question
Price Floor
answer
A legal minimum on the price at which a good can be sold
question
Consumer Choice Theory
answer
Provides insight into the behaviour of individuals who make CONSTRAINED CHOICES
question
The Firm's Efficient Scale
answer
the quantity of output that minimizes AVERAGE TOTAL COST
question
What is the relationship between ECONOMIC profit and ACCOUNTING profit?
answer
ECONOMIC PROFIT will NEVER exceed accounting profit
question
What results when the minimum wage is ABOVE the equilibrium wage?
answer
the quantity demanded of labour will be LESS THAN the quantity supplied
question
explicit costs
answer
input costs that require an outlay of money by the firm
question
opportunity costs (implicit costs)
answer
the highest-valued alternative that we give up to get something. All costs are opportunity costs.
ex: "there's no such thing as a free lunch"
ex: "there's no such thing as a free lunch"
question
diminishing marginal product
answer
marginal product of an input DECLINES as the quantity of the input increases
question
what happens when there is a shortage in a market?
a. there is downward pressure on price
b. there is an upward pressure on price
c. the market could still be in equilibrium
d. the price must be above equilibrium
a. there is downward pressure on price
b. there is an upward pressure on price
c. the market could still be in equilibrium
d. the price must be above equilibrium
answer
b. there is an UPWARD pressure on PRICE
question
what level of output will average total cost INCREASE?
a. marginal cost = atc
b. mc > atc
c. mc = average variable costs
d. mc < avc
a. marginal cost = atc
b. mc > atc
c. mc = average variable costs
d. mc < avc
answer
b. mc > atc
question
economies of scale
answer
factors that cause a producer's average cost per unit to fall as output rises, saving in costs gained by an increased level of production.
question
what is the slope of the consumer's budget constraint measured by?
answer
relative price of the goods
question
very short v. short run v. long run
answer
Very Short Run: All inputs (Capital, Labour and Natural Resources) and outputs are fixed
Short Run: the period of time in which at least one of the inputs are fixed
Long Run: the period of time in which all inputs are variable
Short Run: the period of time in which at least one of the inputs are fixed
Long Run: the period of time in which all inputs are variable
question
scarcity
answer
limited nature of society's resources; people must make choices among alternatives
question
Main function of markets include:
answer
enabling buyers and sellers to get information about each other
question
economics
answer
the study of how society manages its resources; The study of how individuals, businesses, governments, and entire societies make choices as they cope with scarcity and the incentives that influence and reconcile those choices.
question
Four Principles of Individual Decision Making
answer
1. people face tradeoffs
2. the cost of something is what you give up to get it
3. rational people think at the margin
4. people respond to incentives
2. the cost of something is what you give up to get it
3. rational people think at the margin
4. people respond to incentives
question
efficiency
answer
the property of society getting the most it can from its scarce resources
question
equity
answer
the property of distributing economic prosperity fairly among the members of society
question
The slope of a straight line:
a. decreases as the variable on the x-axis
b. increases if the slope is negative.
c. increases as the variable on the x-axis increases if the slope is positive.
d. is the same at every point only if the line is horizontal.
e. is the same at every point.
f. depends on where you measure the slope.
a. decreases as the variable on the x-axis
b. increases if the slope is negative.
c. increases as the variable on the x-axis increases if the slope is positive.
d. is the same at every point only if the line is horizontal.
e. is the same at every point.
f. depends on where you measure the slope.
answer
e. is the same at every point
question
Law of Demand
answer
shows the relationship between price and quantity demanded of a good or service. It shows a consumer's willingness to pay different prices for different quantities.
question
Law of Supply
answer
The supply curve shows the relationship between price and quantity supplied; The higher the price of a good/service, the higher quantity supplied. The lower the price, the lower supply.
question
Normative Questions/Statements
answer
involve a value judgement (ex. Saying; for reasons of Equity, we should redirect national income to help them). WHAT OUGHT TO BE
question
Positive Questions/Statements
answer
involves no value judgement, what is currently believed about how the world operates. (ex. Saying 20% of Canadians live in poverty).
question
Marginal Cost
answer
the opportunity cost of producing one more unit of a good or service
question
Model A is superior to model B if:
a. its predictions correspond more closely to the facts than the predictions of model B.
b. it contains fewer unrealistic assumptions than model B.
c. it is preferred by a majority of researchers in a public opinion poll.
d. it contains more real world detail than model B.
e. it is scientifically "elegant."
a. its predictions correspond more closely to the facts than the predictions of model B.
b. it contains fewer unrealistic assumptions than model B.
c. it is preferred by a majority of researchers in a public opinion poll.
d. it contains more real world detail than model B.
e. it is scientifically "elegant."
answer
a. its predictions correspond more closely to the FACTS than the predictions of model B.
question
market economy
answer
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
question
property rights
answer
the ability of an individual to own and exercise control over scarce resources
question
externality
answer
the impact of one person's actions on the well-being of a bystander
question
marginal utility
answer
The change in total utility that results from a one-unit increase in the quantity of a good consumed is
question
productivity
answer
the quantity of goods and services produced from each unit of labor input
question
Three Principles of How People Interact
answer
1. Trade can make everyone better off
2. Markets are usually a good way to organize economic activity
3. Governments can sometimes improve market outcomes
2. Markets are usually a good way to organize economic activity
3. Governments can sometimes improve market outcomes
question
elasticity
answer
refers to the sensitivity of one economic variable to a percentage change in another variable;
question
elastic
answer
when a 1% change in one variable results in a >1% change in the other.
question
Three Principles of the Workings of the Economy
answer
1. A country's standard standard of living depends on its ability to produce goods and services
2. prices rise when the government prints too much money
3. society faces a short-run tradeoff between inflation and unemployment
2. prices rise when the government prints too much money
3. society faces a short-run tradeoff between inflation and unemployment
question
All of the following topics fall within the study of microeconomics EXCEPT:
answer
the influence of the government budget deficit on economic growth.
question
in a short-run monopolistic competitive industry, the maximizing profit point is achieved by producing ___
answer
the quantity where marginal revenue = marginal cost
question
in a long-run monopolistic competitive industry, price equals ___ and the firm earns zero profit.
answer
average total cost.
question
in a short-run competitive firm's supply curve is
answer
its marginal cost curve ABOVE average variable cost (avc)
question
why does a monopolistic firm face a downward-sloping DEMAND curve?
answer
the market price is affected by the amount sold by a monopolistic firm
question
In consumer equilibrium, a consumer equates the:
a. marginal utility from each good.
b. total utility from each good.
c. total utility per dollar on each good.
d. total income spent on each good with total utility from each good.
e. marginal utility per dollar on each good.
a. marginal utility from each good.
b. total utility from each good.
c. total utility per dollar on each good.
d. total income spent on each good with total utility from each good.
e. marginal utility per dollar on each good.
answer
e. marginal utility per dollar on each good
question
substitution effect
answer
ALWAYS NEGATIVE. if price of x goes down while price of y remains constant, the consumer can get more utility by substituting x with y.
question
income effect
answer
if price of x goes down, consumer can now afford to buy the same amount AND still have income left over.
question
Good X is measured on the horizontal axis and good Y is measured on the vertical axis. The marginal rate of substitution is:
a. the rate at which a consumer will give up good Y to obtain an additional unit of good X while remaining indifferent.
b. equal to the magnitude of the slope of the budget line.
c. the rate at which a consumer will give up good X to obtain an additional unit of good Y while remaining indifferent.
d. the relative price of good Y in terms of good X.
e. the relative price of good X in terms of good Y.
a. the rate at which a consumer will give up good Y to obtain an additional unit of good X while remaining indifferent.
b. equal to the magnitude of the slope of the budget line.
c. the rate at which a consumer will give up good X to obtain an additional unit of good Y while remaining indifferent.
d. the relative price of good Y in terms of good X.
e. the relative price of good X in terms of good Y.
answer
a. the rate at which a consumer will give up good Y to obtain an additional unit of good X while remaining indifferent
question
normal good
answer
a good that consumers demand more of when their incomes increase, positively sloped engel curves
question
inferior good
answer
a good that consumers demand less of when their incomes increase, negatively sloped engel curve
question
The shape of a person's indifference curves between two goods depends on:
a. the person's income.
b. the degree of substitutability between the two goods.
c. the level of satisfaction for the person.
d. the prices of the two goods.
e. all of the above.
a. the person's income.
b. the degree of substitutability between the two goods.
c. the level of satisfaction for the person.
d. the prices of the two goods.
e. all of the above.
answer
b. the degree of substitutability between the two goods
question
To determine consumer equilibrium we need to know only (3 things)
answer
prices, income, and marginal utility.
question
shut down
answer
If a firm cannot earn at least enough to cover all of its variable costs then in the short run it will shut down. This occurs where marginal cost is equal to minimum average variable cost.
question
break-even
answer
marginal cost is equal to minimum average total cost, making neither profits or losses.
question
Law of Diminishing Marginal Returns
answer
adding an additional factor of production results in smaller increases in output; As more of a variable resource is added to a given amount of a fixed resource, marginal product eventually declines and could become negative
question
Law of Eventually Diminishing Marginal Product
answer
MP eventually declines and becomes negative due to that capital being spread thinner among more workers reducing their marginal product.
question
Average Product
answer
average amount of output each worker can produce
question
diseconomies of scale
answer
the property whereby long-run average total cost rises as the quantity of output increases
question
subsidy
answer
a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government or a targeted tax cut.
question
game theory
answer
derived from oligopoly, the study of how people behave in strategic situations
question
public good
answer
NOT excludable or rivalrous
question
private good
answer
rival and excludable
question
tragedy of the commons
answer
absence of incentives to prevent overuse of common resources
question
free rider problem
answer
a person who receives a benefit without paying for it.
question
production function
answer
the relationship between quantity of inputs used to make a good and the quantity of output of that good
question
average total cost
answer
total cost divided by the quantity of output
question
fixed cost
answer
a cost that does not change as output is increased or decreased
question
variable cost
answer
a cost that rises or falls depending on the quantity produced
question
complementary goods
answer
Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely).
question
collusion
answer
price fixing of cartels; agreement among firms
question
production possibilities frontier
answer
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
question
economic profit
answer
total revenue minus total cost, including both explicit and implicit costs
question
accounting profit
answer
total revenue minus total explicit cost
question
Tradeoff
answer
the exchange of one benefit or advantage for another that is thought to be better
question
price ceiling:
answer
maximum legal price that can be charged for a product
question
consumer surplus
answer
less in the case of a single-price monopoly than in the case of a perfectly competitive industry.
question
kinked demand curve
answer
a perceived demand curve that arises when competing oligopoly firms commit to match price cuts, but not price increases
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