cost curves, equilibrium, and curve movers in microeconomics

Question 1

the average total cost falls when….

Answer 1

marginal cost is lower than average total cost

Question 2

why does marginal cost fall when average total cost falls?

Answer 2

because the fixed cost remains constant while the variable costs per quantity decrease, lowering the average total cost

Question 3

The intersection occurs because the fixed cost element causes the

Answer 3

average total cost curve to react slower than the marginal cost curve.

Question 4

explainn the substitution effect

Answer 4

As the cost of a good rises, you will increasingly look to find substitutes to replace that good that is cheaper than the new, higher priceAs the cost of a good rises, you will increasingly look to find substitutes to replace that good that is cheaper than the new, higher price

Question 5

what are the 2 variables that cause a change in the quantity demanded

Answer 5

income effect and substitution effect

Question 6

explain the income effect

Answer 6

a change in the quantity demanded as a result in a change in the consumers purchasing poower

Question 7

what variables shift the demand curve

Answer 7

Income

Prices of related goods

Tastes

Population and demographics

Expected future prices

Question 8

An increase in income (normal good) will shift the demand curve to the _______ because….

Answer 8

right
because consumers spend more of their income on the good

Question 9

An increase in income (inferior good) will shift the demand curve to the _______ because….

Answer 9

left
because consumers spend less of their higher income on the good

Question 10

an increase in the price of a substitute will shift the demand curve to the ______ because…

Answer 10

right
consumers buy less of the substitute good and more of this good

Question 11

an increase in the price of a complimentary good will shift the demand curve too the ____ because…

Answer 11

left
consumers buy less of the complementary good and less of this good

Question 12

an increase in the expected price of a good will cause the demand curve to shift to the ____ because

Answer 12

consumers buy more of the good today to avoid the higher price in the future

Question 13

what variables shift the supply curve?

Answer 13

Prices of inputs

Technological change

Prices of substitutes in production

Number of firms in the market

Expected future prices

Question 14

an increase in the price of an input will cause the supply curve to shift to the _______ because…..

Answer 14

left
the costs of producing the good rise

Question 15

an increase in productivity will cause the supply curve to shift to the _______ because…..

Answer 15

right because the cost of producing goods falls

Question 16

an increase in the price substitute in production will cause the supply curve to shift to the _______ because…..

Answer 16

left
because more of the substitute is produced and less of the good is produced

Question 17

an increase in the number of firms in the market will cause the supply curve to shift to the _______ because…..

Answer 17

right
additional firms result in a greater quantity supplied at every price

Question 18

an increase the expected future price of the product will cause the supply curve to shift to the _______ because…..

Answer 18

left
less of the good will be offered for sale today to take advantage of the higher price in the future

Question 19

what is the formula for the price elasticity of demand using the mid-point formula

Answer 19

(Q2-Q1)/(Q1+Q2/2) / (P2-P1)/ (P1+P2/2)

Question 20

IF DEMAND IS elastic than the absolute value of price elasticity is______

Answer 20

greater than 1

Question 21

IF DEMAND IS inelastic than the absolute value of price elasticity is______

Answer 21

less than 1

Question 22

IF DEMAND IS unit-elastic than the absolute value of price elasticity is______

Answer 22

equal to 1

Question 23

IF DEMAND IS perfectly elastic than the absolute value of price elasticity is______

Answer 23

infinite

Question 24

IF DEMAND IS perfectly inelastic than the absolute value of price elasticity is______

Answer 24

0

Question 25

list the determinaNTS OF THE PRICE ELASTICITY OF DEMAND

Answer 25

Availability of close substitutes Passage of time Whether the product is a luxury or a necessity Definition of the market Share of expenditure on the good in the consumer’s budget.

Question 26

product has more substitutes available, it will have a ________ demand. If a product has fewer substitutes available, it will have a _______ demand.

Answer 26

more elastic less elastic

Question 27

The demand curve for a luxury is _________ than the demand curve for a necessity.

Answer 27

more elastic

Question 28

The more narrowly we define a market, the ________ demand will be.

Answer 28

more elastic

Question 29

the demand for a good or service will be ______if purchasing the good or service involves a small share of the average consumer’s budget.

