibilities curve
the principle that as the production of a good increases, the opportunity cost of producing an additional unit rises.
law of increasing opportunity costs
(1) an outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita.
economic growth
Demand, Supply, and Market Equilibrium
Chapter 3
a schedule showing the amounts of a good or service that buyers (or a buyer) wish to purchase at various prices during some time period.
demand
(see demand.)
demand schedule
the principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in price.
law of demand
the principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases.
diminishing marginal utility
a change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price.
income effect
*(1) a change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product's price; (2) the effect of a change in the price of a resource on the quantity of the resource employed by a firm, assuming no change in its output.
substitution effect
a curve illustrating demand.
demand curve
factors other than price that determine the quantities demanded of a good or service.
determinants of demand
a good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.
normal goods
a good or service whose consumption declines as income rises, prices held constant.
inferior goods
products or services that can be used in place of each other. when the price of one falls, the demand for the other product falls; conversely when the price of one product rises, the demand for the other product rises.
substitute good
products and services that are used together. when the price of one falls, the demand for the other increases (and conversely).
complementary good
a movement of an entire demand curve or schedule such that the quantity demanded changes at every particular price; caused by a change in one or more of the determinants of demand.
change in demand
a change in the quantity demanded along a fixed demand curve (or within a fixed demand schedule) as a result of a change in the product's price.
change in quantity demanded
a schedule showing the amounts of a good or service that sellers (or a seller) will offer at various prices during some period.
supply
(see supply.)
supply schedule
the principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease.
law of supply
a curve illustrating supply.
supply curve
factors other than price that determine the quantities supplied of a good or service.
determinants of supply
a movement of an entire supply curve or schedule such that the quantity supplied changes at every particular price; caused by a change in one or more of the determinants of supply.
change in supply
a change in the quantity supplied along a fixed supply curve (or within a fixed supply schedule) as a result of a change in the product's price.
change in quantity supplied
the price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.
equilibrium price
(1) the quantity at which the intentions of buyers and sellers in a particular market match at a particular price such that the quantity demanded and the quantity supplied are equal; (2) the profit-maximizing output of a firm.
equilibrium quantity
the amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price.
surplus
the amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.
shortage
*the production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar's worth of input is the same for all inputs.
productive efficiency
*the apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which its marginal cost and price or marginal benefit are equal, and at which the sum of consumer surplus and producer surplus is maximized.
allocative efficiency
a legally established maximum price for a good or service.
price ceiling
a legally determined minimum price above the equilibrium price.
price floor
Elasticity
Chapter 4
the ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource.
price elasticity of demand
a method for calculating price elasticity of demand or price elasticity of supply that averages the two prices and two quantities as the reference points for computing percentages.
midpoint formula
product or resource demand whose price elasticity is greater than 1. this means the resulting change in quantity demanded is greater than the percentage change in price.
elastic demand
product or resource demand for which the elasticity coefficient for price is less than 1. this means the resulting percentage change in quantity demanded is less than the percentage change in price.
inelastic demand
demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or supplied is equal to the percentage change in price.
unit elasticity
product or resource demand in which price can be of any amount at a particular quantity of the product or resource demanded; quantity demanded does not respond to a change in price; graphs as a vertical demand curve.
perfectly inelastic demand
product or resource demand in which quantity demanded can be of any amount at a particular product price; graphs as a horizontal demand curve.
perfectly elastic demand
*the total number of dollars received by a firm (or firms) from the sale of a product; equal to the total expenditures for the product produced by the firm (or firms); equal to the quantity sold (demanded) multiplied by the price at which it is sold.
total revenue (TR)
a test to determine elasticity of demand between any two prices: demand is elastic if total revenue moves in the opposite direction from price; it is inelastic when it moves in the same direction as price; and it is of unitary elasticity when it does not change when price changes.
total-revenue test
the ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price; a measure of the responsiveness of producers to a change in the price of a product or resource.
price elasticity of supply
a period in which producers of a product are unable to change the quantity produced in response to a change in its price and in which there is a perfectly inelastic supply.
market period
*(1) in microeconomics, a period of time in which producers are able to change the quantities of some but not all of the resources they employ; a period in which some resources (usually plant) are fixed and some are variable. (2) in macroeconomics, a period in which nominal wages and other input prices do not change in response to a change in the price level.
short run
*(1) in microeconomics, a period of time long enough to enable producers of a product to change the quantities of all the resources they employ; period in which all resources and costs are variable and no resources or costs are fixed. (2) in macroeconomics, a period sufficiently long for nominal wages and other input prices to change in response to a change in a nation's price level.
