Final Exam

Question 1

Producer surplus

Answer 1

the total amount that a producer benefits from producing and selling a quantity of a good at the market price (bottom triangle on graph)

Question 2

Consumer surplus

Answer 2

when the price that consumers pay for a product or service is less than the price they’re willing to pay.
(top triangle on graph)

Question 3

Marginal external cost

Answer 3

the change in the cost to parties other than the producer or buyer of a good or service due to the production of an additional unit of the good or service.

Question 4

Monopolistically competitive firm

Answer 4

exists when many companies offer competing products or services that are similar, but not perfect, substitutes.

Question 5

Oligopoly markets

Answer 5

markets dominated by a small number of suppliers

Question 6

Profit maximizing output

Answer 6

when marginal revenue is equal to that of marginal cost

Question 7

Rational rule for society

Answer 7

should not produce another unit of a good if the marginal social cost exceeds the marginal social benefit

Question 8

Rational rule for sellers

Answer 8

seller should sell one more unit of an item if the price is: less than the marginal cost: less than the marginal benefit: greater than or equal to the marginal benefit.

Question 9

Rational rule for employers

Answer 9

hire more workers if the cost of workers is less than the revenue of workers output increase is sought and wage is falling

Question 10

All solutions to externality problems involve:

Answer 10

getting buyers and sellers to consider marginal external costs and benefits

Question 11

Absolute advantage

Answer 11

the ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group

Question 12

comparative advantage

Answer 12

an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners.

Question 13

Substitution effect

Answer 13

the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises

Question 14

Utility

Answer 14

used to determine the worth or value of a good or service

Question 15

Elastic

Answer 15

a change in the behavior of buyers and sellers in response to a change in price for a good or service ( >1)

Question 16

inelastic

Answer 16

when the price of a good or service goes up, consumers’ buying habits stay about the same (<1)

Question 17

Income elasticity=

Answer 17

% change in quantity demanded/% change in income

Question 18

Marginal social cost

Answer 18

marginal private cost + marginal external cost

Question 19

Marginal revenue product

Answer 19

marginal revenue from hiring an additional worker

Question 20

Scarce resources

Answer 20

land, labor, natural resources, and time

Question 21

Marginal external cost

Answer 21

external cost imposed on bystanders by one additional unit of output

Question 22

Cross price elasticity=

Answer 22

% change in demand/ % change of price

Question 23

Substitution effect

Answer 23

increases work hrs (upward sloping)

Question 24

income effect

Answer 24

decreases work hrs (downward sloping)

Question 25

Price floor

Answer 25

creates a surplus

Question 26

Price ceiling

Answer 26

creates a shortage

Question 27

Rival

Answer 27

limited # may consume a good/service at one time

Question 28

Non-rival

Answer 28

everyone can consume at once

Question 29

Excludable

Answer 29

have to pay to consume

Question 30

Non-excludable

Answer 30

anyone can consume without paying

Question 31

Marginal social benefit=

Answer 31

marginal private benefit + marginal external benefit

Question 32

positive externalities

Answer 32

when a bystander benefites

Question 33

negative externalities

Answer 33

when a bystander is hurt

Question 34

Perfect competition

Answer 34

many buyers/sellers, identical goods, price-takers, no barriers

Question 35

Imperfect/Monopolistic Competition

Answer 35

many buyers/sellers, differentiated goods, sellers have some market power, low barriers

Question 36

Imperfect/oligopoly competition

Answer 36

many buyers, few sellers, good type doesn't matter, market power, high barriers

Question 37

Monopoly

Answer 37

many buyers, one seller, unique good, seller has total market power, high barriers, not necessarily illegial

Question 38

Normal profit

Answer 38

Profit per unit=$0

Question 39

Economic Profit

Answer 39

Profit per unit>$0

Question 40

Economic loss

Answer 40

Profit per unit <$0