UNIT 1
What is the fundamental economic problem that all societies face?
Scarcity
What does the law of demand state?
As the price of a good increases, the quantity demanded decreases, and vice versa
What is the law of diminishing marginal returns?
As additional units of a variable input are added to a fixed input, the marginal product of the variable input eventually decreases.
What characterizes a monopoly market structure?
A single firm dominates the market with no close substitutes for its product and high barriers to entry.
What does a production possibilities curve (PPC) illustrate?
The maximum combinations of goods and services that can be produced with available resources and technology.
What is a market equilibrium?
The point where the quantity demanded equals the quantity supplied at a particular price.
In the short run, what remains fixed in a firm's production process?
At least one factor of production, such as capital or land, remains fixed.
What is price discrimination?
Charging different prices to different consumers for the same good or service based on their willingness to pay.
In economics, what does the term "opportunity cost" refer to?
What is the effect of a price floor set above the equilibrium price?
It leads to a surplus, as the quantity supplied exceeds the quantity demanded at the controlled price.
What is the formula for calculating marginal cost?
Marginal Cost = Change in Total Cost / Change in Quantity of Output
What is the primary difference between a monopoly and perfect competition?
Monopolies are price makers with significant market power, while firms in perfect competition are price takers with no market power.
What is the law of increasing opportunity costs?
As more of one good is produced, the opportunity cost of producing additional units increases.
What factors can cause a shift in the demand curve?
Changes in consumer income, tastes and preferences, prices of related goods, expectations, and the number of buyers.
What is the difference between accounting profit and economic profit?
Accounting profit is total revenue minus explicit costs, while economic profit also subtracts implicit costs, including opportunity costs.
How does a monopolist determine the profit-maximizing level of output?
By producing the quantity where marginal revenue equals marginal cost.
How does the concept of diminishing marginal utility relate to the downward-sloping demand curve?
As more units of a good are consumed, the additional satisfaction (marginal utility) decreases, leading consumers to be willing to pay less for each additional unit, which results in a downward-sloping demand curve.
What factors can cause a shift in the supply curve?
Changes in production costs, technology, taxes, subsidies, expectations, and the number of sellers.
How does the presence of fixed costs influence a firm's decision to continue operating in the short run?
in the short run, a firm should continue operating if the price covers average variable costs, even if it doesn't cover total costs, because fixed costs must be paid regardless of production.
What is the effect of a price ceiling set below the equilibrium price in a monopoly market?
It can lead to a shortage, as the quantity demanded exceeds the quantity supplied at the controlled price.