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Microeconomics Exam #1

Terms in this set (53)

The attainable production points on a production possibility curve are...
the points along and inside the PPF
T or F? In the circular flow model, households supply resources such as labor services in the factor market
True
T or F? In a free market there are significant restrictions on how a good or service can be produced or sold
True
Which of the following is an example of spending goods and services in the circular flow model?
Javier buys 800 square feet of wood flooring for his vacation home
Which of the following id evidence of a shortage of walnuts?
the quantity demanded of walnuts is greater than the quantity supplied
"Because apples and oranges are substitutes, an increase in the price of oranges will cause the demand for apples to increase. This initial shift in demand for apples to results in a higher price for apples; this higher price will cause the demand curve for apples to shift to the right" Which statement is correct
The statement is false because a change in the price of apples would not change the demand for apples
The cost of raising beef cattle has risen at the same time as consumer preference for beef has fallen. In the market for beef, this would be represented by the equilibrium price ________ and the equilibrium quantity ________.
increasing or decreasing; decreasing
A decrease in the demand for incandescent light bulbs due to changes in consumer tastes, accompanied by a decrease in the supply of incandescent light bulbs as a result of government restrictions, will result in
a decrease in the equilibrium quantity of incandescent light bulbs; the equilibrium price may increase or decrease
Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?
a decrease in the price floor
T or F? If the number of firms producing mouthwash increases and consumer preference for mouthwash increases, the quantity price of mouthwash will definitely increase
False
A decrease in quantity supplied is represented by a leftward shift of the supply curve
False
The difference between the lowest price of a firm would be willing to accept for a good or service and the price it actually receives
producer surplus
The inverse relationship between the price of a product and the quantity of the product demanded
law of demand
A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production
economic efficiency
The ability of a country to produce a good or service at a lower opportunity cost than competitors
comparative advantage
A legally determined maximum price that sellers may charge
price ceiling
The highest valued alternative that must be given up to engage in an activity
opportunity cost
The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods that are substitutes
substitution effect
The additional benefit to a consumer form consuming one or more unit of good or service
marginal benefit
The requirement that when analyzing the relationship between two variables, other variables must be held constant
ceteris paribus
The additional cost to a firm of producing one or more unit of a good or service
marginal cost
Goods or services that can be used for the same purpose
substitutes
The ability of a country to produce more of a good or service than competitors, using the same amount of resources
absolute advantage
A situation in which quantity demanded equals quantity supplied
market equilibrium
The difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays
consumer surplus
The reduction in economic surplus resulting from a market not being in competitive equilibrium
dead-weight loss
A situation in which the quantity demanded is greater than the quantity supplied
shortage
The change in the quantity demanded of a good that results from the effect of a change in the goods's price on consumers' purchasing power
income effect
A good for which the demand increases as income falls and decreases as income rises
inferior goods
The actual division of the burden of a tax between buyers and sellers in a market
tax incidence
What are results of imposing a rent ceiling
-there is a reduction in the quantity supplied of apartments
-there is an increase in the quantity demanded of apartments
-the marginal benefit of the last apartment rented is greater than the marginal cost of supplying it
What is not a result of imposing a rent ceiling
some consumer surplus is converted to producer surplus
T or F? The division of the burden of a tax between buyers and sellers in a market is called tax allocation
False
The total cost of producing a good or service, including both the private cost and any external cost
social cost
Benefiting from a good without paying for it
free riding
A good that is both nonrival and nonexcludable
public good
The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services
transactions costs
If transactions costs are low, private bargaining will result in an efficient solution to the problem of externalities
coase theorem
A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service
externality
A situation in which the market fails to produce the efficient level of output
market failure
The total benefit fro consuming a good or service, including both the private benefit and any external benefit
social benefit
The cost born by the producer of a good or service
private cost
The benefit received by the consumer of a good or service
private benefit
"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus" only if...
there are no positive or negative externalities in the market
When there is an externality in a market...
government intervention may increase economic efficiency
If there is pollution in producing a product, then the market equilibrium price...
is too low and equilibrium quantity it too high
Which of the following statements about the economically efficient level of air pollution is correct
the economically efficient level of pollution occurs where the marginal cost of pollution reduction equals the marginal social benefit of reduction
If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set...
equal to the marginal external cost at the economically efficient level of pollution
Assumptions behind the Coase Theorem
low transaction costs and clear assignment of property rights
Shifts in supply
-input price
-technological changes
-prices of substitutes in production
-number of firms in the market
-expected future prices
Shifts in demand
-income
-price of related goods
-population change
-expected future prices
A rent ceiling set below the equilibrium rent creates...
-a housing shortage
-increased search activity
-a black market
A rent ceiling does what...
-decreases the quantity of housing supplied to less than the efficient quantity
-a deadweight loss arises
-producer surplus shrinks, consumer surplus shrinks
-there is potential loss from increased search activity.
THIS SET IS OFTEN IN FOLDERS WITH...