Principals of Microeconomics-Hadley Mitchell

question

scarcity

answer

prevents us from being able to completely fulfill our desires

question

rationing

answer

criterion used to determine who will receive it and who will go without it

question

capital

answer

human made resources

question

economic theory

answer

establishes reference points indicating what to look for and how economic issues are interrelated

question

opportunity cost

answer

highest valued alternative sacrificed

question

economizing behavior

answer

result of purposeful or rational decision making

question

utility

answer

the benefit or satisfaction that an individual expects from the choice of a specific alternative

question

marginal

answer

when making a choice between 2 alternatives individuals focus on the difference in costs and benefits between alternatives

question

secondary effects

answer

effects that may not be seen immediately (unintended consequences)

question

scientific thinking

answer

developing a theory from basic principles and testing it against the real world

question

positive economics

answer

attempts to determine "what is"

question

normative economics

answer

"what ought to be"

question

ceteris paribus

answer

"other things constant"

question

fallacy of composition

answer

arguing that what is true for part is also true for the whole

question

microeconomics

answer

focuses on decision making of consumers, producers, and resource suppliers operating at a narrowly defined market

question

macroeconomics

answer

focuses on how the aggregation of individual micro-units affects our analysis and is concerned with prices, incentives, and outputs

question

the law of demand

answer

there is an inverse relationship between the price of a good or service and the quantity of it that consumers are willing to purchase

question

change in demand

answer

shift in entire demand curve

question

change in quantity demanded

answer

movement along the demand curve

question

opportunity cost of production

answer

sum of producers cost of each resource used to produce a good

question

loses

answer

occur when the revenue derived from sales is insufficient to cover the opportunity cost of the resources used to produce a good or service

question

law of supply

answer

there is a direct relationship between the price of a good or service and the amount of it that suppliers are willing to produce which means the price and quantity producers wish to supply move in the same direction

question

equilibrium

answer

state in which conflicting forces of demand and supply are in balance

question

economic efficiency

answer

all potential gains from trade have been realized

question

efficiency of market organization is based upon

answer

1. competitive markets 2. well-defined and enforced private-property rights

question

resource market

answer

market for inputs used to produce goods and services

question

price ceiling

answer

legally established maximum price sellers can charge for a good or service

question

2 ways sellers can raise their prices

answer

1. raise money price holding quality constant 2. hold money price constant reducing quality

question

tax incidence

answer

method of distributing the burden of a tax

question

tax base

answer

level or quantity of an economic activity that is taxed

question

tax rate

answer

per-unit amount of tax percentage rate at which the economic activity is taxed

question

deadweight loss

answer

loss from trade to buyers and sellers that occurs when tax is imposed

question

who bears the tax weight when demand is relatively inelastic/supply is relatively elastic?

answer

buyers bear larger tax burden

question

who bears the tax weight when demand is relatively elastic/supply is relatively inelastic

answer

sellers bear larger tax burden

question

average tax rate

answer

tax liability divided by taxable income (percentage)

question

progressive tax

answer

average tax rate rises with income

question

proportional tax

answer

average tax rate is the same at all income levels

question

regressive tax

answer

average tax rate falls with income

question

marginal tax rate

answer

percentage of a dollar of income earned that must be paid in taxes

question

laffer curve

answer

illustrates the relationship between tax rate and revenues

question

subsidy

answer

payment either to the buyer or seller of a good/service usually a per-unit basis

question

the law of diminishing marginal utility

answer

as consumption of a product increases the marginal utility will slowly decline

question

marginal utility

answer

additional utility or satisfaction derived from consuming an additional unit of a good

question

marginal benefit

answer

maximum price a consumer is willing to pay for an additional unit of a product

question

price elasticity of demand

answer

percentage change in quantity demanded divided by the percentage change in the price that caused the change in quantity

question

inelastic demand creates this type of demand curve

answer

steep

question

elastic demand creates this type of demand curve

answer

flat

question

normal good

answer

as income increases, so does the price of goods

question

inferior good

answer

as consumer income rises the demand for the good falls

question

price elasticity of supply

answer

percentage change in quantity supplied divided by the percentage change in the price that caused the change in quantity supplied

