Final Exam Flashcards
(174 cards)
1
Q
What is the point where the demand and supply curve intersect?
A
The equilibrium
2
Q
Fill In The Blank: Equilibrium is a situation in which the _____ has reached the level where _______________ equals _______________
A
- Price
- Quantity supplied
- Quantity demanded
3
Q
What balances the quantity demanded and the quantity supplied?
A
The equilibrium price
4
Q
On a graph where can the equilibrium price be found?
A
At the point where the supply and demand curve intersect
5
Q
What is determined when the quantity supplied equals the quantity demanded at the equilibrium price?
A
The equilibrium quantity
6
Q
True or False: The market naturally moves toward its equilibrium
A
True
7
Q
What occurs when quantity supplied exceeds quantity demanded?
A
A surplus
8
Q
What occurs when quantity demanded exceeds quantity supplied?
A
A shortage
9
Q
On a graph when is there a surplus?
A
At any point where the price is above the equilibrium
10
Q
On a graph when is there a shortage?
A
At any point where the price is below the equilibrium
11
Q
What is the natural adjustment of the price to bring the quantity supplied and the quantity demanded into balance known as?
A
The law of supply and demand
12
Q
What events cause the demand curve to shift?
A
Events that affect the number of people who want to buy the good
13
Q
What events cause movement along the demand curve?
A
Events that cause the price of the good to change
14
Q
What events cause the supply curve to shift?
A
Events that effect the number of producers who want to supply the good
15
Q
What events cause movement along the supply curve?
A
Events that cause the price of the good to change
16
Q
What measures how much the quantity demanded responds to a change in the price of that good?
A
The price elasticity of demand
17
Q
What is the formula to find the price elasticity of demand?
A
% change of quantity demanded/ % change in price
18
Q
Is demand elastic or inelastic if the quantity demanded changes substantially from a change in price?
A
Elastic
19
Q
Is demand elastic or inelastic if the quantity demanded changes only slightly from a change in price?
A
Inelastic
20
Q
List the 4 determinants of price elasticity of demand
A
- Availability of Close Substitutes
- Necessities or Luxuries
- The definition of the market
- Time Horizon
21
Q
Why do goods with close substitutes tend to have more elastic demand?
A
It’s easier for consumers to switch from one good to another
22
Q
Do necessities tend to have elastic demands or inelastic demands?
A
Inelastic demands
23
Q
Do luxuries tend to have elastic demands or inelastic demands?
A
Elastic demands
24
Q
Do narrowly defined markets or broadly defined markets tend to have more elastic demand?
A
Narrowly defined markets
25
Do goods tend to have more elastic demands over long periods of time or short periods of time?
Long periods of time
26
True or False:
Price elasticity of demand is always negative
True
27
When you find price elasticity of demand do you drop the negative sign or keep it?
You drop it
28
What do you use when you want to compute the price elasticity between two points on a demand curve?
The midpoint method
29
What is the midpoint method formula?
(Q2 - Q1) / [(Q2 + Q1) / 2]
-----------------------------------
(P2 - P1) / [(P2 + P1) / 2]
30
If price elasticity of demand > 1 demand is
Elastic
31
If price elasticity of demand < 1 demand is
Inelastic
32
If price elasticity of demand = 1 demand is
Unit Elastic
33
If price elasticity of demand = 0 demand is
Perfectly Inelastic
34
If price elasticity of demand is infinite demand is
Perfectly Elastic
35
What does the demand curve look like when demand is perfectly inelastic?
A vertical line
36
What does the demand curve look like when demand is perfectly elastic?
A horizontal line
37
When demand is inelastic does a price increase increase, decrease, or have no effect on total revenue?
Increase
38
When demand is elastic does a price increase increase, decrease, or have no effect total revenue?
Decrease
39
When demand is unit elastic does a price increase increase, decrease, or have no effect total revenue?
It has no effect
40
What is the formula to find total revenue?
Price x Quantity
41
If demand is inelastic, does the price and total revenue move in the same direction or opposite directions?
