Chapters 1, 2, 3
What is opportunity cost?
The value of what you have to give up in order to get something i.e., the value of the next best alternative.
Which values correspond to elastic, inelastic, and unit elastic?
Less than 1: inelastic
Greater than 1: elastic
Equal to 1: unit elastic
(in absolute value)
What is diminishing marginal utility?
A principle that explains that as one consumes an additional unit of a good or service, the additional utility gained from that unit tends to be smaller than that of the previous unit. However, this does not necessarily mean that total utility is decreasing.
Why is marginal revenue not equal to price for a monopolist?
In order to sell additional units, the firm must reduce the price on all units. MR < P
Why is the PPF downward sloping?
Because there is a trade-off. In order to produce more of one good, one must produce less of the other.
What is deadweight loss?
Loss of total surplus when the quantity of a good is bought and sold below the market equilibrium quantity.
Draw the marginal and average cost curves.
See videos.
What is market failure?
A situation where total surplus isn't maximized at the market equilibrium.
When is there a movement along the supply/demand curve versus a shift in the curve?
A shift is caused by a change in a non-price determinant. This results in an increase/decrease in supply or demand.
A movement is caused by a change in price. This results in an increase/decrease in the quantity supplied or demanded.
When are price floors and price ceilings not binding?
Non-binding price floor: below the equilibrium price
Non-binding price ceiling: above the equilibrium price
True or false: In perfectly competitive markets, all firms make 0 accounting profit in the long run.
False. Firms make zero economic profit in the long run.
What are the characteristics of private goods, public goods, artificially scarce goods, and common resources? (Which ones are rival? Which ones are excludable?)
Private goods: rival and excludable
Public goods: not rival and not excludable
Artificially scarce goods: not rival but excludable
Common resources: rival but not excludable