question

residual claimants

answer

individuals who personally receive the excess, if any, revenue

question

team production

answer

employees work together under the supervision of owner or owner's representative

question

shirking

answer

working at less than the expected rate of productivity which reduces output

question

principal agent problem

answer

agent and principal have varying objectives

question

proprietorship

answer

business firm owned by individual who possesses the ownership right to profits and is personally liable for the firms debts

question

partnership

answer

business firm owned by two or more individuals who possess ownership rights to the firm's profits and are personally liable for the debts of the firm

question

corporation

answer

business firm owned by shareholders who possess ownership rights to the firm's profits, but liability of the firm is placed based upon limitations of the investment of the firm

question

explicit costs

answer

payments by a firm to purchase the services of productive sources

question

implicit costs

answer

opportunity costs associated with a firm's use of resources that it owns

question

total cost

answer

explicit and implicit costs added

question

opportunity cost of equity capital

answer

rate of return that must be earned by investors to encourage them to supply financial capital to the firm

question

economic profit

answer

difference between firm's total revenues and its total costs (including explicit and implicit)

question

normal profit rate

answer

zero economic profit, providing just the competitive rate of return on the capital (and labor) of owners, drawing more entry into the market

question

accounting profits

answer

sales revenue minus expenses of a firm over a designated time period, usually 1 year

question

short run (in production)

answer

period so short a firm is unable to vary some of its factors of production

question

long run (production)

answer

period long enough to allow firm to vary all its factors of production

question

total fixed costs

answer

sum of costs that don't vary with output

question

average fixed cost

answer

total fixed cost divided by number of units produced

question

average total cost

answer

total cost divided by number of units produced

question

marginal cost

answer

change in total cost required to produce an additional unit

question

law of diminishing returns

answer

as more and more units of a variable factor are applied to a fixed amount of other resources output will eventually increase by smaller and smaller amounts (constraint imposed by nature)

question

total product

answer

total output of a good that is associated with each alternative utilization rate of a variable input

question

marginal product

answer

increase in total product resulting from a unit increase in the employment of a variable input

question

average product

answer

total product divided by the number of units of labor applied

question

economies of scale

answer

reductions in the firm's per-unit costs associated with the use of large plants to produce a large volume of output

question

constant returns to scale

answer

unit costs that are constant as the scale of the firm is altered, neither economies or diseconomies of scale are present

question

sunk costs

answer

costs that have already been incurred as a result of past decisions

1 of 77

question

scarcity

answer

prevents us from being able to completely fulfill our desires

question

rationing

answer

criterion used to determine who will receive it and who will go without it

question

capital

answer

human made resources

question

economic theory

answer

establishes reference points indicating what to look for and how economic issues are interrelated

question

opportunity cost

answer

highest valued alternative sacrificed

question

economizing behavior

answer

result of purposeful or rational decision making

question

utility

answer

the benefit or satisfaction that an individual expects from the choice of a specific alternative

question

marginal

answer

when making a choice between 2 alternatives individuals focus on the difference in costs and benefits between alternatives

question

secondary effects

answer

effects that may not be seen immediately (unintended consequences)

question

scientific thinking

answer

developing a theory from basic principles and testing it against the real world

question

positive economics

answer

attempts to determine "what is"

question

normative economics

answer

"what ought to be"

question

ceteris paribus

answer

"other things constant"

question

fallacy of composition

answer

arguing that what is true for part is also true for the whole

question

microeconomics

answer

focuses on decision making of consumers, producers, and resource suppliers operating at a narrowly defined market

question

macroeconomics

answer

focuses on how the aggregation of individual micro-units affects our analysis and is concerned with prices, incentives, and outputs

question

the law of demand

answer

there is an inverse relationship between the price of a good or service and the quantity of it that consumers are willing to purchase

question

change in demand

answer

shift in entire demand curve

question

change in quantity demanded

answer

movement along the demand curve

question

opportunity cost of production

answer

sum of producers cost of each resource used to produce a good

question

loses

answer

occur when the revenue derived from sales is insufficient to cover the opportunity cost of the resources used to produce a good or service

question

law of supply

answer

question

equilibrium

answer

state in which conflicting forces of demand and supply are in balance

question

economic efficiency

answer

all potential gains from trade have been realized

question

efficiency of market organization is based upon

answer

1. competitive markets 2. well-defined and enforced private-property rights

question

resource market

answer

market for inputs used to produce goods and services

question

price ceiling

answer

legally established maximum price sellers can charge for a good or service

question

2 ways sellers can raise their prices

answer

1. raise money price holding quality constant 2. hold money price constant reducing quality

question

tax incidence

answer

method of distributing the burden of a tax

question

tax base

answer

level or quantity of an economic activity that is taxed

question

tax rate

answer

per-unit amount of tax percentage rate at which the economic activity is taxed

question

deadweight loss

answer

loss from trade to buyers and sellers that occurs when tax is imposed

question

who bears the tax weight when demand is relatively inelastic/supply is relatively elastic?