long run
the ratio of the percentage change in quantity demanded of one good to the percentage change in the price of some other good. a positive coefficient indicates the two products are substitute goods; a negative coefficient indicates they are complementary goods.
cross elasticity of demand
the ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income; measures the responsiveness of consumer purchases to income changes.
income elasticity of demand
Market Failures: Public Goods and Externalities
Chapter 5
the inability of a market to bring about the allocation of resources that best satisfies the wants of society; in particular, the overallocation or underallocation of resources to the production of a particular good or service because of externalities or informational problems or because markets do not provide desired public goods.
market failures
underallocations of resources that occur when private demand curves understate consumers' full willingness to pay for a good or service.
demand-side market failures
overallocations of resources that occur when private supply curves understate the full cost of producing a good or service.
supply-side market failures
*the difference between the maximum price a consumer is (or consumers are) willing to pay for an additional unit of a product and its market price; the triangular area below the demand curve and above the market price.
consumer surplus
*the difference between the actual price a producer receives (or producers receive) and the minimum acceptable price; the triangular area above the supply curve and below the market price.
producer surplus
reductions in combined consumer and producer surplus caused by an underallocation or overallocation of resources to the production of a good or service.
efficiency losses (or deadweight losses)
a good or service that is individually consumed and that can be profitably provided by privately owned firms because they can exclude nonpayers from receiving the benefits.
private goods
(1) the characteristic of a private good, the consumption of which by one party excludes other parties from obtaining the benefit; (2) the attempt by one firm to gain strategic advantage over another firm to enhance market share or profit.
rivalry
the characteristic of a private good, for which the seller can keep nonbuyers from obtaining the good.
excludability
a good or service that is characterized by nonrivalry and nonexcludability; a good or service with these characteristics provided by government.
public goods
the idea that one person's benefit from a certain good does not reduce the benefit available to others; a characteristic of a public good.
nonrivalry
the inability to keep nonpayers (free riders) from obtaining benefits from a certain good; a characteristic of a public good.
nonexcludability
the inability of potential providers of an economically desirable good or service to obtain payment from those who benefit, because of nonexcludability.
free-rider problem
a comparison of the marginal costs of a government project or program with the marginal benefits to decide whether or not to employ resources in that project or program and to what extent.
cost-benefit analysis
a good or service to which excludability could apply but that has such a large positive externality that government sponsors its production to prevent an underallocation of resources.
quasi-public goods
a cost or benefit from production or consumption, accruing without compensation to someone other than the buyers and sellers of the product.
externality
a cost imposed without compensation on third parties by the production or consumption of sellers or buyers. example: a manufacturer dumps toxic chemicals into a river, killing fish prized by sports fishers; an external cost or a spillover cost.
negative externality
a benefit obtained without compensation by third parties from the production or consumption of sellers or buyers. example: a beekeeper benefits when a neighboring farmer plants clover. an external benefit or spillover benefit.
positive externality
the idea, first stated by economist Ronald Coase, that some externalities can be resolved through private negotiations of the affected parties.
Coase theorem
the reduction of a negative externality such as pollution to the level at which the marginal benefit and marginal cost of reduction are equal.
optimal reduction of an externality
Midterm 1
Practice Questions
tea to be positive, but negative for cream
compared to coffee, we would expect the cross elasticity of demand for:
toothpaste
which of the following goods will least likely suffer a decline in demand during a recession?
there is a forgone opportunity from resource use
when an economist states that "there is no free lunch," the economist means that:
simplify the complex world
the ceteris paribus assumption is employed in economic analysis to:
the individual units that make up the whole of the economy
microeconomics focuses on:
2 bananas
assume that a consumer has $12 in income and she can buy only two goods, apples or bananas. the price of an apple is $1.50 and the price of a banana is $0.75. for this consumer, the opportunity cost of buying another apple is:
1 unit of steel is given up to get 15 more units of wheat
refer to the above table. a change from possibility C (steel - 2, wheat - 75) to B (steel - 1, wheat - 90) means that:
as the production of a good increases, there is an increase in opportunity cost.
the production possibilities curve for two products is concave because:
beta will experience greater economic growth than alpha
suppose there are two economies, alpha and beta, which have the same production possibilities curves and initially, they are on the same point on each curve. if beta then devotes more resources to investment goods than consumer goods when compared to alpha, then in the future:
a particular price and the corresponding quantity demanded by consumers.
a point on a demand curve indicates:
supply
a schedule which shows various amounts of a product producers are willing and able to produce at each price in a series of possible prices during a specified period of time is called:
up and quantity supplied up
in a competitive market, if the existing price is below the equilibrium price, market forces will drive the price:
the market price of the good
which is not a determinant of supply?
