Midterm 1

Question 1

Consumption of good 1 ⬆️ (P⬇️)
Consumption of good 2 ⬇️ (P⬆️)
Relationship of the goods?

Answer 1

Substitutes

Question 2

Price elasticity of a necessity good?

Answer 2

Less elastic

Question 3

More substitutes; D elasticity?

Answer 3

More elastic D

Question 4

Movement UP D curve; elasticity will?

Answer 4

Increase

Question 5

Increased P means movement __ D curve, and an increased Q

Answer 5

UP (right)

Question 6

Factors increasing Q demanded

Answer 6

• P⬇️
• P (substitute) ⬆️
• (consumer) I ⬆️

Question 7

Effects of ⬆️ length of planning horizon

Answer 7

Fixed costs ⬇️
# variable inputs ⬆️

Question 8

The extra total cost (TC) of one more unit of output

Answer 8

Marginal Cost (MC)

Question 9

⬆️ output price = __ Q supplied

Answer 9

⬆️

Question 10

Why does Qs increase when output price increases?

Answer 10

Individual producers move along their MC curves

Question 11

MC shifts UP when:

Answer 11

There’s a change in input prices or technology

Question 12

If the associated production function displays Stage III of production, what will happen to MVP?

Answer 12

It will eventually become negative

Question 13

What is the Law of Diminishing Returns?

Answer 13

As we use more variable input, eventually additional output (added by input) will start to decrease; MPP⬇️

Question 14

If a production fxn obeys the law of diminishing returns, then as we increase the level of variable input used in production, what happens?

Answer 14

Eventually MPP will start to decrease

Question 15

Slope of input demand functions?

Answer 15

Downward sloping

Question 16

P of an input ⬇️ 🟰 Q demanded of input by producers __

Answer 16

⬆️

Question 17

When is Economic Welfare maximized?

Answer 17

At long-run market equilibrium in perfectly competitive markets

Question 18

Consumer Surplus is defined by:

Answer 18

Aggregate well-being for consumers in the market based on what they would be willing to pay

Question 19

Reasons for DWL:

Answer 19

• overuse of resources (in the market)
• resources not being utilized to their best
• negative economic rent being generated (in the market)

Question 20

Negative economic rent (negative profits) is when:

Answer 20

There is oversupply
(For any quantity beyond the point where the market price intersects the supply curve)

Question 21

Optimal level of input (for a profit maximizing producer):

Answer 21

The extra value generated from the next unit of input used is equal to the Marginal Factor Cost (MFC)

Question 22

Where MVP = MFC

Answer 22

Profit maximization

Question 23

DWL from ⬇️ eq Q due to shift in consumer tastes & preferences because:

Answer 23

There is no DWL

Question 24

What does technical change represent?

Answer 24

A shift in the production function. Production can increase with same or less input for same output level.

Question 25

MC shifts down and out when:

Answer 25

A decrease in cost for any given level of output

Question 26

Competitive goods _______ for limited resources

Answer 26

Compete

Question 27

Price of a substitute is a ________ ________ for its substitut’s supply function

Answer 27

Supply shifter

Question 28

VMP = __ x ____

Answer 28

VMP = p x MPP

Question 29

Income is a ______ shifter

Answer 29

Demand

Question 30

If price is staying the same, then why is quantity changing?

Answer 30

From a SHIFT in the D curve