Micro Final Quizlet – Flashcards
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A payment that must be made or an income that must be provided to obtain and retain the services of a resource
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ECONOMIC COSTS CAN BEST BE DEFINED AS
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MP is 0
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Total output of a firm will be at a maximum where:
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(Total Product)/(Inputs of Labor or VR)
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Average product formula?
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positive and increasing
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When total product is increasing at an increasing rate, marginal product is
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When AP rising, AVC is falling, when AP is falling, AVC is rising
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*relationship between AP and AVC
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AFC nothing & AVC, ATC, and MC would shift right
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If wage rates paid to a firm's labor inputs were to rise what would happen to AFC, AVC, ATC, and MC curves?
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none
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Result in change of AFC on marginal costs
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AVC up MC up
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Result in change of AVC on marginal costs
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ECONOMIES OF SCALE
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If a firm increases its inputs and its outputs increase by more it is encountering...
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factors other than those being considered do not change/other things equal assumption
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ceterius paribus
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factual statements
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Positive Economics
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"ought/should"
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Normative Economics
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unlimited wants and limited resources
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Economizing Problem
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The study of the individual firm, consumer, or market
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Microeconomics
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Study of economy or major aggregate of economy
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Macroeconomics
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Land, Labor, Capital, Entrepreneurial Ability
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Economic Resources
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-Full Employment, Fixed Resources, Fixed Technology, 2 goods in economy (consumer and capital goods)
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Assumptions of PPC Curve
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misunderstanding cause and effect (rooster crow doesn't cause sunrise)
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post hoc fallacy
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something true for one person might not be true for all
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fallacy of composition
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...
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ALL ECONOMIES ARE MIXED
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CONSUMERS DETERMINE TYPES AND QUANTITIES OF PRODUCTS THAT WILL BE PRODUCED THROUGH DOLLAR VOTES
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CONSUMER SOVEREIGNTY
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-Changes in consumer tastes -Changes in technology -Changes in resource prices
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How Will System Change?
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export a lot but don't import a lot
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Mercantilism
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In command econ not knowing how much to produce
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Coordination Problem
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-Households Sell -Businesses Buy
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Resource Market
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-Business Sells -Household buys
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Product Market
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WRIP, Wages, Rent, Interest, Profit
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What goes into households?
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Land, Labor, Capital, Entrep Ability
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What goes out of households and resource market?
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WIDESPREAD PRIVATE OWNERSHIP OF CAPITAL
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DISTINGUISHING FEATURE OF A MARKET SYSTEM
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greater total output!
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Speacialization is important because it results in...
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The substitution effect.
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When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower. This statement described:
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complimentary
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If the demand curve for product B shifts to the right as the price of product A declines, then they are -- goods
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Beyond some point the production costs of additional units of output will rise
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A firm's supply curve is upsloping because
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Supply curves must reflect all costs of production, and demand curves must reflect consumer willingness to pay.
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What two conditions must hold for a competitive market to produce efficient outcomes?
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The difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price
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Consumer Surplus
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Is measured as the combined loss of a consumer surplus and producer surplus
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An efficiency loss or deadweight loss
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the moral hazard problem
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Because the federal gov't typically provides disaster relief to farmers, many farmers don't buy crop insurance, this represents:
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asymmetric information
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Owners of defective cars have more info about the condition of their cars than potential buyers, this represents:
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govt has legal right to force people to do things, private firms do not
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Key diff between govt' activities and private ones
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agents, employees
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In a representative democracy voters are -- and politicians are--
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result from political bias towards immediate benefit and deferred cost
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Govt's unfunded liabilities:
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Rules and enforcement in an industry are heavily influenced by the industry being regulated
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Regulatory Capture
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product differentiation.
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A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:
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above marginal cost.
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In the long run, a profit-maximizing monopolistically competitive firm sets it price:
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may be either equal to ATC, less than ATC, or more than ATC.
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In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits:
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P exceeds minimum ATC.
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Which of the followiIf a product such as cement or bricks is costly to ship and, therefore, markets are very localized, the national concentration ratio for that industry:
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consumers have increased product variety.
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The economic inefficiencies of monopolistic competition may be offset by the fact that:
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greater market power in Y than in X.
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Industries X and Y both have four-firm concentration ratios of 65 percent, but the Herfindahl index for X is 1,500 while that for Y is 2,000. These data suggest:
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may understate the degree of monopoly.
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If a product such as cement or bricks is costly to ship and, therefore, markets are very localized, the national concentration ratio for that industry:
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there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.
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The kinked-demand curve model helps to explain price rigidity because:
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cost and demand curves of various participants are very similar.
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The likelihood of a cartel being successful is greater when:
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limit pricing.
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Suppose firms in a collusive oligopoly decide to establish their prices at a level that discourages new rivals from entering the industry. This is called:
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expands sales such that firms achieve substantial economies of scale.
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Advertising can enhance economic efficiency when it:
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Exit and entry of firms does not affect resource prices
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Constant cost industry
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Firms will only enter if costs increase if price increases too
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Increased cost industry
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Decrease in resource prices increases supply/ decreases price
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Decreasing cost industry
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The firms in the market are part of a decreasing-cost industry.
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Under what conditions would an increase in demand lead to a lower long-run equilibrium price?
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producing less output than allocative efficiency requires.
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A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is:
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price is greater than marginal cost.
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Assume that society places a higher value on the last unit of X produced than the value of the resources used to produce that unit. With no spillovers, this information means that:
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innovate to lower operating costs and generate short-run economic profits.
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Entrepreneurs in purely competitive industries:
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benefit surplus
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When consumer and producer surplus are maximized
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-Changes in Consumer Tastes -Resource Prices -Technology
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Purely competitive markets will automatically adjust to
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average revenue, marginal revenue, and total revenue over output
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For a purely competitive seller, price equals:
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-Consumer Tastes and Preferences -# of Buyers -Income -Price of Related Goods --Change in Consumer Expectations
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Demand Determinants
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Up price up QS Down price down QS
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Relationship between price and QS?
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-Change in resource prices -Change in technology - Change in taxes and subsidies - Change in prices of other goods - Change in producer expectations -Change in number of suppliers
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Supply Determinants
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ability of market to find equilibrium
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Rationing function of prices
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long-run average costs decline continuously through the range of demand.
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A natural monopoly occurs when:
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is the industry demand curve.
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The nondiscriminating pure monopolist's demand curve:
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the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.
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For an imperfectly competitive firm:
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its economic profits will be zero.
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If a pure monopolist is producing at that output where P = ATC, then:
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charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic.
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If a monopolist engages in price discrimination, it will:
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produce a larger output than a nondiscriminating monopolist.
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Other things equal, a price discriminating monopolist will:
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inelastic
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If MU falls sharply, is demand elastic or inelastic?
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utility derived is greater than market price
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Consumer Surplus
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Too little is produced
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Positive Externality
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Too much is produced
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Negative Externality
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