an increase in the price of one will increase the demand for the other.
if two goods are close substitutes:
increase in the price of lettuce and decrease in quantity purchased
a headline reads "storms destroy half of the lettuce crop." this situation would lead to a(n):
increase quantity demanded by 5 percent
if the price elasticity of demand for a product is equal to 0.5, than a 10 percent decrease in price will:
.33 and inelastic
block's sells 500 bottles of perfume a month when the price is $7. a huge increase in resource costs causes price to rise to $9 and block's only manages to sell 460 bottles of perfume. the price elasticity of demand is:
inelastic
if the price elasticity of demand for a good is .75, the demand for the good can be described as:
decrease
if a business decreased the price of its product from $10 to $9 when the demand for the product was inelastic, then total revenues would:
8 percent
suppose the price elasticity of supply for crude oil is 2.5. how much would price have to rise to increase production by 20 percent?
two products are substitute goods
a positive cross elasticity of demand coefficient indicates that:
decrease because of a percentage fall in price greater than the percentage increase in quantity sold
if demand for farm crops is inelastic, a good harvest will cause farm revenues to:
the marginal cost and marginal benefit of the policies
from an economist's perspective, an important consideration for policies to address global warming is:
resources are currently underallocated to the provision of holiday lighting in anytown
suppose that the anytown city government asks private citizens to donate money to support the town's annual holiday lighting display. assuming that the citizens of anytown enjoy the lighting display, the request for donations suggests that:
Questions
Midterm 1
decrease in the supply of corn
if farmers withhold some of their current corn harvest from the market because they anticipate a higher price of corn in the future, then this would cause a(n):
there are a large number of good substitutes for the good
which is not characteristic of a product with relatively inelastic demand?
complements
if the price of gasoline increases and car dealers suffer a decrease in demand for sport utility vehicles, then gasoline and sport utility vehicles are:
increase in the quantity of A demanded and a decrease in the demand for B
suppose that goods A and B are close substitutes. if the price of good A falls, then we would expect an:
unattainable because of limited resources
a point outside the production possibilities curve is:
8 percent
suppose the price elasticity of supply for crude oil is 2.5. how much would price have to rise to increase production by 20 percent?
can't be provided to one person without making it available to others as well
a public good:
higher prices and a smaller quantity sold
a decrease in supply, holding demand constant, will cause:
when supply increases and demand increases
what combination of changes in supply and demand would most likely increase the equilibrium quantity?
providing a subsidy to correct for an underallocation of resources
if the production of a product or service involves external benefits, then the government can improve efficiency in the market by:
the product is an inferior good
a negative income elasticity of demand coefficient indicates that:
this administration needs to raise taxes to pay for childcare programs
which would be a normative economic statement?
$1
charlie is willing to pay $10 for a T-shirt that is priced at $9. if charlie buys the T-shirt, then his consumer surplus is:
substitutes
a remote island nation is discovered, and on this island the cross elasticity of demand for coconut milk and fruit punch is +1.0. this indicates that the two goods are:
individuals have to make choices from among alternatives
as a consequence of the problem of scarcity:
8 apples or 16 bananas
assume that a consumer has $12 in income and she can buy only two goods, apples or bananas. the price of an apple is $1.50 and the price of a banana is $0.75.

if the consumer spent all of her money on either apples or bananas, how many apples or how many bananas would she be able to buy?
sets a price floor for the product above the current equilibrium price
a government will create a surplus of a product when it:
simplify the theory
the role of an assumption in an economic theory is to:
increasing and the quantity decreasing
by requiring car producers to install emission control devices on cars, the government forces these producers to internalize some of the external costs of auto pollution. this will lead to the equilibrium price of cars:
Businesses and the Costs of Production
Chapter 7
a payment that must be made to obtain and retain the services of a resource; the income a firm must provide to a resource supplier to attract the resource away from an alternative use; equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product.
economic cost
*the monetary payment a firm must make to an outsider to obtain a resource.
explicit costs
*the monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes a normal profit.
implicit costs
the total revenue of a firm less its explicit costs; the profit (or net income) that appears on accounting statements and that is reported to the government for tax purposes.
accounting profit
*the payment made by a firm to obtain and retain entrepreneurial ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm.
normal profit
*the total revenue of a firm less its economic costs (which include both explicit costs and implicit costs); also called "pure profit" and "above-normal profit."
economic profit
the total output of a particular good or service produced by a firm (or a group of firms or the entire economy).
total product (TP)
*the additional output produced when 1 additional unit of a resource is employed (the quantity of all other resources employed remaining constant); equal to the change in total product divided by the change in the quantity of a resource employed.
