M icro Part I

Question 1

market

Answer 1

A market is a group of buyers and sellers of a particular good or service.

Question 2

The paradigm of ____ is employed

Answer 2

The paradigm of the representative agent is employed

Question 3

competitive market

Answer 3

A competitive market is a market in which there are many buyers and
sellers so that each has a negligible impact on the market price.

Question 4

Perfect Competition

Answer 4

– Products are the same
– Numerous buyers and sellers so that each has no influence over price
– Buyers and Sellers are price takers

Question 5

Monopoly

Answer 5

– One seller, and seller controls price

Question 6

Oligopoly

Answer 6

– Few sellers

– Not always aggressive competition

Question 7

Monopolistic Competition

Answer 7

– Many sellers
– Slightly differentiated products
– Each seller may set price for its own product

Question 8

Quantity demanded

Answer 8

is the amount of a good that buyers are willing and

able to purchase.

Question 9

The law of demand

Answer 9

states that, other things equal, the quantity

demanded of a good falls when the price of the good rises.

Question 10

The individual demand curve

Answer 10

is a graph of the relationship between the

price of a good and the quantity demanded.

Question 11

Market demand

Answer 11

refers to the sum of all individual demands for a
particular good or service. individual demand curves are summed horizontally to
obtain the market demand curve.

Question 12

Shifts in the Demand Curve

Answer 12

• Consumer income
• Prices of related goods
• Tastes
• Expectations
• Number of buyers

Question 13

The representative firm choices are the result of

Answer 13

profit maximization or

equivalently costs minimization.

Question 14

Revenue

Answer 14

value of production sold

Question 15

Costs

Answer 15

value of the inputs employed

Question 16

Profits

Answer 16

Revenue less Costs

Question 17

Factors of production

Answer 17

or “inputs” are what is used in the production process to produce output—that is, finished goods and services

Question 18

Quantity supplied

Answer 18

is the amount of a good that sellers are willing and able

to sell.

Question 19

The law of supply states that,

Answer 19

other things equal, the quantity supplied of a

good rises when the price of the good rises

Question 20

The supply curve is

Answer 20

the graph of the relationship between the price of a

good and the quantity supplied.

Question 21

Market supply refers to

Answer 21

the sum of all individual supplies for all sellers of
a particular good or service. Graphically, individual supply curves are summed horizontally to obtain
the market supply curve.

Question 22

Shifts in the Supply Curve

Answer 22

Input prices
Technology
Expectations
Number of sellers

Question 23

Equilibrium refers to

Answer 23

a situation in which the price has reached the level

where quantity supplied equals quantity demanded.

Question 24

Equilibrium Price

Answer 24

The price that balances quantity supplied and quantity demanded.
On a graph, it is the price at which the supply and demand curves intersect.

Question 25

Equilibrium Quantity

Answer 25

The quantity supplied and the quantity demanded at the equilibrium price. On a graph it is the quantity at which the supply and demand curves intersect.

Question 26

Law of supply and demand

Answer 26

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance. When the demand is greater (lower) than the supply, the price raises (falls).

Question 27

comparative static analysis examines

Answer 27

examines how the solution values for the endogenous variables of a system change when the exogenous variables change.

Question 28

From the signaling role of prices, some optimal properties of the “market” are obtained.

Answer 28

``` The signalling role of prices implies i) Sovereignty of the consumer Zero profits (lowest price) Production chosen by consumers ii) Efficient allocation of resources Intensive use of abundant resources and saving (non-intensive use) of scarce resources. iii) Maximization of production ```

Question 29

Welfare economics

Answer 29

is the study of how the allocation of resources affects | economic well-being.

Question 30

Consumer surplus measures ___. | Producer surplus measures ____.

Answer 30

Consumer surplus measures economic welfare from the buyer’s side. Producer surplus measures economic welfare from the seller’s side.

Question 31

The equilibrium in a market maximizes ____. | Equilibrium in the market results in ____.

Answer 31

The equilibrium in a market maximizes the total welfare of buyers and sellers. Equilibrium in the market results in maximum benefits, and therefore maximum total welfare for both the consumers and the producers of the product.

Question 32

Willingness to pay is

Answer 32

Willingness to pay is the maximum amount that a buyer will pay for a good. It measures how much the buyer values the good or service.

Question 33

Consumer surplus

Answer 33

is the buyer’s willingness to pay for a good minus the | amount the buyer actually pays for it.

Question 34

The market demand curve depicts ____ . | The area ____ the demand curve and ____ the price measures ____

Answer 34

The market demand curve depicts the various quantities that buyers would be willing and able to purchase at different prices. The area below the demand curve and above the price measures the consumer surplus in the market

Question 35

Consumer surplus

Answer 35

Consumer surplus, the amount that buyers are willing to pay for a good minus the amount they actually pay for it, measures the benefit that buyers receive from a good as the buyers themselves perceive it.

Question 36

Producer surplus is ____ It measures _____ The area ____ the price and ____ the supply curve measures ____

Answer 36

Producer surplus is the amount a seller is paid for a good minus the seller’s cost. It measures the benefit to sellers participating in a market. Just as consumer surplus is related to the demand curve, producer surplus is closely related to the supply curve. The area below the price and above the supply curve measures the producer surplus in a market.

Question 37

Market Efficiency

Answer 37

Efficiency is the property of a resource allocation of maximizing the total surplus received by all members of society. Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus

Question 38

market failures ____ . | they justify____

Answer 38

when the market is not efficient. | Market failures justify Government intervention

Question 39

These are cases of market failures

Answer 39

``` Market power Externalities Public goods Asymmetric information Distribution Natural monopoly ```

Question 40

Market Power

Answer 40

– If a market system is not perfectly competitive, market power may result. • Market power is the ability to influence prices. • Market power can cause markets to be inefficient because it keeps price and quantity from the equilibrium of supply and demand.