Opportunity Cost
What is the definition of opportunity cost?
The value of the next best alternative given up.
The market equilibrium point is found where?
Where Qd = Qs
In general, what does the price elasticity of demand measure?
The responsiveness of quantity demanded when there is a price change in the product.
If MSB > MPB, what type of externality exists?
Positive externality.
This type of profit is considered a cost to economists.
What is normal profit.
Max can produce 2 goods. If all resources are used to produce lemonade, Max can produce 120 cups of lemonade per day. If all resources are used to produce lemon tarts, Max can produce 40 lemon tarts per day.
What is Max's opportunity cost of producing 1 lemon tart?
3 cups of lemonade.
A price floor is effective when it is placed where in relation to market equilibrium price?
Above market equilibrium price.
What type of line would represent a perfectly inelastic demand curve?
A vertical line.
If there is a negative externality in a market, how do the values of MPC and MSC compare?
MSC > MPC
or
MPC < MSC
Fixed costs = $100
Variable costs = $20 per unit
Production = 50 units.
What is the value of ATC?
TC = 100 + 20(50) = 1100
ATC = TC/Q = 1100/50 = 22
ATC = $22
Greg, a rational consumer, prefers cookies over cake, and he prefers ice cream over cookies. These 3 desserts are offered to him. What is Greg's opportunity cost of the dessert he orders?
Cookies.
A price ceiling is effective when it is placed where in relation to market equilibrium price?
Below market equilibrium price.
What type of line represents a perfectly elastic supply?
A horizontal line.
In the market for good X, there is a negative externality. What is the most direct way to correct for the externality?
Tax the producers.
Out of ATC, AVC, AFC, or MC, which will change when a lump-sum tax is levied on the producer?
ATC and AFC only.
Country A can use 5 acres of land to produce Good X or can use 2 acres of land to produce Good Y. What is Country A's opportunity cost of producing Good X?
Good X costs 5/2 Good Y.
If there is currently a surplus in the market for a good, should the government place an effective price floor or effective price ceiling to bring the market back to equilibrium?
Use an effective price ceiling at the true equilibrium price.
By what percent, and in what direction, will the quantity demanded of good X change, if the price of good Y increases by $2?
Quantity demanded of good X decreases by 10%.
In the market for good Z, there is a positive externality. What is the most direct way to correct for the market failure?
Subsidize the consumers.
Which value is larger? Economic profit or accounting profit?
economic profit = accounting profit - implicit costs
Tele Co. can produce a television using 90 hours of labor or can produce a radio using 10 hours of labor.
Tricity Co. can produce a television using 80 hours of labor or can produce a radio using 20 hours of labor.
Who has the comparative advantage in producing radios?
Tele Co. has the comparative advantage in producing radios as it costs them 1/9 of a television whereas Tricity Co. costs 1/4 of a television to produce a radio.
Qd = 500 - 14p
Qs = 100 + 6p
What is the equilibrium price and quantity?
Price: $20
Quantity: 220 units
The price of good A decreases from $200 to $120. As a result, the quantity demanded for good B decreases from 50 to 40. What is the elasticity coefficient and what type of goods are these?
+0.44
Substitute goods
In the market for a good, MSC is greater than MPC.
Is the market price greater than, less than, or equal to the allocatively efficient price?
Less than.
You quit your job, which was earning you $100 per day, to start your own business selling T-shirts. Everyday you sell 30 shirts for $10 each. The shirts cost $5 to produce and renting the kiosk to sell them costs $50 per day.
What is your economic profit and your accounting profit?
Economic Profit: $0 per day
Accounting Profit: $100 per day