marginal product (MP)
the total output produced per unit of a resource employed (total product divided by the quantity of that employed resource).
average product (AP)
the principle that as successive increments of a variable resource are added to a fixed resource, the marginal product of the variable resource will eventually decrease.
law of diminishing returns
any cost that in total does not change when the firm changes its output; the cost of fixed resources.
fixed costs
a cost that in total increases when the firm increases its output and decreases when the firm reduces its output.
variable costs
the sum of fixed cost and variable cost.
total cost
a firm's total fixed cost divided by output (the quantity of product produced).
average fixed cost (AFC)
a firm's total variable cost divided by output (the quantity of product produced).
average variable cost (AVC)
a firm's total cost divided by output (the quantity of product produced); equal to average fixed cost plus average variable cost.
average total cost (ATC)
the extra (additional) cost of producing 1 more unit of output; equal to the change in total cost divided by the change in output (and, in the short run, to the change in total variable cost divided by the change in output).
marginal cost (MC)
reductions in the average total cost of producing a product as the firm expands the size of plant (its output) in the long run; the economies of mass production.
economies of scale
increases in the average total cost of producing a product as the firm expands the size of its plant (its output) in the long run.
diseconomies of scale
unchanging average total cost of producing a product as the firm expands the size of its plant (its output) in the long run.
constant returns to scale
the lowest level of output at which a firm can minimize long-run average total cost.
minimum efficient scale (MES)
an industry in which economies of scale are so great that a single firm can produce the product at a lower average total cost than would be possible if more than one firm produced the product.
natural monopoly
Pure Competition In the Short Run
Chapter 8
a market structure in which a very large number of firms sells a standardized product, into which entry is very easy, in which the individual seller has no control over the product price, and in which there is no nonprice competition; a market characterized by a very large number of buyers and sellers.
pure competition
*a market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm as considerable control over product price, and in which nonprice competition may or may not be found.
pure monopoly
a market structure in which many firms sell a differentiated product, into which entry is relatively easy, in which the firm has some control over its product price, and in which there is considerable nonprice competition.
monopolistic competition
a market structure in which a few firms sell either a standardized or differentiated product, into which entry is difficult, in which the firm has limited control over product price because of mutual interdependence (except when there is collusion among firms), and in which there is typically nonprice competition.
oligopoly
all market structures except pure competition; includes monopoly, monopolistic competition, and oligopoly.
imperfect competition
a seller (or buyer) that is unable to affect the price at which a product or resource sells by changing the amount it sells (or buys).
price taker
total revenue from the sale of a product divided by the quantity of the product sold (demanded); equal to the price at which the product is sold when all units of the product are sold at the same price.
average revenue
the change in total revenue that results from the sale of 1 additional unit of a firm's product; equal to the change in total revenue divided by the change in the quantity of the product sold.
marginal revenue
an output at which a firm makes a normal profit (total revenue = total cost) but not an economic profit.
break-even point
the principle that a firm will maximize its profit (or minimize its losses) by producing the output at which marginal revenue and marginal cost are equal, provided product price is equal to or greater than average variable cost.
MR = MC rule
a supply curve that shows the quantity of a product a firm in a purely competitive industry will offer to sell at various prices in the short run; the portion of the firm's short-run marginal cost curve that lies above its average-variable-cost curve.
short-run supply curve
Pure Competition In the Long Run
Chapter 9
a schedule or curve showing the prices at which a purely competitive industry will make various quantities of the product available in the long run.
long-run supply curve
an industry in which expansion by the entry of new firms has no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.
constant-cost industry
an industry in which expansion through the entry of new firms raises the prices firms in the industry must pay for resources and therefore increases their production costs.
increasing-cost industry
an industry in which expansion through the entry of firms lowers the prices that firms in the industry must pay for resources and therefore decreases their production costs.
decreasing-cost industry
the hypothesis that the creation of new products and production methods simultaneously destroys the market power of existing monopolies.
creative destruction
Pure Monopoly
Chapter 10
anything that artificially prevents the entry of firms into an industry.
barriers to entry
the same-time derivation of utility from some product by a large number of consumers.
simultaneous consumption
increases in the value of a product to each user, including existing users, as the total number of users rises.
network effects
the production of output, whatever its level, at a higher average (and total) cost than is necessary for producing that level of output.
