Microeconomics Mid Term – Flashcards
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When economists want to hold a number of factors constant, they are demonstrating which of the following expressions?
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Ceteris paribus
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In Exhibit 1A-1, as X increases along the horizontal axis, corresponding to points A-B on the line, the Y values increase. The relationship between the X and Y variables is:
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direct.
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Money is one of our nation's resources (factors or means of production).
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false
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Scarcity
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The condition in which wants are forever greater than the available supply of time, goods, and resources
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The central question in economics is how to:
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deal with the problem of scarcity.
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The basic categories of inputs used to produce goods and services
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resources
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What are the three categories of resources (factors of production)
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Land, labor, capital
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A (an) ____________is one in which two variables change in the same direction
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direct relationship
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A (an) _____________is one in which two variables change in the opposite direction.
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inverse relationship
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The study of microeconomics and macroeconomics differ in that:
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microeconomics examines the individual markets of the economy while macroeconomics studies the whole economy.
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Normative economics deals with ____ and positive economics deals with ____.
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what should be; what is
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A positive statement is:
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a statement testable by facts
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The statement "A tax cut would be the fairest way to stimulate the economy" is an example of positive economic analysis.
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false
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A normative economic statement:
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is a statement of what ought to be, not what is.
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Microeconomics is the branch of economics in which you study inflation and unemployment in the economy.
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False
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Which of the following is not a resource?
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Money
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Which of the following is used to illustrate an independent relationship between two variables?
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A horizontal or vertical line
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An increase in the demand for a product means that the:
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demand curve shifts to the right
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Two goods, X and Y, are complementary goods if the demand for X:
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decreases when the price of Y increases.
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_________ states that there is a direct relationship between the price and the quantity supplied, ceteris paribus.
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Law of Supply
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The principle that there is a direct relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus, is the ___________.
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Law of Supply
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The ___________ states that there is an inverse relationship between the price and the quantity demanded, ceteris paribus.
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Law of Demand
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When the price of a good is greater than the equilibrium price, there is an excess quantity supplied called a (an)_______.
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surplus
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A market condition existing at any price where the quantity supplied is less than the quantity demanded is a (an)________.
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shortage
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A movement along a stationary supply curve in response to a change in price is called a (an)________.
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Change in quantity supplied.
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Assuming that wheat and corn can both be grown on the same type of land, a decrease in the price of corn, other things being equal, will cause a(n):
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rightward shift in the supply curve for wheat.
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When there is a surplus of a product in a market the
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price must be above the equilibrium price.
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The unique price and quantity established at the intersection of the supply and demand curves is called
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equilibrium
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A movement along a stationary demand curve caused by a change in price is called a (an)
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change in quantity demanded
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If the government imposes a price ceiling, then:
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the price offered by producers must be at or below the ceiling price.
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A _________ is a maximum price mandated by government
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price ceiling
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A ___________ is a minimum legal price mandated by government
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price floor
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An ______ is a cost or benefit imposed on people other than the consumers and producers of a good or service.
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externality
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Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:
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price would be too high and quantity would be too low.
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It's difficult for a private firm to provide a public good because of free riders.
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True
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When the consumption of a good generates an external benefit:
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the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed.
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A perfectly elastic demand curve has a price elasticity of demand coefficient of:
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infinity
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Elasticity can be thought of as
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sensitivity
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The ratio of the percentage change in quantity demanded to the percentage change in price is called
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price elasticity of demand
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The responsiveness, or sensitivity, to a change in price
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price elasticity of demand
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A condition in which the percentage change in quantity demanded is greater than the percentage change in price
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Elastic demand Coefficient >1
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The percentage change in the quantity demanded is less than the percentage change in price
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Inelastic demand Coefficient <1
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The percentage change in the quantity demanded is equal to the percentage change in price
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unitary elastic Coefficient =1
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An extreme condition in which a small percentage change in price brings about an infinite percentage change in the quantity demanded
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perfectly elastic Coefficient = infinity
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Another extreme condition in which the quantity demanded does not change as the price changes
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perfectly inelastic Coefficient=0
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The price elasticity of demand is directly related to the availability of good substitutes for a product
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True
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The more substitutes a product has, the more sensitive consumers are to a price change, and the more elastic the demand curve
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True
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In general, the price elasticity coefficient of demand is higher the longer a price change persists
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True
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The ratio of the percentage change in the quantity demanded of a good to a given percentage change in income
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Income elasticity of demand
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The ratio of the percentage change in quantity demanded of a good to a given percentage change in price of another good
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Cross elasticity of demand
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The satisfaction, or pleasure, that people receive from consuming a good or service
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utility
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The amount of satisfaction received from all the units of a good or service consumed
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total utility
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The change in total utility from one additional unit of a good or service
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marginal utility
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The principle that the extra satisfaction of a good or service declines as people consume more in a given period
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law of diminishing marginal utility
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Even though water provides a greater utility than diamonds, why are diamonds more expensive?
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Water is plentiful in most of the world, so its marginal utility is low
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The change in quantity demanded of a good or service caused by a change in real income (purchasing power)
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income effect
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The change in quantity demanded of a good or service caused by the change in its price relative to substitutes
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substitution effect
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Payments to nonowners of a firm for their resources are called
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explicit costs
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The opportunity cost of resources owned by the firm are called
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implicit costs
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____ is equal to total revenue minus both explicit and implicit costs.
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Economic profit
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The minimum profit necessary to keep a firm in operation
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normal profit
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Total revenue minus total explicit costs
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accounting profit
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The change in total output produced by adding one unit of a variable input, with all other inputs used held constant
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Marginal product
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The principle that beyond some point the marginal product decreases as additional units of a variable resource are added to a fixed factor
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law of diminishing returns
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Costs that do not vary as output varies and that must be paid even if output is zero. For example, rent, interest on loans, and property taxes.
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total fixed costs
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Costs that are zero when output is zero and vary as output varies. Examples are wages, electricity, fuel, and materials.
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total variable costs
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Total fixed cost divided by the quantity of output produced
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average fixed cost
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Total variable cost divided by the quantity of output produced
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average variable cost
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Total cost divided by the quantity of output produced. Also called per-unit cost.
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average total cost
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The change in total cost when one unit of output is produced
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marginal cost