Answer 29

less elastic

Question 30

When demand is inelastic, a reduction in price will ________ total revenue

Answer 30

decrease

Question 31

reducing price when demand is elastic will _____ total revenue

Answer 31

increase

Question 32

if demand is elastic an increase in price reduces revenue because

Answer 32

the decrease in quantity demanded is proportionally greater than the increase in price

Question 33

if demand is elastic a decrease in price increases revenue because

Answer 33

the increase in quantity demanded is proportionally greater than the decrease in price

Question 34

if demand is inelastic a decrease in price reduces revenue because

Answer 34

the increase in quantity demanded is proportionally smaller than the decrease in price

Question 35

if demand is inelastic an increase in price increases revenue because

Answer 35

the decrease in quantity demanded is proportionally smaller than the increase in price

Question 36

if demand is unit-elastic an increase price does not affect revenue because

Answer 36

the decrease in quantity demanded is proportionally the same as the increase in price

Question 37

if demand is unit-elastic a decrease price does not affect revenue because

Answer 37

the increase in quantity demanded is proportionally the same as the decrease in price

Question 38

if the products are substitutes then the cross price elasticity of demand will be....

Answer 38

positive

Question 39

if the products are complements then the cross price elasticity of demand will be....

Answer 39

negative

Question 40

if the products are unrelated then the cross price elasticity of demand will be....

Answer 40

0

Question 41

what is the formula for cross-price elasticity of demand

Answer 41

cross price elasticity of demand= (%change in quantity demanded of one good)/(% change in price of another good )

Question 42

what is the formula ffor income elasticity of demand

Answer 42

income elsaticity of demand= (% change in quantity demanded)/(% chang in income )

Question 43

what is the formula for price elasticity of supply

Answer 43

price elasticity of supply=(%change in quantity supplied)/(% change in price )

Question 44

if the income elasticity of demand is positive but less than 1 it is

Answer 44

normal and a necessity

Question 45

if the good is a luxury the income elasticity of demand is

Answer 45

positive and greater than 1

Question 46

an inferior good has a _____ income elasticity

Answer 46

negative

Question 47

The key determinants of the price elasticity of supply are:

Answer 47

Passage of time Type of industry Availability of inputs Existing capacity Inventories held.

Question 48

if supply is elastic the absolute value of price elasticity is

Answer 48

greater than 1

Question 49

if supply is inelastic the absolute value of price elasticity is

Answer 49

less than 1

Question 50

if supply is unit elastic the absolute value of price elasticity is

Answer 50

1

Question 51

if supply is perfectly elastic the absolute value of price elasticity is

Answer 51

infinite

Question 52

if supply is perfectly inelastic the absolute value of price elasticity is

Answer 52

0

Question 53

The additional output produced by a firm as a result of hiring one more worker is called the

Answer 53

marginal product of labour

Question 54

The marginal product of labour tells us how much

Answer 54

total output changes as the quantity of workers hired changes

Question 55

________ is the change in a firm’s total cost from producing one more unit of a good or service.

Answer 55

marginal cost

Question 56

how do you calculate marginal cost

Answer 56

MC = (change in total cost)/(change in quantity)

Question 57

When the marginal product of labour is rising, the marginal cost of output will be

Answer 57

falling

Question 58

When the marginal product of labour is falling, the marginal cost of production

Answer 58

will be rising.

Question 59

We can conclude that the marginal cost of production falls and then rises—producing a U-shape—because

Answer 59

the marginal product of labour rises and then falls.

Question 60

As long as marginal cost is below average total cost, average total cost will

Answer 60

fall.

Question 61

When marginal cost is above average total cost, average total cost will

Answer 61

rise

Question 62

Marginal cost will equal average total cost when average total cost is at

Answer 62

its lowest point

Question 63

As output increases, average fixed cost ____ because

Answer 63

in calculating average fixed cost we are dividing something that gets larger and larger—output—into something that remains constant—fixed cost

Question 64

The marginal cost (MC), average total cost (ATC) and average variable cost (AVC) curves are all

Answer 64

u-shaped

Question 65

the MC curve intersects the AVC and ATC curves at their

Answer 65

minimum points

Question 66

As output increases, the difference between average total cost and average variable cost_____ because ______

Answer 66

decreases the difference between average total cost and average variable cost is average fixed cost, which gets smaller as output increases.

Question 67

The long-run average cost curve shows the

Answer 67

lowest cost at which the firm is able to produce a given level of output in the long run, when no inputs are fixed

Question 68

ong-run average costs fall as it

Answer 68

increases its scale of production and the quantity of output it produces

Question 69

the effects of economies of scale in, which shows the relationship between

Answer 69

short-run and long-run average cost curves

Question 70

Diminishing returns applies only to the short run, when

Answer 70

at least one of the firm’s inputs, such as the quantity of machinery it uses, is fixed.

Question 71

Diseconomies of scale explain why

Answer 71

long-run average cost curves eventually slope upwards.

Question 72

Diseconomies of scale Exist when

Answer 72

a firm’s long-run average costs rise as it increases its scale of production and the quantity of output it produces.