X-inefficiency
the actions by persons, firms, or unions to gain special benefits from government at the taxpayers' or someone else's expense.
rent-seeking behavior
the selling of a product to different buyers at different prices when the price differences are not justified by differences in cost.
price discrimination
the price of a product that results in the most efficient allocation of an economy's resources and that is equal to the marginal cost of the product.
socially optimal price
the price of a product that enables its producer to obtain a normal profit and that is equal to the average total cost of producing it.
fair-return price
Monopolistic Competition and Oligopoly
Chapter 11
a strategy in which one firm's product is distinguished from competing products by means of its design, related services, quality, location, or other attributes (except price).
product differentiation
competition based on distinguishing one's product by means of product differentiation and then advertising the distinguished product to consumers.
nonprice competition
the percentage of total industry sales accounted for by the top four firms in the industry.
four-firm concentration ratio
a measure of the concentration and competitiveness of an industry; calculated as the sum of the squared percentage market shares of the individual firms in the industry.
Herfindahl index
plant resources that are underused when imperfectly competitive firms produce less output than that associated with achieving minimum average total cost.
excess capacity
an oligopoly in which the firms produce a standardized product.
homogenous oligopoly
an oligopoly in which firms produce a differentiated product.
differentiated oligopoly
self-interested economic actions that take into account the expected reactions of others.
strategic behavior
a situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm (or other firms). any firm that makes such a change can expect the other rivals to react to the change.
mutual interdependence
the competition for sales between the products of one industry and the products of another industry.
interindustry competition
the competition that domestic firms encounter from the products and services of foreign producers.
import competition
a means of analyzing the pricing behavior of oligopolists that uses the theory of strategy associated with games such as chess and bridge.
game theory
a situation in which firms act together and in agreement (collude) to fix prices, divide a market, or otherwise restrict competition.
collusion
the demand curve for a noncollusive oligopolist, which is based on the assumption that rivals will match a price decrease and will ignore a price increase.
kinked-demand curve
successive and continued decreases in the prices charged by firms in an oligopolistic industry. each firm lowers its price below rivals' prices, hoping to increase its sales and revenues at its rivals' expense.
price war
a formal agreement among firms (or countries) in an industry to set the price of a product and establish the outputs of the individual firms (or countries) or to divide the market for the product geographically.
cartel
an informal method that firms in an oligopoly may employ to set the price of their product: one firm (the leader) is the first to announce a change in price, and the other firms (the followers) soon announce identical or similar changes.
price leadership
...
Quiz 3
profits were zero and its economic losses were $500,000.
suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. if the firm sold 100,000 units of its output at $50 per unit its accounting:
at least one resource is fixed in the short run, while all resources are variable in the long run.
the basic difference between the short run and the long run is that:
as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
the law of diminishing returns indicates that:
...
Extra Quiz
$5,000.
assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. the firm's total fixed costs are:
minimize its losses by producing in the short run.
assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. this firm will:
should continue producing in the short run, but leave the industry in the long run if the situation persists.
suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. given this, the firm:
...
Quiz 4
an oligopoly.
economist would describe the U.S. automobile industry as:
pure monopoly
in which of the following industry structures is the entry of new firms the most difficult?
perfectly elastic
the demand schedule or curve confronted by the individual purely competitive firm is:
Midterm 2
Practice Questions
as a firm uses more of a resource, given the quantity of fixed sources, MARGINAL PRODUCT of the firm will eventually decrease.
the law of diminishing returns states that:
limit pricing.
the strategy of establishing a price that prevents the entry of new firms is called:
supply curve to increase.
assume the market for ball bearings is purely competitive. currently, each of the firms in this market is making a positive level of economic profits. in the long run, we can expect the market:
new firms will enter the industry and product demand will decrease for the existing firms.
if monopolistically competitive firms in an industry are making an economic profit, then:
may be positive, negative, or zero.
in the short run, a monopolist's profits:
opportunity cost of all resources.
economic profit for a company is defined as the total revenues of the firm minus the:
provides useful information to reduce search cost for consumers.
a positive effect of advertising for society is that it:
*the monopolist produces a product with no close substitutes.
one defining characteristic of pure monopoly is that:
produce zero units of output.
t-shirt enterprises is selling in a purely competitive market. its output is 300 units, which sell for $1 each. at this level of output, marginal cost is $1 and average variable cost is $1.50. the firm should:
monopolistic competition and oligopoly
in which two market models would advertising be used most often?
rivals will ignore price increases and match price cuts.
the kinked demand model of noncollusive oligopoly assumes that:
price is less than average variable cost.
a monopolist will definitely discontinue production in the short run if:
demand is price-elastic
marginal revenue is positive whenever:
some resources are fixed and others are variable.
the short run is a time period in which:
is able to use barriers of entry and maintain positive economic profits in the long run.
compared to the purely competitive firm, a pure monopoly:
P > MC
allocative inefficiency due to unregulated monopoly is characterized by the condition:
a large number of firms.
