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57 Cards in this Set
- Front
- Back
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If price of something falls economists can predict..
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An increase in the quantity demanded by consumers
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The revenue maximizing pricing rule states that firms will maximize revenue at a price where...
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The absolute value of the price elasticity of demand is equal to 1.
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Economic Surplus =
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Benefits-Costs
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Good Decisions making requires us to ignore
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Sunk Costs
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Law of Demand
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there is an inverse relationship between the price of a product and the amount of the product that consumers are willing and able to purchase, ceteris paribus.
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Total Revenue Earned=
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(price charged)(quantity sold)
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Increased Demand (Shifts Right) causes..
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Increased Pe and Qe
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Decreased Supply (Shifts Left) causes..
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Increased Pe, Decreased Qe
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The price elasticity of demand measures ..
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how responsive consumers of a particular good or service are to changes in the price of that same good or service
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Price Elasticity of Demand Formula..
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percentage of change in the quantity demanded
------------------------------------------------------------------- percentage change in price |
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Calculating Percentage change in in quantity demanded=
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new P - old P
------------------- x100 old P |
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Price Inelastic=
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|Ed|<1
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Price Elastic=
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|Ed|>1
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Deadweight Loss is..
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the loss of economic surplus that society suffers when government interferes in a well-functioning free market
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A properly established Pigovian subsidy...
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Does not cause resource misallocation or deadweight loss.
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The assumed primary goal of a producer is to..
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maximize profit
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Average Fixed Costs (AFC) =
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average total cost (ATC)
------------------------------- average variable Costs (AVC) |
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In the Production Possibilities Frontier (PPF) model, we can draw straight line PPFs for countries if we assume that...
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Resources are identical in production
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Countries may restrict free trade in order to..
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protect domestic consumers from potentially unsafe imports
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The explicit costs of production are those costs..
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that involve actual dollars lost to the producer
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The implicit costs of production are those costs that..
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are not actually dollars paid by the producer or lost through depreciation of property/equipment but are simply dollars that the producer lost the opportunity to earn because of the production process
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A subsidy occurs when
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someone (usually the government) provides a buyer or a seller with a payment when a product is bought and sold.
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A producer will raise price to maximize profit if..
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He realizes that his consumers are price inelastic.
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A producer’s marginal cost of production is lowest where..
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its marginal product is highest.
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If you are a worker in an industry with the comparative advantage..
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you will see more employment opportunities with free trade.
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A sunk cost..
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A cost is said to be sunk if there is no way to eliminate that cost by any new decision made.
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Change in quantity demanded is..
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said to occur when the price of a product changes and consumers respond by desiring to buy a larger or smaller quantity.
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Change in demand is..
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said to occur when a consumer's entire demand for a product rises (shifts right) or falls (shifts left) as a result of a change in some variable other than the price of the product.
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The Production Possibilities Frontier refers to the line or curve on a graph that...
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represents all the possible maximum combinations of goods and services that a country can produce given its current set of resources and technology.
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A market is said to be oligopolistic when it
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is imperfectly competitive but is closer to the monopoly extreme than to the perfect competition extreme.
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Average Total Cost (ATC)=
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Average Fixed Cost (AFC) + Average Variable Cost (AVC)
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Average variable cost (AVC) =
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Variable cost
________________ by the number of units produced. |
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When firms go bankrupt in a free market economy, it tells us that
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these firms are not the more efficient producers
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Assuming buyers and sellers are price responsive, what will be the impact of a simultaneous demand decrease and a supply increase on equilibrium price and equilibrium quantity?
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Equilibrium price decreases and equilibrium quantity may either increase or decrease.
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A market is said to be monopolistically competitive when it is..
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imperfectly competitive but is closer to the perfect competition extreme than to the monopoly extreme.
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A positive production externality exists whenever a producer..
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makes a selling (production) decision that benefits people around him or her and the producer fails to include this benefit in his or her cost/benefit analysis.
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If the consumption or production of a good causes a negative externality, then the optimal Pigovian tax to impose would be:
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equal in size to the externality
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What type of firm is likely to engage in the most advertising?
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An imperfectly competitive firm
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If a monopolist can price discriminate, its MR curve lies
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on the demand curve and if a monopolist cannot price discriminate, its MR curve lies below the demand curve.
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Free international trade leads to an increase in world-wide production because
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it allows for a more efficient allocation of world-wide resources.
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A Pigovian Tax is used to...
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fix a market failure that occurs because of a negative externality. Should be equal to the externality.
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Market Failure means..
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The free market has failed to efficiently allocate society’s scarce resources.
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The Law of Supply says..
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there is a positive relationship between price and the quantity that producers are willing to supply.
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Complementary goods...
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are goods that are used together. In this case, when the price of one good rises, it causes a reduction in the demand of the other good.
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Substitutes are goods that are used..
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in replacement for the other. In this case, when the price of one good rises, it causes an increase in the demand for the other good.
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If we place a tax on a product, who will bear more of the burden of the tax?
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Whoever is less responsive to price changes pays more of the tax burden
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Long-Run Decision Making
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A producer is said to be in the long-run when it is making production decisions that involve only variable inputs.
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Short-Run Decision Making
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A producer is said to be in the short-run when it is making production decisions that involve at least one fixed input.
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If consumer income rises, we can expect a change in..
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Demand
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If market price rises, we can expect a change in..
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Quantity Demanded
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According to the textbook, which of the following is a reason for a country to restrict free trade?
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In order to protect domestic consumers from potentially unsafe imports.
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Tax Wedge is...
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the difference between the price that sellers receive (and pocket) and the price that buyers pay (out of pocket) after a tax has been imposed on a market.
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A producer will raise price to maximize profit if..
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He realizes that his consumers are price inelastic.
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In order to figure out how a tax burden is shared, we need to know..
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Price elasticity of demand and price elasticity of supply.
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When government provides students with low interest student loans and scholarships, we have an example of:
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The government internalizing the positive consumption externality of education
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If a producer is earning a positive economic profit, then:
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It must also earn a positive accounting profit
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Suppose a country opens up to free trade. We can predict that the country will become an exporter of a product if for that product..
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World Price> Domestic Price
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