The same direction
42
If demand is elastic, does the price and total revenue move in the same direction or opposite directions?
Opposite directions
43
True or False:
If the demand curve is unit elastic then total revenue remains the same when the price changes
True
44
What is the formula to find profit?
Total revenue - total cost
45
Do accountants care about implicit or explicit costs?
Explicit costs
46
What are the 4 formulas to find total costs?
1. Explicit costs + implicit costs
2. Fixed costs + variable costs
3. (AVC + AFC) x quantity
4. ATC x Q
47
How do you find marginal production?
Quantity of output 2 - quantity of output 1
48
What is the relationship between quantity produced and total costs?
The total cost curve
49
What is the formula to find average variable costs?
VC/Q
50
What is the formula to find variable costs?
Average variable costs x quantity
51
What is the formula to find average fixed costs?
Fixed costs/quantity
52
What is the formula to find fixed costs?
Average fixed costs x quantity
53
What are the 2 formulas to find average total costs?
1. Average fixed costs + average variable costs
| 2. Total costs/quantity
54
What is the formula to find marginal costs?
Total costs of output 2 - total costs of output 1
55
How do you find the average total cost curve on a graph?
You add AFC + AVC
56
True or False:
On a graph the ATC curve will always be higher up than the AVC curve and the AFC curve
True
57
On a graph which two cost curves are u-shaped?
The ATC curve and the AFC curve
58
On a graph which two cost curves are upward sloping?
The MC curve and the AVC curve
59
At what points on a graph does the ATC curve fall?
When MC < ATC
60
At what points on a graph does the ATC curve rise?
When MC > ATC
61
When does the MC curve cross the ATC curve?
At the ATC curve's minimum
62
Which cost curve falls as quantity rises?
AFC curve
63
Which cost curve rises as quantity rises?
AVC curve
64
Does the MC curve or the AVC curve cross the ATC curve at its minimum?
The MC curve
65
What is it called when long-run average total cost falls as the quantity of output increases?
Economies of scale
66
What is it called when long-run average total cost stays the same as the quantity of output changes?
Constant return to scale
67
What is it called when long-run average total cost rises as the quantity of output increases?
Diseconomies of scale
68
What are the thee main characteristics of a competitive market?
1. There are many buyers and sellers
2. Goods are being sold at similar prices
3. Firms can freely enter and exit the market
69
Is a competitive market a price taker or a price maker?
A price taker
70
Who are the price takers in a competitive market?
The sellers and buyers
71
In a competitive market what is total revenue proportional to?
The amount of quantity sold
72
What is average revenue equal to and for what firms?
AR = the price of the good for all firms
73
What is marginal revenue equal to and for what firms?
MR = the price of the good for competitive firms
74
If marginal revenue > marginal cost, should the firm increase or decrease output to increase profit?
Increase
75
If marginal revenue < marginal cost, should the firm increase or decrease output to increase profit?
Decrease
76
What is the formula to find average revenue?
TR/Q
77
What is the formula to find marginal revenue?
TR/Q
78
What is the profit-maximizing level of output?
The point where marginal revenue = marginal cost
79
Which curve is the competitive firm's supply curve?
The MC curve
80
At what two points should a firm decide to shutdown?
TR < VC
| P < AVC
81
What portion of the MC curve is the competitive firm’s short-run supply curve?
The portion that lies above the AVC curve
82
At what two points should a firm decide to exit the market in the long run?
TR < TC
| P < ATC
83
What portion of the MC curve is the competitive firm’s long-run supply curve?
The portion that lies above the ATC curve
84
What are the two formulas to find a competitive firm's profit?
TR - TC
| (P - ATC) x Q
85
What are the two formulas to find a competitive firm's loss?
TC - TR
| (ATC - P) x Q
86
In a competitive market are the number of firms fixed or variable in the short run?
They are fixed
87
When new firms enter into the market in the long run price will continue to fall until economic profit equals what?
0
88
When firms exit the market in the long run price will continue to rise until economic profit equals what?
0
89
At what point on a graph does economic profit = 0?
Where MC intersects ATC
90
Is a competitive firm's long run supply curve perfectly elastic or inelastic?
Perfectly elastic
91
What does a competitive firm's long run supply curve look like?
A horizontal line
92
True or False:
A competitive firm's long run supply curve can be upward sloping
True
93
True or False:
A competitive firm's short run supply curve is more elastic than their long run supply curve
False
94
If competitive firms are receiving positive economic profit in the short run what direction does the supply curve shift?
The right
95
Is a monopoly a price taker or a price maker?
A price maker
96
What are the two characteristics of a monopoly?
1. They have to be the only firm selling the product
| 2. There can't be any substitutes for their product
97
What is the fundamental cause of a monopoly?
Barrier to entry
98
What stops other firms from entering into a market and becoming competition?
Barrier to entry
99
What are the three sources of barrier to entry?
1. Monopoly resources
2. Government regulation
3. The production process
100
A person owning the sole well in town is an example of:
a. Monopoly resources
b. Government regulation
c. The production process
a. Monopoly resources
101
What are two important examples of government regulations?
Patent and copyright laws
102
What is it called when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms?
A natural monopoly
103
Does a monopoly have an upward or downward sloping demand curve?
A downward sloping demand curve
104
What is a monopoly's average revenue always equal to?
The price of the product at a certain quantity
105
True or False:
You should stop increasing production when revenue lost is greater than revenue gained
True
106
What is the formula to find revenue lost?
(Initial Price – New Price) x Initial Quantity
107
A monopoly increasing the amount of quantity sold has what two effects on total revenue?
1. Price effect
| 2. Output effect
108
If the change in quantity sold has a negative effect/decreases total revenue then is there a price effect or a output effect?
A price effect
109
If the change in quantity sold has a positive effect/increases total revenue then is there a price effect or a output effect?
A output effect
110
True or False:
A monopoly's marginal revenue is less than the price of its good
True
111
Is marginal revenue less than, equal to, or greater than price in:
1. A perfect competition
2. A monopoly
1. Equal to
| 2. Less than
112
What are the two formulas to find a monopoly's profit?
1. TR - TC
2. (P - ATC) x Q
Remember: P = TR/Q and ATC = TC/Q
113
What is the triangle between the demand curve and MC curve called?
The deadweight loss
114
What is a market with only a few sellers who offer similar or identical products?
A Oligopoly
115
List the two types of imperfect competitions
1. Oligopoly
| 2. Monopolistic Competition
116
What is the market structure that lies between the extremes of competition and monopoly and contains elements of both known as?
The Imperfect Competition
117
What is a market that has many firms that sell products that are similar but not identical?
A Monopolistic Competition
118
List the 3 characteristics of a monopolistic competition
1. Many sellers
2. Product differentiation
3. Free exit and entry
119
Does a monopolistic competition have a upward or downward sloping demand curve?
A downward sloping demand curve
120
True or False:
Each market structure's profit-maximizing level of output is the point where MR = MC
True
121
What does a monopolistic competition do to find the price that they sell their product at?
They find the profit-maximizing point and then use the demand curve
122
What 2 market structures determine the price of their good by use the profit-maximizing point and the demand curve?
A monopoly and a monopolistic competition
123
When does a monopolistic competition make profit in the short run?
When P > ATC
124
When does a monopolistic competition have loss in the short run?
When P < ATC
125
If new firms enter into a monopolistic competition what happens to economic profit in the long run?
It keeps falling until there is zero economic profit
126
When new firms enter into a monopolistic competition what happens to the demand curve?
It shifts left
127
What direction does the demand curve shift when a monopolistic competition makes profit?
It shifts left
128
If firms exit a monopolistic competition what happens to economic profit in the long run?
It rises until there is zero economic profit
129
When firms exit a monopolistic competition what happens to the demand curve?
It shifts right
130
What direction does the demand curve shift when a monopolistic competition generates loss?