which constitutes an obstacle to collusion among oligopolists?
marginal cost equals the marginal benefit to society.
allocative efficiency occurs when the:
*be able to separate buyers into different markets with different price elasticities.
to practice long-run price discrimination, a monopolist must:
marginal revenue for producing the ninth unit is $15.
total revenue for producing 8 units of output is $48. total revenue for producing 9 units of output is $63. given this information, the:
of the inherent difficulties involved in managing and coordinating a large business enterprise.
diseconomies of scale occur mainly because:
easy entry, many firms, and differentiated products.
which set best describes the basic features of monopolistic competition?
a recognized interdependence exists between firms in one industry but not in the other.
a major distinction between a monopolistically competitive firm and an oligopolistic firm is that:
*it produces at the minimum average total cost.
which would indicate that a firm is operating under conditions of pure competition and is being productively efficient?
elastic because many other firms produce the same product
in pure competition, the demand for the product of a single firm is perfectly:
...
Midterm 2
producing differentiated products.
monopolistic competition is characterized by firms:
few firms produce most of the output in an industry.
a high concentration ratio indicates that:
technological advance
creative destruction is most often associated with:
produce more that its output quota.
in an oligopoly, producers' agreements to restrict output tend to be unstable because each firm has an incentive to:
the average product of labor is at a maximum.
when average variable cost is at a minimum:
equal to the maximum price consumers are willing to pay.
when there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept is:
ownership of essential resources.
one major barrier to entry under pure monopoly arises from:
output is raised or reduced by changing the levels of variable inputs.
in the short run:
each seller supplies a negligible fraction of total demand and supply.
price is constant or "given" to the individual firm selling in a purely competitive market because:
down of the individual firm's MC curve, causing the market supply curve to shift to the right.
technological advance improves productivity in a purely competitive industry. this change will result in a shift:
considers the reactions of its rivals when it determines its price policy.
mutual interdependence means that each firm in an oligopoly:
The Demand For Resources
Chapter 12
the demand for a resource that depends on the demand for the producers it helps to produce.
derived demand
the change in a firm's total revenue when it employs 1 additional unit of a resource (the quantity of all other resources employed remaining constant); equal to the change in total revenue divided by the change in the quantity of the resource employed.
marginal revenue product (MRP)
the amount of the total cost of employing a resource increases when a firm employs 1 additional unit of the resource (the quantity of all other resources employed remaining constant); equal to the change in the total cost of the resource divided by the change in the quantity of the resource employed.
marginal resource cost (MRC)
the principle that to maximize profit (or minimize losses), a firm should employ the quantity of a resource at which its marginal revenue product (MRP) is equal to its marginal resource cost (MRC), the latter being the wage rate in a purely competitive labor market.
MRP = MRC rule
the situation in which an increase in the price of one input will increase a firm's production costs and reduce its level of output, thus reducing the demand for other inputs; conversely for a decrease in the price of the input.
output effect
a measure of the responsiveness of firms to a change in the price of a particular resource they employ or use; the percentage change in the quantity of the resource demanded divided by the percentage change in its price.
elasticity of resource demand
the quantity of each resource a firm must employ in order to produce a particular output at the lowest total cost; the combination at which the ratio of the marginal product of a resource to its marginal resource cost (to its price if the resource is employed in a competitive market) is the same for the last dollar spent on each of the resources employed.
least-cost combination of resources
the quantity of each resource a firm must employ to maximize its profit or minimize its loss; the combination in which the marginal revenue product of each resource is equal to its marginal resource cost (to its price if the resource is employed in a competitive market).
profit-maximizing combination of resources
the contention that the distribution of income is equitable when each unit of each resource receives a money payment equal to its marginal contribution to the firm's revenue (its marginal revenue product).
marginal productivity theory of income distribution
Wage Determination
Chapter 13
the price paid for the use or services of labor per unit of time (per hour, per day, and so on).
wage rate
the amount of money received by a worker per unit of time (hour, day, etc.); money wage.
nominal wage
the amount of goods and services a worker can purchase with his or her nominal wage; the purchasing power of the nominal wage.
real wage
a resource market in which many firms compete with one another in hiring a specific kind of labor, numerous equally qualified workers supply that labor, and no one controls the market wage rate.
purely competitive labor market
a market structure in which there is only a single buyer of a good, service, or resource.
monopsony
the practice of a labor union of restricting the supply of skilled union labor to increase the wages received by union members; the policies typically employed by a craft union.
exclusive unionism
the laws of state or local governments that require that a worker satisfy certain specified requirements and obtain a license form a licensing board before engaging in a particular occupation.
