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comparative advantage
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the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
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the terms of trade
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the ratio at which a country can trade its exports for imports from other countries
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The US is a leading exporter of wheat. What explains the comparative advantage of the US in wheat production?
answer
climate and soil conditions in the US which are well suited for wheat production
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external economies
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refers to reductions in a firm's costs that result from an increase in the size of an industry
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Imposing trade barriers does all of the following EXCEPT
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lowers domestic prices
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marginal product of labor
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the additional output that results when one more worker is hired, holding all other resources constant
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The "Buy American" provision in the 2009 stimulus package required that stimulus money be spent only on US made goods, effectively acting as a quota of zero imports when stimulus money was being spend. In the market for steel, the "Buy American" provision would ________ the price of steel in the US and _______ the quantity of steel demanded in the US.
answer
increase; decrease
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In the short run, marginal product of labor increases at first and then falls because
answer
there are fewer opportunities for division of labor and specialization when fewer workers are hired
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If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23, what will happen to the average cost of production if the 15th unit is produced?
answer
average cost will fall
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If the marginal cost curve is below the average variable cost curve, then
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average variable cost is decreasing
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Which of the following is true at the output level where average total cost is at its minimum?
answer
Marginal cost equals average total cost
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All of the following are U shaped EXCEPT one. Which curve is NOT U shaped?
answer
the average fixed cost curve
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Long run cost curves are U shaped because
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of economies and diseconomies of scale
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The long run average cost curve shows
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the lowest average cost of producing every level of output in the long run
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Which of the following is the best example of a short-run adjustment?
answer
your local Walmart hires two more associates
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A characteristic of the long run is
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all inputs can be varied
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The relationship between the inputs employed by a firm and the maximum output that it can produce with those inputs is the firm's
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production function
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deadweight loss
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refers to the reduction in economic surplus resulting from not being in competitive equilibrium
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In a competitive market the demand curve shows the _____ received by consumers and the supply curve shows the _____.
answer
marginal benefit; marginal cost
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Which of the following is NOT a consequence of minimum wage laws?
answer
Producers have an incentive to offer workers non-wage benefits such as health care benefits and convenient working hours rather than a higher wage
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rent control is an example of
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a price ceiling
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To affect the market outcome, a price ceiling
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must be set below the equilibrium price
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public goods
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non rivalry and non excludability
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quasi-public goods
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non rivalry and excludability
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private goods
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rivalry and excludability
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a common resource
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rivalry and non excludability
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The "tragedy of the commons" refers to the phenomenon where
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people overuse a common resource
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By charging the equilibrium price for shared rides as opposed to the government-regulated price charged by traditional taxi companies, Uber has
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increased consumer surplus
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The payroll tax is a tax imposed on _______ that is used to fund Social Security and Medicare.
answer
employers and workers
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Assume that production from an electric utility caused acid rain and that the government imposed a tax on the utility equal to the cost of the acid rain. This is an example of
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a Pigovian tax
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A tragedy of the commons occurs when a resource is
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rival and non excludable
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externality
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a benefit or cost experienced by someone who is not a producer or consumer of a good or service
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Which of the following is a source of market failure?
answer
incomplete property rights or inability to enforce property rights
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a negative externality exists if
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the marginal social cost of producing a good or service exceeds the private cost
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the "social cost" of production
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the sum of all costs to individuals in society, regardless of whether the costs are prone by those who produce the products or consume the product
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In a city with rent controlled apartments, all of the following are true EXCEPT
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Landlords have an incentive to rent more apartments than they would without rent control
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Which of the following statements best describes the concept of consumer surplus?