answer

buyers bear larger tax burden

question

who bears the tax weight when demand is relatively elastic/supply is relatively inelastic

answer

sellers bear larger tax burden

question

average tax rate

answer

tax liability divided by taxable income (percentage)

question

progressive tax

answer

average tax rate rises with income

question

proportional tax

answer

average tax rate is the same at all income levels

question

regressive tax

answer

average tax rate falls with income

question

marginal tax rate

answer

percentage of a dollar of income earned that must be paid in taxes

question

laffer curve

answer

illustrates the relationship between tax rate and revenues

question

subsidy

answer

payment either to the buyer or seller of a good/service usually a per-unit basis

question

the law of diminishing marginal utility

answer

as consumption of a product increases the marginal utility will slowly decline

question

marginal utility

answer

additional utility or satisfaction derived from consuming an additional unit of a good

question

marginal benefit

answer

maximum price a consumer is willing to pay for an additional unit of a product

question

price elasticity of demand

answer

percentage change in quantity demanded divided by the percentage change in the price that caused the change in quantity

question

inelastic demand creates this type of demand curve

answer

steep

question

elastic demand creates this type of demand curve

answer

flat

question

normal good

answer

as income increases, so does the price of goods

question

inferior good

answer

as consumer income rises the demand for the good falls

question

price elasticity of supply

answer

percentage change in quantity supplied divided by the percentage change in the price that caused the change in quantity supplied

question

residual claimants

answer

individuals who personally receive the excess, if any, revenue

question

team production

answer

employees work together under the supervision of owner or owner's representative

question

shirking

answer

working at less than the expected rate of productivity which reduces output

question

principal agent problem

answer

agent and principal have varying objectives

question

proprietorship

answer

business firm owned by individual who possesses the ownership right to profits and is personally liable for the firms debts

question

partnership

answer

business firm owned by two or more individuals who possess ownership rights to the firm's profits and are personally liable for the debts of the firm

question

corporation

answer

business firm owned by shareholders who possess ownership rights to the firm's profits, but liability of the firm is placed based upon limitations of the investment of the firm

question

explicit costs

answer

payments by a firm to purchase the services of productive sources

question

implicit costs

answer

opportunity costs associated with a firm's use of resources that it owns

question

total cost

answer

explicit and implicit costs added

question

opportunity cost of equity capital

answer

rate of return that must be earned by investors to encourage them to supply financial capital to the firm

question

economic profit

answer

difference between firm's total revenues and its total costs (including explicit and implicit)

question

normal profit rate

answer

zero economic profit, providing just the competitive rate of return on the capital (and labor) of owners, drawing more entry into the market

question

accounting profits

answer

sales revenue minus expenses of a firm over a designated time period, usually 1 year

question

short run (in production)

answer

period so short a firm is unable to vary some of its factors of production

question

long run (production)

answer

period long enough to allow firm to vary all its factors of production

question

total fixed costs

answer

sum of costs that don't vary with output

question

average fixed cost

answer

total fixed cost divided by number of units produced

question

average total cost

answer

total cost divided by number of units produced

question

marginal cost

answer

change in total cost required to produce an additional unit

question

law of diminishing returns

answer

as more and more units of a variable factor are applied to a fixed amount of other resources output will eventually increase by smaller and smaller amounts (constraint imposed by nature)

question

total product

answer

total output of a good that is associated with each alternative utilization rate of a variable input

question

marginal product

answer

increase in total product resulting from a unit increase in the employment of a variable input

question

average product

answer

total product divided by the number of units of labor applied

question

economies of scale

answer

reductions in the firm's per-unit costs associated with the use of large plants to produce a large volume of output

question

constant returns to scale

answer

unit costs that are constant as the scale of the firm is altered, neither economies or diseconomies of scale are present

question

sunk costs

answer

costs that have already been incurred as a result of past decisions

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