occupational licensing
the practice of a labor union of including as members all workers employed in an industry.
inclusive unionism
a market in which there is a single seller (monopoly) and a single buyer (monopsony).
bilateral monopoly
the lowest wage that employers may legally pay for an hour of work.
minimum wage
the difference between the wage received by one worker or group of workers and that received by another worker or group of workers.
wage differentials
(see marginal revenue product).
marginal revenue productivity
collections of workers who do not compete with each other for employment because the skill and training of the workers in one group are substantially different from those of the workers in the other groups.
noncompeting groups
*the knowledge and skills that make a person productive.
human capital
differences in the wages received by workers in different jobs to compensate for the nonmonetary differences between the jobs.
compensating differences
a conflict of interest that occurs when agents (workers or managers) pursue their own objectives to the detriment of the principals' (stockholders') goals.
principal-agent problem
a compensation structure that ties worker pay directly to performance. such plans include price rates, bonuses, stock options, commissions, and profit sharing.
incentive pay plan
Rent, Interest, and Profit
Chapter 14
the price paid for the use of land and other natural resources, the supply of which is fixed (perfectly inelastic).
economic rent
the inducement that an increase in the price of a commodity gives to sellers to make more of it available (and conversely for a decrease in price), and the inducement that an increase in price offers to buyers to purchase smaller quantities (and conversely for a decrease in price).
incentive function
the political efforts by the followers of Henry George (1839-1897) to impose a single tax on the value of land and eliminate all other taxes.
single-tax movement
an essentially risk-free, long-term interest rate that is free of the influence of market imperfections.
pure rate of interest
the concept that the supply of and demand for loanable funds determine the equilibrium rate of interest.
loanable funds theory of interest
the idea that a specific amount of money is more valuable to a person the sooner it is received because the money can be placed in a financial account or investment and earn compound interest over time; the opportunity cost of receiving a sum of money later rather than earlier.
time-value of money
the accumulation of money that builds over time in an investment or interest-bearing account as new interest is earned on previous interest that is not withdrawn.
compound interest
the amount to which some current amount of money will grow if the interest earned on the amount is left to compound over time.
future value
today's value of some amount of money that is to be received sometime in the future.
present value
the interest rate expressed in terms of annual amounts currently charged for interest and not adjusted for inflation.
nominal interest rate
the interest rate expressed in dollars of constant value (adjusted for inflation) and equal to the nominal interest rate less the expected rate of inflation.
real interest rate
state laws that specify the maximum legal interest rate at which loans can be made.
usury laws
an event that would result in a loss but whose frequency of occurrence can be estimated with considerable accuracy. insurance companies are willing to sell insurance against such losses.
insurable risks
an event that would result in a loss and whose occurrence is uncontrollable and unpredictable. insurance companies are not willing to sell insurance against such a loss.
uninsurable risks
Immigration
Chapter 22
international migrants who have moved to a country from another to obtain economic gains such as better employment opportunities.
economic immigrants
a person who lawfully enters a country for the purpose of residing there.
legal immigrants
people who have entered a country unlawfully to reside there; also called unauthorized immigrants.
illegal immigrants
a provision of the U.S. immigration law that allows the annual entry of 65,000 high-skilled workers in "specialty occupations" such as science, R&D, and computer programming to work legally and continuously in the United States for six years.
H1-B provision
migration routes taken previously by family, relatives, friends, and other migrants.
beaten paths
the return of workers to the countries from which they originally emigrated.
backflows
the ease with which people can shift their work talents from one job, region, or country to another job, region, or country.
skill transferability
as it relates to international migration, the idea that those who choose to move tend to have greater motivation for economic gain or greater willingness to sacrifice current consumption for future consumption than those with similar skills who choose to remain at home.
self-selection
additions to output from immigration in the destination nation that exceed the loss of output from emigration from the origin nation.
efficiency gains from migration
the exit or emigration of highly educated, highly skilled workers from a country.
brain drains
payments by immigrants to family members and others located in the origin countries of the immigrants.
remittances
productive inputs that are used jointly with other inputs in the production process, resources for which a decrease in the price of one leads to an increase in the demand for the other.
complementary resources
productive inputs that can be used instead of other inputs in the production process; resources for which an increase in the price of one leads to an increase in the demand for the other.
substitute resources
as it relates to international migration, the idea that those who choose to move to another country have poorer wage opportunities in the origin country than those with similar skills who choose not to emigrate.
negative self-selection
(see compensating differences).
compensating wage differential
...