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"I was all ready to pay $300 for a new leather jacket that I had seen in Macy's but I ended up paying only $180 for the same jacket"
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externality
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a benefit or cost experienced by someone who is not a producer or consumer of a good or service
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Private solutions to the problem of externalities are most likely when
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transactions costs are low and the number of bargaining parties is small
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An important difference between the demand for a private good and the demand for a public good is that
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individuals reveal their preferences for a private good but they do not reveal their preferences for a public good
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The free rider problem refers to a situation in which
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people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay
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Which of the following is NOT a source of comparative advantage?
answer
a strong foreign currency exchange rate
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The US has developed a comparative advantage in film production due to the film industry being long established in southern Cali, and lower costs result forms the size of the industry in the area. This source of comparative advantage is referred to as
answer
external economies
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The main purpose of most tariffs and quotas is to
answer
reduce the foreign competition that domestic firms face
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Suppose that American firms claim that protectionism in Canada is on the rise as the Canadian government attempts to protect its infant industries with a "Buy Canadian" provision. This policy, similar to the original "Buy American" provision in the 2009 US stimulus bill, is likely to cause
answer
exporting countries to retaliate by placing trade barriers on Canadian imports
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total cost
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the cost of all the inputs used by a firm, or fixed cost plus variable cost: TC= FC+VC
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fixed cost
answer
costs that remain constant as a firm's level of output changes: FC
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variable cost
answer
costs that change as a firm's level of output changes: VC
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marginal cost
answer
an increase in total cost resulting from producing another unit of output:
MC=ΔTC/ΔQ
MC=ΔTC/ΔQ
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average total cost
answer
total cost divided by the quantity of output produced:
ATC=TC/Q
ATC=TC/Q
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average fixed cost
answer
fixed cost divided by the quantity of output produced:
AFC= FC/Q
AFC= FC/Q
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average variable cost
answer
variable cost divided by the quantity of output produced:
AVC=VC/Q
AVC=VC/Q
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implicit cost
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a non monetary opportunity cost
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explicit cost
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a cost that involves spending money
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consumer surplus
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difference between the highest price the consumer is willing to pay vs. the actual price they pay
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producer surplus
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difference between the lowest price a firm would be willing to accept and the price it actually receives
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marginal benefit
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the additional benefit to a consumer from consuming one more unit of a good or service
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marginal cost
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the additional cost to a firm of producing one more unit of a good or service
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economic efficiency
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a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production in which the sum of consumer surplus and producer surplus is at a maximum
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deadweight loss
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the reduction in economic surplus resulting from a market not being in competitive equilibrium
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price ceiling
answer
a legally determined maximum price that sellers can charge
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price floor
answer
a legally determined minimum price that sellers may receive
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black market
answer
a market in which buying and selling take place at prices that violate government price regulations
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per unit taxes
answer
taxes assessed at a particular dollar amount on the sale
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tax incidence
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the actual division of the burden of a tax between buyers and sellers in a market
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steep demand curve
answer
buyers do not charnge how much they buy when the price changes; this results in them taking on much of the income tax
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flat demand curve
answer
buyers change how much they buy a lot when the price changes; then they could not be forced to accept as much of the burden of the tax
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negative externality
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too much of the good or service will be produced at market equilibrium
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positive externality
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too little of the good or service produced at market equilibrium
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market failure
answer
a situation in which the market fails to produce the efficient level of output
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ceose theorem
answer
how private bargaining can lead to economic efficiency in a market with an externality
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command and control
answer
a policy that involves the government imposing quantitative limits on the amount of pollution firms are allowed to emit
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cap and trade
answer
the government establishes an allowable amount of emissions, emissions permits are distributed, firms can trade emissions permits
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rivalry
answer
the situation that occurs when one person's consuming a unit of a good means no one else can consume it
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excludability
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the situation in which anyone who does not pay for a good cannot consume it
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tariff
answer
a tax imposed by a government on imports
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largest export
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china #1 (10.3%) and US #2 (9.6%)
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trans pacific partnership (TPP)
answer
a trade agreement that includes reduction in some tariffs on imported shoes and shoe parts
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term of trade
answer
the ratio at which country can trade its exports for imports from other countries
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law of diminishing returns
answer
At some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.
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economies of scale
answer
Long-run average total cost falls as the quantity of output
increases (More common when Q is low )
increases (More common when Q is low )
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constant returns to scale
answer
Long-run average total cost stays the same as the quantity
of output changes
of output changes
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diseconomies of scale
answer
Long-run average total cost rises as the quantity of output
increases (More common when Q is high)
Increasing coordination problems in large organizations.
increases (More common when Q is high)
Increasing coordination problems in large organizations.
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