It shifts right
131
At what point on a graph is a monopolistic competition making zero economic profit in the long run?
When P = ATC
132
List the two characteristics of a monopolistic competition firm's long run equilibrium
1. P > MC
| 2. P = ATC
133
List the two differences between a monopolistic competition long run equilibrium and a perfectly competitive firm long run equilibrium
1. A monopolistic competition has excess capacity while a perfectly competitive firms has an efficient scale
2. A monopolistic competition charges a price that is greater than MC while a perfectly competitive firm charges a price that is equal to MC
134
When do you have excess capacity?
When quantity < the efficient scale
135
Can a monopolistic competition market have deadweight loss?
Yes
136
List the two externality effects that entry can create
1. The product-variety externality
| 2. The business-stealing externality
137
Which externality effect is created when entry creates consumer surplus?
The product-variety externality
138
Which externality effect is created when entry reduces consumer surplus?
The business-stealing externality
139
Which externality effect is a positive externality?
The product-variety externality
140
Which externality effect is a negative externality?
The business-stealing externality
141
What is the study of how people behave in strategic situations?
Game Theory
142
What is an oligopoly with only two firms?
A duopoly
143
What is an agreement among firms in a market about quantities to produce or prices to charge?
Collusion
144
What is a group of firms acting in unison?
A cartel
145
What is a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen?
A nash equilibrium
146
List the two characteristics of an oligopoly
1. There are a few firms
| 2. The products are similar or identical
147
A oligopoly will make the marginal decision of whether to produce an additional unit based on what two effects?
1. The output effect
| 2. The price effect
148
Which effect occurs when increasing output increases profit?
The output effect
149
Which effect occurs when increasing output decreases profit?
The price effect
150
When is there an output effect?
When P > MC
151
Should the oligopolist increase or decrease production when the output effect > the price effect?
They should increase
152
Should the oligopolist increase or decrease production when the output effect < the price effect?
They should decrease
153
What happens to an oligopoly market when there are a large number of firms?
The price effect disappears and the market becomes a competitive market
154
What can cause the number of firms in an oligopoly to increase?
International trade
155
What is a particular “game” between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial?
Prisoners’ dilemma
156
Which market does prisoners' dilemma apply to?
An oligopoly
157
What is a strategy that is best for a player in a game regardless of the strategies chosen by the other players?
A dominant strategy
158
What makes it difficult to maintain cooperation?
Self-interest
159
What is when a player in a game starts by cooperating and then does whatever the other player did last period?
Tit-for-tat
160
What act allows individuals harmed by such agreements the right to sue for triple damages?
The Clayton Act of 1914
161
What is when a manufacturer requires retailers to charge a certain price?
Resale price maintenance
162
What occurs when a firm cuts prices with the intention of driving competitors out of the market so that the firm can become a monopolist and later raise prices?
Predatory Pricing
163
What occurs when a manufacturer bundles two products together and sells them for one price?
Tying
164
When does a oligopoly look like a competitive market?
When the market has a large number of firms
165
When does a oligopoly look like a monopoly?
When the market has a small number of firms
166
What is the percentage of total output in the market supplied by the four largest firms?
Concentration ratio
167
Which market structure has a high concentration ratio?
Oligopoly
168
What does the use of antitrust laws against price fixing improve?
Economic efficiency
169
What shows why cooperation is difficult to maintain even when it is in the best interest of the oligopolists?
The prisoners’ dilemma
170
What lies between monopoly and perfect competition?
Oligopoly
171
When is an oligopolies market solution the same as a monopolies?
When a oligopoly colludes and forms a cartel
172
When does a oligopoly appear like a monopoly?
When there are a few number of firms, P > MC, and quantity is below the efficient value
173
When does a oligopoly appear like a competitive market?
When there are a large number of firms, P = MC, and quantity is efficient
174
What's the difference between a monopolistic competition and a perfectly competitive market?
In a monopolistic competition market firms sell similar goods while firms in a perfectly competitive market sell identical goods