Quiz 6
will shift to the left if the price of the product the labor is producing falls.
the labor demand curve of a firm:
an increase in the price of one will increase the demand for the other.
if two resources are highly substitutable for one another:
inelastic.
if a 10 percent wage increase in a particular labor market results in a 5 percent decline in employment in that market, labor demand is:
land.
the prices paid to a productive resource usually perform an incentive function except with what resource?
future value / (1 + interest rate) ^ time
which expression is used to calculate the present value of an amount of money?
the compensating wage differential is high enough.
U.S. workers will be attracted to otherwise undesirable work as long as:
substitutes.
if a 10 percent increase in the price of one good results in an increase of 5 percent in the quantity demanded of another good, then it can be concluded that the two goods are:
other things equal.
another description for ceteris paribus is:
the price of the input.
which will not be a determinant of the price elasticity of demand for an input?
many firms competing in hiring workers.
a characteristic of a purely competitive labor market would be:
in the short run, one or more inputs are fixed.
the main difference between the short run and the long run is that:
finite, but economic wants insatiable.
in every society, choices must be made because resources are:
will earn an economic profit of zero in the long run.
the representative firm in a purely competitive industry:
a decrease in the prices of goods which are close substitutes for X.
which of the following would most likely cause a decrease in current consumer demand for normal good X?
neither industry has significant barriers to entry.
a monopolistically competitive industry is like a purely competitive industry in that:
decreasing the supply of labor.
craft unions have typically been most effective in raising wage rates by:
increase unemployment in the labor market.
critics of the minimum wage argue that an increase in the minimum wage rate above the equilibrium rate of a purely competitive labor market would:
there is free entry and exit of firms in the industry.
firms in an industry will not earn long-run economic profits if:
a larger quantity of C will be demanded.
assume that the demand schedule for product C is downward sloping. if the price of C falls from $2.00 to $1.75:
elastic because many other firms produce the same product.
in pure competition, the demand for the product of a single firm is perfectly:
rivals will ignore price increases and match price cuts.
the kinked demand model of noncollusive oligopoly assumes that:
.33 and inelastic.
block's sells 500 bottles of perfume a month when the price is $7. a huge increase in resource costs causes price to rise to $9 and block's only manages to sell 460 bottles of perfume. the price elasticity of demand is:
firms produce a homogenous product.
which is a reason why there is no advertising by individual firms under pure competition?
+2.0.
a 3 percent increase in the price of tea causes a 6 percent increase in the demand for coffee. the cross elasticity of demand for coffee with respect to the price of tea is:
buyers with inelastic demand be charged higher prices than buyers with elastic demand.
successful price discrimination requires that:
there are more substitutes for cheerios than for cereals as a whole.
the demand for cheerios cereal is more price-elastic than the demand for cereals as a whole. this is best explained by the fact that:
MC = MR
many people believe that monopolies charge any price they want to without affecting sales. instead, output level for a profit-maximizing monopoly is determined by:
maximize joint profits.
a major reason that firms form a cartel is to:
firms to enter the industry.
with an increase in profits in a particular industry, we would expect:
the same as the marginal revenue product schedule.
according to the marginal productivity theory, the labor demand schedule for a competitive seller is:
falling long-run average cost curve.
a firm encountering economies of scale over some range of output will have a:
prices of goods and services rose less rapidly that nominal-wage rates.
real wages would rise if the:
producing differentiated products.
monopolistic competition is characterized by firms:
the wage rates for electricians.
which of the following would be primarily determined in the resource market?
the economy is fully employed and is using least-cost methods of production.
which is one of the four simplifying assumptions made in the chapter about the construction of the production possibilities model?
product markets.
markets in which firms sell their output of goods and services are called:
produce zero units of output.
t-shirt enterprises is selling in a purely competitive market. its output is 300 units, which sell for $1 each. at this level of output, marginal cost is $1 and average variable cost is $1.50. the firm should:
a change in farming technology that improves the soil for wheat.
an increase in the supply of wheat in the United States is most likely to result from:
increase price and leave quantity sold unchanged.
if a product has a short-run elasticity of supply equal to zero, then an increase in the demand for the product will:
allocate too many resources to production of the product.
when the production of a product creates external costs greater than external benefits, a market economy will:
less output and charge a higher price.
when compared with the purely competitive industry with identical costs of production, a monopolist will produce:
the marginal cost and marginal benefit of the policies.
from an economist's perspective, an important consideration for policies to address global warming is:
increases the return on capital
if immigration increases the productivity of domestic workers, then it:
the destruction from bombing and warfare in a losing military conflict.
which situation would most likely cause a nation's production possibilities curve to shift inward?
much more likely to migrate than older workers because younger workers have lower moving costs.
younger workers are: