final exam review Flashcards

(56 cards)

1
Q

A demand curve usually has a

A

negative slope because price and quantity demanded are inversely related. (Quantity X axis, Price Y axis

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2
Q

A new hormone will increase the amount of milk each cow produces. If this hormone is
adopted by many dairies, what will be the effect on the milk market?

A

an increase in supply, lower equilibrium price, and higher equilibrium quantity

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3
Q

If a firm is deciding how much output to produce and sell in a perfectly competitive market,
and if the price of the good is greater than its marginal cost,

A

more should be produced
-more revenue can be made

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4
Q

If the government imposes a ceiling price on apartment rents, we would expect to observe
all of the following except one. Which is the exception?

A

an increase in the number of new apartment complexes being built

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5
Q

When compared to firms in perfect competition, monopolists tend to charge __________
prices and offer __________ quantities of output.

A

higher; lower

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6
Q

Which of the following best describes elastic demand?

A

A small change in price leads to a significant change in quantity demanded.

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7
Q

If the price of a t-shirt increases by 10% and the quantity demanded decreases by 10%,
what type of elasticity is this?

A

Unitary elastic demand

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8
Q

Which of the following statements is true for inelastic demand?

A

Price increase leads to a small decrease in quantity demanded.

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9
Q

When the price elasticity of demand (ED) is greater than 1, what type of demand is it?

A

Elastic demand

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10
Q

What does a perfectly elastic demand curve look like?

A

Horizontal

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11
Q

In a unit elastic demand curve, what happens to total revenue when the price changes?

A

Stays the same

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12
Q

What type of goods have a negative cross-price elasticity of demand

A

complements

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13
Q

Which of the following is true for perfectly inelastic supply?

A

Supply remains constant regardless of price

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14
Q

If the price of a good increases by 15% and the quantity demanded decreases by 30%, what
type of elasticity is this?

A

Elastic demand

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15
Q
A
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15
Q

What does a negative cross-price elasticity indicate?

A

The goods are complements

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16
Q

What does the law of diminishing marginal utility state?

A

As you consume more of a good, the satisfaction from each additional unit decreases

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17
Q

What does the term ‘utility’ refer to in economics?

A

The pleasure or satisfaction received from consuming goods or services

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18
Q

When should a person stop consuming a good according to utility theory?

A

When marginal utility becomes zero or negative

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19
Q

What is ‘disutility’?

A

The point where marginal utility becomes negative and consumption makes you
worse off

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20
Q

What is marginal utility?

A

The extra satisfaction from consuming one more unit

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21
Q

According to utility analysis, what happens if a good is free?

A

Consumers stop consuming once marginal utility is zero

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22
Q

What is consumer surplus?

A

The difference between what a consumer is willing to pay and what they actually
pay

23
Q

How does the price of goods affect demand according to the law of demand?

A

Lower prices increase demand

24
What does marginal utility per dollar represent in consumer equilibrium?
The satisfaction from one more unit per dollar spent
25
What are explicit costs?
Costs that involve direct out-of-pocket payments like rent or wages
26
How is economic profit different from accounting profit?
Economic profit considers both explicit and implicit costs
27
According to the Law of Diminishing Marginal Returns, what happens when you add more units of a variable input to a fixed input?
Marginal returns will eventually start to decrease
28
What is the definition of implicit costs?
The opportunity cost of using resources owned by the firm
29
Which of the following is considered a fixed cost in the short run?
Rent for the building
30
What is the formula to calculate marginal cost (MC)?
ΔTC/ΔQ
31
At what point does marginal cost typically start to increase?
After the firm achieves maximum efficiency
32
Why are average cost curves typically U-shaped?
Initially, marginal cost decreases and later increases due to diminishing returns
33
Which of the following best explains the difference between short-run and long-run costs?
In the long run, all inputs can be adjusted
34
What happens when marginal cost (MC) is lower than average total cost (ATC)?
ATC decreases.
35
What is the main characteristic of a perfectly competitive market?
Many sellers offering identical products
36
In a perfectly competitive market, a firm is considered a "price taker" because:
I t accepts the market price without control over it
37
At the profit-maximizing output level, a firm in perfect competition will produce where:
Marginal revenue equals marginal cost
38
A firm should continue producing in the short run as long as:
Price is greater than or equal to average variable cost
39
What defines the break-even point in perfect competition?
Where the Marginal Cost (MC) curve intersects the Average Total Cost (ATC) curve
40
In the short run, a firm’s supply curve in perfect competition is:
The part of the MC curve above the Average Variable Cost (AVC) curve
41
What happens when firms in a market are making high profits in the long run?
New firms enter the market
42
Which of the following best explains an increasing-cost industry?
Production costs increase as more firms enter due to limited resources
43
What happens when the price falls below the shutdown point in the short run?
The firm shuts down temporarily.
44
What causes new firms to enter a perfectly competitive market in the long run?
High economic profits by existing firms
45
What is a monopoly?
A single company or seller as the only provider of a product or service
46
What is an example of a natural monopoly?
An electricity provider in a city
47
How does marginal revenue behave in a monopoly?
It is less than the price of the product
48
Why do governments grant patents to companies?
To encourage innovation and development of new products
49
What happens if the price (P) is less than average variable cost (AVC) in the short run?
The firm should shut down
50
. What is an example of a legal barrier to entry?
Government-issued patents
51
How do natural monopolies occur?
Due to economies of scale
52
Why might a monopoly keep prices low in the long run?
To avoid public complaints
53
If P < ATC in the long run, what happens to the firm?
It exits the market
54
What does "economies of scale" mean?
Producing more lowers the cost per unit
55
What is the profit maximization rule for monopolies?
Produce where marginal revenue equals marginal cost (MR = MC)